Part 4: Auditing and Assurance Standards Board
Chairman’s report
Introduction
The Financial Reporting Council (FRC) is responsible for oversight of the Auditing and Assurance Standards Board (AUASB), which was reconstituted as an independent statutory body on 1 July 2004. The FRC provides the AUASB with its strategic direction, as well as appointing AUASB members, approving and monitoring the AUASB’s business plans, budgets and staffing arrangements.
Role and mission of the Auditing and Assurance
Standards Board
The mission of the AUASB is to develop, in the public interest, high quality Auditing and Assurance Standards and related guidance, as a means to enhance the relevance, reliability and timeliness of information provided to users of audit and assurance services. Sound public interest oriented Auditing and Assurance Standards are necessary to reinforce the credibility of the auditing process for those who use audited financial information. The AUASB contributes to public confidence in the financial reporting and corporate governance frameworks by issuing high quality standards, which carry the force of law for audits of financial reports of a Corporation by virtue of section 307A of the Corporations Act 2001, other auditing and assurance pronouncements and related guidance. The AUASB’s role also extends to liaison with other standard setters and participating in standard setting initiatives, both in Australia and internationally. Such involvement seeks to contribute ultimately to the quality of AUASB pronouncements.
Board appointments and changes during 2005-06
The AUASB comprises an independent part-time Chairman (appointed by the Federal Treasurer) and twelve part-time members (appointed by the FRC). The members sitting on the AUASB as at year end consisted of six members from public practice, two members from the public sector, one member from academia, one member from the legal profession, one independent member from the accounting profession and one member representing users.
At the commencement of 2006, Mr Mike Blake, Mr Chris Hall, Ms Elizabeth Johnstone, Mr Greg Pound and Mr David Simmonds were appointed to the AUASB replacing Mr William Edge, Mr Keith Houghton and Mr Robert Sendt whose terms expired at the end of 2005. Also at the commencement of 2006, Mr Ian McPhee was reappointed to the AUASB following expiration of his previous term. See Appendix C for full details of AUASB members and their terms of appointment.
Reissuing Auditing Standards as legal instruments
The focus of the AUASB’s work programme for 2005-06, has been redrafting and issuing legally enforceable Auditing Standards (ASAs) in order for those ASAs to be in place for financial reporting periods commencing on or after 1 July 2006.
Review of the existing auditing standards issued by the former AuASB, which had been given interim legal endorsement, culminated in 35 legally enforceable standards being issued as legislative instruments on 28 April 2006 along with a Foreword to AUASB Pronouncements and AUASB Glossary. This completed Phase 1 of the reissuing of Auditing Standards. Redrafting all of the standards to ensure that the mandatory requirements can be enforced and that the standards meet all of the requirements set out in the equivalent International Auditing Standards (ISAs) has been a major exercise, which has preoccupied the Board and staff for most of the year. ASA 100 Preamble to AUASB Pronouncements sets out how the standards have been drafted and so how they should be understood, interpreted and applied. Since issuing the standards, the AUASB have been monitoring them during the disallowance period in Parliament and Board and staff effort has been turned to planning the future work of the AUASB.
Phase 2 will involve the review of ASAs to improve quality, clarity, and presentation and may be impacted by the developments of the International Auditing and Assurance Standards Boards (IAASBs) ‘Clarity of IAASB Standards’ project as well as other international standard setters. The AUASB has committed to support the IAASB’s clarity project by undertaking to participate in a working group that will redraft three of the ISAs in clarity format.
The AUASB’s work in relation to the legally enforceable standards during 2006-07 will consist of monitoring the impact of implementation and conducting ongoing communication and consultation with stakeholders. Review of the ASA’s during the next twelve months will be limited to responding to matters arising from the implementation of those standards or from any significant international developments.
Reissuing other auditing and assurance standards and guidance
The work programme for the 2006-07 year will largely focused on the revision of the pre-existing Auditing Guidance Statements (AGS) and other standards. The framework within which guidance and other standards are to be issued will be further developed and clarified and drafting rules determined. Review of the AGS and other standards will be prioritised based on the importance of a need for revised guidance due to regulatory changes, changes to accounting standards, changes to the related ASA, legal developments, international developments and changes in best practice. The standards that are not legally enforceable will be reviewed and reissued as Standards on Assurance Engagements (ASAE), on Review Engagements (ASRE) or on Related Services (ASRS).
The status of the 2005-06 AUASB Work Programme is reported in Appendix F. The AUASB’s standard setting priorities for 2006-07, have been approved by the FRC and are summarised in Appendix F.
Relationship with the International Auditing and Assurance Standards Board
Consistent with its strategic direction, the AUASB has, wherever possible, used the ISAs as a base for its Auditing Standards (ASAs), and in doing so seeks to maintain conformity of its standards with those of the IAASB. The strong rationale for continuing with this policy is the existence of the IAASB as the major global principles-based auditing and assurance standards setting body. That Board has significantly strengthened its public interest focus in recent years, reinforced through oversight of its activities by International Federation of Accountant’s (IFAC’s) Public Interest Oversight Board. Conformity with the ISAs has been possible to the extent that compliance with the AUASB’s reissued standards (ASAs) enables compliance with the equivalent ISA, where it exists.
The IAASB is currently pursuing a major exercise of reviewing its own auditing standards, through the ‘Clarity of IAASB Standards’ project. This project is significant since it may have major implications for Phase 2 of the strategy adopted by the AUASB in reviewing its Auditing Standards vis-a-vis ongoing conformity between ASAs and ISAs.
Participation in and input into the work of the IAASB is considered integral to the ability of the AUASB to continue as an effective national standard-setter, and is considered crucial to it maintaining and further developing the current body of Auditing and Assurance Standards and related guidance, which is used by the Australian accounting profession. For many years, Australia has been regarded as an influential international contributor, through participation on the IAASB and its related activities. AUASB member, Mr Ian McPhee, is also a member of the IAASB and its Steering Committee. Furthermore, AUASB Principal Executive, Mr Richard Mifsud has continued to serve as Mr McPhee’s IAASB technical advisor over the past year.
Facilities, technical support and resources
For the past year the AUASB has continued to occupy offices as a co-tenant with the Australian Accounting Standards Board. However it will be relocating to Level 7, 600 Bourke St, Melbourne in early September 2006.
The AUASB is assisted by the technical and secretarial support that is provided by the Principal Executive and the staff of the AUASB Technical Group. The AUASB has continued to recruit well-qualified and experienced professional staff members during the year to replace staff leaving through natural attrition, still needed to address the ongoing workload. The work of the AUASB has also from time to time, been assisted, by the contributions of external working parties, which provided input to several projects being considered by the AUASB.
Acknowledgements
I would like to thank the members of the AUASB for their contributions over the past year. I especially would like to thank Mr Bob Sendt (Deputy Chairman to 31 December 2005), Mr Jon Tyers (Deputy Chairman during 2006), and Mr Ian McPhee (IAASB Member) for their assistance in carrying out their respective roles over this period.
I would also like to thank the FRC and its Chairman, Mr Charles Macek, for their oversight and support of the AUASB’s ongoing operations.
Finally, I would also like to express my appreciation to Richard Mifsud, (Principal Executive) and to the staff of the AUASB Technical Group, comprising, Claire Grayston, Nina Lewis, Howard Pratt, and Margaret Salter (Senior Project Managers), Craig Angove, Bernadette Dillon, Brett James and Michael Sadhu (Project Managers), Jessie Wong (Assistant Project Manager), Chiara Carotenuto (Research Project Officer) as well as Christine Purtell (Executive Assistant) for their work in supporting the AUASB. Thanks are also extended to Leone Mansell (Administration Director) and the administrative staff of the Australian Accounting Standards Board (AASB) for additional administrative support services provided to the AUASB over the past year.
The Auditing and Assurance Standards Board going forward
The issuing of 35 legally enforceable standards by the AUASB in the year to 30 June 2006 has been a significant achievement, however a substantial body of work still lies ahead. Issuing of the ASAs paves the way for the revision process of the Auditing Guidance Statements (AGS), which provide industry and situation specialist guidance to support the ASAs, as well as revision of other standards for reissue as Standards on Assurance Engagements (ASAE), Review Engagements (ASRE) and Related Services (ASRS), over the coming year. Monitoring the impact of the new legally enforceable standards and communicating with stakeholders in relation to implementation of the standards will also be important over the next six to twelve months as they start to be applied to audits for financial reporting periods commencing on or after 1 July 2006.
SIGNED
Merran H Kelsall
Chairman Auditing and Assurance Standards Board
26 September 2006
Auditing and Assurance Standards Board Directors’ report of operations
Technical activities of the Auditing and Assurance Standards Board during 2005-06
Functions and powers of the Auditing and Assurance Standards Board
Under section 227B of the Australian Securities and Investments Commission Act 2001 (ASIC Act) the functions and powers of the AUASB are:
- to make auditing standards under section 336 of the Corporations Act 2001, for the purposes of the corporations legislation;
- to formulate auditing and assurance standards for other purposes;
- to formulate guidance on auditing and assurance matters;
- to participate in and contribute to the development of a single set of auditing standards for world-wide use; and
- to advance and promote the main objects of Part I of the Act.
Membership and meetings of the Auditing and Assurance Standards Board
The responsibility for the appointment, including determination of terms and conditions, of the Chairman and the members of the AUASB resides with the Federal Treasurer and the FRC respectively under section 236F of the ASIC Act. In addition, the period of employment may not exceed five years, at which point retiring members are eligible for reappointment.
Eligibility requirements for appointment are knowledge of, or experience in, business, accounting, auditing, law or government.
Details of the Chairman and the members of the AUASB during 2005-06 are listed at Appendix C. During the year, the AUASB held 14 meetings for a total of 20 meeting days. Attendance of members at these meetings is set out at Appendix D.
Auditing and Assurance Standards Board Standards
On 1 July 2004, the majority of the Auditing Standards previously issued by the former AuASB of the Australian Accounting Research Foundation, were granted interim legal endorsement under section 1455(1) of the Corporations Act 2001 and Corporations Regulation 10.5.01. The Auditing Standards with interim legal endorsement do not have effect for financial reporting periods ending on or after 29 June 2007, under section 1455(4) of the Corporations Act 2001.
Consequently, the AUASB’s focus for the 2005/2006 year has been preparation of Auditing Standards for reissue as legally enforceable standards with effect for financial reporting periods commencing on or after 1 July 2006. The AUASB’s work has involved:
- establishing the drafting rules and principles for the review and reissue of Auditing Standards; and
- completing the review and reissue of Auditing Standards in preparation of these being given the force of law from 1 July 2006.
During the year, the AUASB issued the following standards:
Legally enforceable AUASB Standards | |
ASA 100 |
Preamble to AUASB Standards |
ASA 200 |
Objective and General Principles Governing an Audit of a Financial Report |
ASA 210 |
Terms of Audit Engagements |
ASA 220 |
Quality Control for Audits of Historical Financial Information |
ASA 230 |
Audit Documentation |
ASA 240 |
The Auditor’s Responsibility to Consider Fraud in an Audit of a Financial Report |
ASA 250 |
Consideration of Laws and Regulations in an Audit of a Financial Report |
ASA 260 |
Communication of Audit Matters with Those Charged with Governance |
ASA 300 |
Planning an Audit of a Financial Report |
ASA 315 |
Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement |
ASA 320 |
Materiality and Audit Adjustments |
ASA 330 |
The Auditor’s Procedures in Response to Assessed Risks |
ASA 402 |
Audit Considerations Relating to Entities Using Service Organisations |
ASA 500 |
Audit Evidence |
ASA 501 |
Existence and Valuation of Inventory |
ASA 505 |
External Confirmations |
ASA 508 |
Enquiry Regarding Litigation and Claims |
ASA 510 |
Initial Engagements – Opening Balances |
ASA 520 |
Analytical Procedures |
ASA 530 |
Audit Sampling and Other Means of Testing |
ASA 540 |
Audit of Accounting Estimates |
ASA 545 |
Auditing Fair Value Measurements and Disclosures |
ASA 550 |
Related Parties |
ASA 560 |
Subsequent Events |
ASA 570 |
Going Concern |
ASA 580 |
Management Representations |
ASA 600 |
Using the Work of Another Auditor |
ASA 610 |
Considering the Work of Internal Audit |
ASA 620 |
Using the Work of an Expert |
ASA 700 |
The Auditor’s Report on a General Purpose Financial Report |
ASA 701 |
Modifications to the Auditor’s Report |
ASA 710 |
Comparatives |
ASA 720 |
Other Information in Documents Containing Audited Financial Reports |
ASA 800 |
The Auditor’s Report on Special Purpose Audit Engagements |
ASRE 2410 |
Review of an Interim Financial Report Performed by the Independent Auditor of the Entity |
Other Auditing and Assurance Standards Board pronouncements
During the year, the AUASB issued the following other pronouncements:
Other Pronouncements |
Foreword to AUASB Pronouncements |
AUASB Glossary |
Auditing and Assurance Standards Board Guidance
During the year, the AUASB issued the following guidance:
Auditing Guidance Statements | |
AGS 1046 |
Responding to Questions at an Annual General Meeting (October 2005) |
AGS 1038 |
Access to Audit Working Papers (February 2006) |
Audit and Assurance Guides |
2005 Supplement to Audit Guide ‘The Audit of Superannuation Funds’ (October 2005) |
Auditing Guidance Notes |
Auditor’s Report on AASB 124 Remuneration Disclosures contained in the Annual Directors’ Report (August 2005) |
Attendance at meetings of the International Auditing and Assurance Standards Board
During the year, Mr Ian McPhee, AUASB and IAASB member, attended various meetings of the IAASB with the AUASB Principal Executive, Mr Richard Mifsud, as his Technical Adviser. Meetings of the IAASB held during the year were as follows:
- 12 to 16 September 2005 in New York;
- 19 to 21 October 2005 in New York;
- 5 to 9 December 2005 in Cape Town;
- 6 to 10 March 2006 in Hong Kong; and
- 22 to 26 May 2006 in New York.
Due process
The AUASB has formalised a comprehensive ‘due process’ (outlined in the Foreword to AUASB Pronouncements) for the development of its pronouncements, which will encourage stakeholders to actively participate in the standards-setting process by:
- communicating its views and policies to key stakeholders via invitations to comment on exposure drafts;
- meeting with representatives of stakeholder organisations;
- inviting public comment on its policies and standards under consideration;
- issuing media releases related to its activities; and
- maintaining a website www.auasb.gov.au.
In addition, the AUASB posts highlights of minutes of its meetings on the website to keep interested parties informed of the AUASB’s deliberations during each of its meetings as well as the current status of projects.
Liaison with constituents
The AUASB has met with key stakeholders to discuss the review and reissue of Auditing Standards as legally enforceable standards, as well as matters in relation to specific projects.
Use of website
The AUASB has a website www.auasb.gov.au which is continuously enhanced to meet stakeholder information needs. The website is used to provide information about the AUASB, its activities and work programme to its stakeholders and interested parties. The AUASB also publishes meeting agendas prior to meetings and meeting highlights after meetings on the website. During the year, all revised and reissued standards and pronouncements have been made available on the website.
Accountability
The AUASB Chairman reports periodically on the activities of the AUASB at FRC meetings.
Indemnities and insurance premiums for directors and officers
No indemnities have been given or agreements made in respect of any current or former officer of the AUASB, including FRC Directors. The AUASB has arranged professional indemnity insurance with COMCOVER, to a value of $100 million at a cost of $8,000.
Regulation Impact Statements
Regulation Impact Statements (RISs) are required by the Australian Government for all new legislation and regulations, including AUASB standards legally enforceable under the Corporations Act 2001. The objective of the RIS requirements is ‘to ensure that proposed new regulations that impact on business are warranted and efficient’ (Productivity Commission, 2005). RISs are prepared to inform decision-makers about the possible economic impact of the legislation and regulations being proposed. The Office for Regulation Review (ORR), which is part of the Productivity Commission, is required to formally approve all draft RISs before they are sent to the relevant decision-makers.
During 2005-06 the AUASB prepared a RIS to address the effects of the options that were available to the AUASB in issuing Auditing Standards. This RIS accompanied 35 statutory Auditing Standards that were issued on the 28 April 2006. The RIS is available on the AUASB’s website.
Making of Legislative Instruments
Legally enforceable auditing standards made by the AUASB together with explanatory statements are required to be lodged and registered with the Federal Register of Legislative Instruments (FRLI) prior to their tabling in both Houses of Parliament for a disallowance period of 15 sitting days.
All 35 legally enforceable auditing standards made on 28 April 2006 were lodged and registered with FRLI and tabled in both Houses of Parliament. The disallowance period for these auditing standards will end on 4 September 2006.
Auditing and Assurance Standards Board publications
All pronouncements issued by the AUASB are published on its website and are available for purchase from the AUASB using the contact details set out below. A full list of pronouncements currently on issue is at Appendix G.
The AUASB also publishes a range of other documents, which are available on its website, including:
- media releases;
- exposure drafts of proposed AUASB standards and explanatory guides;
- explanatory statements for AUASB standards;
- regulatory impact statements for legally enforceable AUASB standards; and
- invitations to comment on exposure drafts issued by the International Auditing and Assurance Standards Board.
Freedom of information
The AUASB maintains possession of the following documents:
- copies of Auditing and Assurance Standards, Guidance Statements and Other Guidance issued by the former AuASB of the Australian Accounting Research Foundation;
- copies of AUASB pronouncements and explanatory statements;
- copies of exposure drafts of proposed AUASB standards and explanatory guides;
- copies of media releases;
- AUASB meeting agenda papers;
- correspondence with constituents, including submissions received on exposure drafts; and
- internal technical and administrative papers, including project proposals, key decisions, and issues papers.
Requests under the Freedom of Information Act 1982, for access to other documents in the possession of the AUASB can be directed to the AUASB using the contact details set out below.
Commonwealth Fraud Control Guidelines
The AUASB has in place a Fraud Control Plan and fraud control mechanisms, which are appropriate to the needs of the AUASB. The AUASB complied with the requirements of the Commonwealth Fraud Control Guidelines for the year ended 30 June 2006.
Commonwealth Disability Strategy
The AUASB is committed to applying the Commonwealth Disability Strategy (CDS) and has instituted activities that contribute to meeting its requirements. The role of the AUASB is specified elsewhere in this report. For the purposes of the CDS, the AUASB performs a Regulator role.
Commonwealth Disability Strategy performance reporting
Requirement for role |
How met |
Provision of accessible policy, programme and regulatory information |
|
Internet format |
AUASB: all news items, policy statements, Auditing and Standards, Assurance Standards, related guidance exposure drafts and other formal regulatory documents are available on a Government Standards compliant website. |
Disk format |
Contact details for the AUASB are available on its website. Users can call or write to request material on disk. |
Plain English communication |
Where possible, general information is written in plain English. However, some financial reporting matters are highly complex and require the accuracy of technical language. |
Consultation |
The AUASB consults widely in its own right, with users, preparers and others interested in financial reporting. Because the nature of AUASB activity is broad, and focuses on capital markets, specific consultation with people with disabilities is generally inappropriate. |
Complaint or grievance mechanisms |
Contact details for the AUASB are available on its website. People can call or write to register any complaint. |
Contacting the Auditing and Assurance Standards Board
The AUASB can be contacted as follows:
Post: |
The Principal Executive |
Telephone: |
(03) 8080 7400 |
Facsimile: |
(03) 8080 7450 |
Document exchange: |
DX 30897 |
E-mail: |
enquiries@auasb.gov.au |