Auditing and Assurance Standards Board
Chairman's report
Introduction
The Auditing and Assurance Standards Board (AUASB) is an Australian Government Agency established under the Australian Securities and Investments Commission Act 2001 (ASIC Act). Until 30 June 2008 the AUASB was an independent statutory authority coming under the Commonwealth Authorities and Companies Act 1997 (CAC Act). However, from 1 July 2008, as a consequence of amendments to the ASIC Act, the AUASB has been restructured as an entity under the Financial Management and Accountability Act 1997 (FMA Act). The independence of the AUASB, as the setter of Auditing and Assurance Standards in Australia has not been affected by this restructure.
Under section 227B of the 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 12 of the ASIC Act.
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 auditing standards, (which are legally enforceable for audits or reviews of financial reports required under the Corporations Act 2001), other auditing and assurance pronouncements and related guidance. The AUASB's role also extends to liaison with other standards-setters and participating in standard-setting initiatives to develop a single set of auditing standards for world wide use. Such involvement seeks to contribute ultimately to the quality of AUASB pronouncements.
Board appointments and changes during 2007-08
The AUASB comprises an independent part-time Chairman (appointed by the Minister of Superannuation and Corporate Law) and twelve part-time members (appointed by the FRC). The membership of the AUASB during the year 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.
Changes in membership of AUASB during the year were:
- Ms Merran Kelsall was re-appointed as Chairman of the AUASB following expiration of her previous term on 10 August 2007.
- Mr John Tyers (Deputy Chairman) and Prof Christine Jubb were re-appointed as members of the AUASB following expiration of their previous terms.
- Mr Kim Smith and Mr Kevin Neville retired as members of the AUASB on completion of their terms on 31 December 2007.
- Ms Valerie Clifford and Mr John Gavens were appointed as members of the AUASB from 1 January 2008.
See Appendix C for full details of AUASB members and their terms of appointment.
Making legally enforceable auditing standards
The current set of 35 legally enforceable Australian Auditing Standards (ASAs) applicable for reporting periods commencing on or after 1 July 2006 were issued by the AUASB on 28 April 2006. The AUASB's work in relation to these standards since that date, consisted of monitoring the impact of implementation, conducting ongoing communication and consultation with stakeholders and issuing amending standards.
Consistent with its strategic direction, the AUASB has, wherever possible, used the International Standards on Auditing (ISAs) as a base for its ASAs, and in doing so, seeks to maintain conformity of its standards with those of the International Auditing and Assurance Standards Board (IAASB). The rationale for continuing with this policy is the existence of the IAASB as the major global principles-based auditing and assurance standards-setting body. Compliance with the AUASB's reissued standards (ASAs) enables compliance with the equivalent ISA, where it exists. The major focus of the IAASB over the last two years has been a project to revise and redraft the ISAs in Clarity format. The IAASB has announced that the project is on track and will be applicable for reporting periods commencing on or after 15 December 2009.
In October 2007 the AUASB announced that the ASAs would be further revised, redrafted and reissued in a Clarity format, on the same basis as the equivalent ISAs that would be operative after 2009. The Clarity redrafting project is scheduled for completion by October 2009. The AUASB's present intention is that the revised ASAs will be operative for reporting periods commencing on or after 1 January 2010.
Drafting rules and conventions have been established to ensure that the revised ASAs will continue to conform with the ISAs, whilst ensuring that enforceability under the Australian Corporations Act 2001 regulations is maintained.
The planning for this major project involved meetings with numerous constituents to gain valuable feedback on the benefits of the ASAs in Clarity format, and to determine the best timing of the release and operative date of the redrafted standards. Other national standard setters (NSS) are also being monitored as to their policies on the adoption of Clarity format ISAs.
The Foreword to AUASB Pronouncements that defines the structure and policies for development of AUASB pronouncements, the levels of authority to be attached to different pronouncements and drafting guidelines is also being revised as this project progresses. In addition the Preamble to AUASB Standards will also be revised and reissued.
Our work to date and our involvement with the IAASB Clarity project indicates that this project should result in high quality and robust standards that will enhance confidence in Australian audited financial reports.
Formulating other auditing and assurance standards
The AUASB's revision of other auditing and assurance standards have been prioritised based on amendments to regulations and accounting standards, changes to related ASAs, legal and international developments and changes in best practice.
Other standards are being progressively reviewed and reissued as Standards on Assurance Engagements (ASAEs), Standards on Review Engagements (ASREs) or Standards on Related Services (ASRSs).
In June 2008 a new assurance standard, ASAE 3100 Compliance Engagements was released. Another assurance standard ASAE 3500 Performance Engagements was approved for release in July 2008.
A project to revise ASRE 2410 Review of an Interim Financial Report by the Independent Auditor of the Entity, and issue two new standards on review engagements was also well underway and are planned for release in late August 2008. These proposed standards address the following issues:
- A new standard — ASRE 2400, for use by an assurance practitioner who is not the auditor of the entity.
- A new standard — ASRE 2405, for reviews of historical financial information that is not in the form of a financial report.
- Amendment of ASRE 2410 so that the standard is to be applied by the auditor of the entity in a review of a financial report for any period.
Formulating guidance statements
The AUASB has continued to prioritise the review and reissue of guidance statements based on amendments to regulations and accounting standards, changes to related ASAs, legal and international developments and changes in best practice.
During the year the AUASB released eight guidance statements:
- GS 001 Concise Financial Reports;
- GS 002 Special Considerations in the Audit of Risk Management Requirements for Registrable Superannuation Entities and Licensees;
- GS 003 Audit and Review Requirements for Australian Financial Services Licensees Under the Corporations Act 2001;
- GS 004 Audit Implications of Prudential Reporting Requirements for General Insurers;
- GS 005 Using the Work of an Actuary;
- GS 006 Electronic Publication of the Auditor's Report;
- GS 007 Audit Implications of the Use of Service Organisations for Investment Management Services; and
- GS 008 The Auditor's Report on a Remuneration Report Pursuant to Section 300A of the Corporations Act 2001.
The status of the 2007-08 AUASB work program is reported in Appendix F. The AUASB's standards setting priorities for 2008-09 have been approved by the FRC and are also summarised in Appendix F.
Relationship with the International Auditing and Assurance Standards Board and other National Standards Setters
Participation in and input into the work of the IAASB are integral to the ability of the AUASB to continue as an effective national standards setter, and are considered crucial to it maintaining and further developing the current body of Australian Auditing and Assurance Standards and related guidance. 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, being a member of the IAASB and its Steering Committee and AUASB Executive Director, Mr Richard Mifsud, serving as Mr McPhee's IAASB Technical Advisor throughout the past year.
For the past three years the IAASB has pursued a major exercise of revising its ISAs, through the ‛Clarity of IAASB Standards' project. This project will have major implications for the work of the AUASB in reviewing its Auditing Standards in relation to ongoing conformity with the revised ISAs.
Mr Ian McPhee, is Chairman of a taskforce charged with redrafting ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements and ISA 210 Terms of Audit Engagements. The AUASB is providing the technical support for this taskforce. The IAASB has approved ISA 250 and is presently finalising ISA 210.
The AUASB actively engages with and monitors the activities of other National Standards Setters (NSS), most notably through participation in the IAASB-National Standards Setters forum which met in March 2008 (attended by the Chairman and Mr Richard Mifsud Executive Director), and the Trans‑Tasman Accounting and Auditing Standards Advisory Group, which meets on a quarterly basis (attended by the Chairman).
Communication with stakeholders
Improvement in communication and engagement with stakeholders is an ongoing goal of the AUASB.
The AUASB Chairman and senior staff members have conducted numerous speaking engagements during the year, focusing on the implications of the auditing standards for the profession and the current and future direction of the AUASB. In 2007-08 there have been 22 such presentations.
A consultative meeting was held with key constituents this year, and recent meetings have been very successful in gaining valuable input on the AUASB's initiatives. The consultative meeting for 2007-08 was held in Melbourne on 4 December 2007 and another is scheduled for October 2008.
We have introduced Independence as a quarterly e-newsletter that advises constituents of the many AUASB activities that occur outside Board meetings. Independence complements Meeting Highlights, which reports on the outcomes of each Board meeting.
A significant component of our communication with constituents is the AUASB website. A major project for 2007-08 has been the development of a new AUASB website containing additional material, improved search facilities and easier navigation. The new website will be launched in August 2008.
During the year a number of media releases were distributed, resulting in positive media coverage of the AUASB and its activities.
Facilities, technical support and resources
The AUASB offices are located at Level 7, 600 Bourke St, Melbourne.
The AUASB is supported by the technical and secretarial assistance that is provided by the Executive Director and the staff of the AUASB Technical Group. The work of the AUASB has also been assisted during the year by the contributions of external Project Advisory Groups and members of the auditing firms and other organisations, who provided input on several projects undertaken 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 Jon Tyers (Deputy Chairman), 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 (to 10 December 2007) and Mr Jeffrey Lucy AM (from 11 December 2007), for their oversight and support of the AUASB's ongoing operations.
My thanks also go to our constituents who respond to exposure drafts and make time to participate in consultative meetings and project advisory groups.
I would also like to express my appreciation to Richard Mifsud (Executive Director) and to the staff of the AUASB Technical Group, which comprised Johanna Foyster, Claire Grayston, Nina Lewis, Alan Marrone, Marina Michaelides, Howard Pratt, Christine Purtell and Margaret Salter for their work in supporting the AUASB. Thanks are also extended to Litsa Pillios and the administrative staff of the AASB for additional administrative support services provided to the AUASB over the past year.
The Auditing and Assurance Standards Board going forward
Restructure as a Financial Management Act entity
As outlined in my introduction, on 1 July 2008 the AUASB became an entity under the Financial Management Act. Whilst this does not affect the standard setting functions of the AUASB, it changes the financial accountability and its relationship with the FRC. The restructure has been achieved by the establishment of a new entity, the Office of the AUASB, which is responsible for employing the technical and administrative staff and providing technical and other services to the AUASB. The Office of the AUASB is headed by the Chairman of the AUASB, who is directly responsible to the Minister. The FRC can continue to issue strategic directions to the AUASB, although in other respects its role becomes advisory rather than supervisory.
Work program for 2008-09
The ASA Clarity redrafting project is well underway and will dominate the AUASB's work program throughout the coming year, together with revision of selected guidance statements, which provide industry and situation specialist guidance to support the ASAs.
Other major projects in progress include the Assurance Standard (ASAE) on Performance Engagements, and Standards on Review Engagements (ASREs). These standards will be completed and issued in July and August 2008. A project to issue a Guidance Statement on Audits of Self Managed Superannuation Funds is also well underway and the proposed guidance statement will be issued by September 2008.
The AUASB will also continue to:
- Liaise and work with the Department of Climate Change regarding assurance on sustainability matters relating to National Greenhouse and Energy Reporting System Reports audit requirements.
- Participate in the Australian Government's Standard Business Reporting Program (including Extensible Business Reporting Language (XBRL) reporting), and consider the development for guidance on audit requirements.
Monitoring and timely response to emerging issues will be ongoing and a high priority during 2008-09.
Responding to changes in the international and local business, regulatory and public sector environments as they impact on audit and assurance services will remain critical to the AUASB continuing to provide high-quality standards in the public interest and that are relevant to stakeholders' needs.
SIGNED
Merran H Kelsall
Chairman, Auditing and Assurance Standards Board
8 October 2008
Auditing and Assurance Standards Board Directors' report of operations
Technical activities of the Auditing and Assurance Standards Board during 2007-08
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 for the period covered resided with Treasurer, the Hon Peter Costello MP and the Hon Nick Sherry, Minister for Superannuation and Corporate Law 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 2007-08 are listed at Appendix C. During the year, the AUASB held 7 meetings for a total of 11 meeting days. Attendance of members at these meetings is set out at Appendix D.
Auditing and Assurance Standards Board standards
In April 2006 the AUASB issued 35 ASAs as legally enforceable standards with effect for financial reporting periods commencing on or after 1 July 2006. These together with subsequent amending standards are listed at Appendix G.
Over the past two years the AUASB has monitored the impact of implementation of these standards, and has issued amending standards required due to regulatory and legal changes.
In October 2007, the AUASB announced that the Australian Auditing Standards would be further revised and reissued in a Clarity format, on the same basis as the equivalent ISAs.
The AUASB has undertaken a comprehensive project to ensure that the revised Australian standards will continue to conform with the ISAs, whilst ensuring that enforceability under Australian regulations is maintained.
The proposed revised standards will be progressively released for comment as exposure drafts with a 30 day comment period. The project is expected to be completed by October 2009, and it is presently intended that the standards will be operative for reporting periods commencing on or after 1 January 2010.
The AUASB's work during 2007-08 involved:
- The review and reissue of auditing standards and guidance statements required due to regulatory and legal changes, as well as international and best practice developments.
- Major projects completed or in progress during the year included:
- The issue of Auditing Standards on Assurance Engagements ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information, and ASAE 3100 Compliance Engagements.
- The issue of guidance statements on Concise Financial Reports, the use of Service Organisations for Investment Management Services, Prudential Reporting Requirements for General Insurers, Using the Work of an Actuary and the Auditor's Report on a Remuneration Report.
- Development of a project plan to revise and reissue the suite of legally enforceable ASAs in a Clarity format, on the same basis as the equivalent ISAs. In addition to the development of drafting policies, and operational strategy, the planning stage included meetings with numerous key constituents concerning the timing of the release and operative date of the revised standards.
The project is well underway and the first four exposure drafts were released for comment in July 2008. - Other projects to develop pronouncements in respect of Review Engagements, Performance Engagements, Self Managed Superannuation Funds and industry specific guidance are also well underway.
- Liaison and working with the Department of Climate Change on assurance reports on National Greenhouse and Energy Reporting Act 2007.
- Undertaking the revision ISA 210 Terms of Engagements and ISA 250 Consideration of Laws and Regulations in an Audit of a Financial Report in Clarity format on behalf of the IAASB.
During the year, the AUASB issued the following Auditing Standards:
| Legally enforceable AUASB Auditing Standards | |
|---|---|
| ASAE 3000 | Assurance Engagements other than Audits or Reviews of Historical Financial Information (July 2007) |
| ASAE 3100 | Compliance Engagements (June 2008) |
During the year, the AUASB issued the following guidance statements:
| Guidance statements | |
|---|---|
| GS 001 | Concise Financial Reports (July 2007) |
| GS 002 | Special Considerations in the Audit of Risk Management Requirements for Registrable Superannuation Entities and Licensees (July 2007) |
| GS 003 | Audit and Review Requirements for Australian Financial Services Licensees under the Corporations Act 2001 (October 2007) |
| GS 004 | Audit Implications of Prudential Reporting Requirements for General Insurers (October 2007) |
| GS 005 | Using the Work of an Actuary (October 2007) |
| GS 006 | Electronic Publication of the Auditor's Report (December 2007) |
| GS 007 | Audit Implications of the Use of Service Organisations for Investment Management Services (March 2008) |
| GS 008 | The Auditor's Report on a Remuneration Report Pursuant to Section 300A of the Corporations Act 2001 (June 2008) |
During the year, the AUASB issued the following other pronouncements:
| Other pronouncements |
|---|
| Explanatory Guide to Review Engagements (April 2008) |
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 Executive Director, Mr Richard Mifsud, as his Technical Advisor. Five meetings of the IAASB were held during the 2007-08 year.
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. The AUASB held a consultative meeting with key constituents on 4 December 2007.
Use of website
The AUASB has a website www.auasb.gov.au which is periodically updated to meet stakeholder information needs. The website is used to provide information about the AUASB, its activities and work program 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.
A complete re-design of the website with enhancements to improve search facilities and ease of use is well underway, and release is anticipated in late August 2008.
Accountability
The AUASB Chairman reports on the activities of the AUASB at all 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 $3,558.
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 of Best Practice Regulation, which is part of the Department of Finance and Deregulation, is required to formally approve all draft RISs before they are sent to the relevant decision-makers.
During 2007-08 the AUASB prepared a RIS to address the effects of the options that were available to the AUASB in issuing Auditing Standard on Assurance Engagements ASAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information issued on 9 July 2007. This 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 (review) disallowance period of 15 sitting days.
No legally enforceable auditing standards were made during the year.
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 IAASB.
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 2008.
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, program and regulatory information | |
| Internet format | AUASB: all news items, policy statements, Auditing 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 Executive Director
Auditing and Assurance Standards Board
PO Box 204
Collins Street West
MELBOURNE VIC 8007
Telephone: 03 8080 7400
Facsimile: 03 8080 7450
Document exchange: DX 30897
Email: enquiries@auasb.gov.au