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). The FRC provides the AUASB with its strategic direction, as well as appointing AUASB members and 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 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, both in Australia and internationally. Such involvement seeks to contribute ultimately to the quality of AUASB pronouncements.
Board appointments and changes during 2006-07
The AUASB comprises an independent part-time Chairman (appointed by the Federal Treasurer) 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.
There were no changes in membership of AUASB during the year. Ms Dianne Azoor Hughes and Mr Clive Mottershead were reappointed to the AUASB following expiration of their previous terms. See Appendix C for full details of AUASB members and their terms of appointment.
Legally enforceable auditing standards
The parliamentary review period for the 35 legally enforceable Auditing Standards (ASAs) which the AUASB issued on 28 April 2006, expired in September 2006. The AUASB’s work in relation to the legally enforceable standards during 2006-07 consisted of monitoring the impact of implementation and conducting ongoing communication and consultation with stakeholders.
This communication included engaging with the accounting bodies regarding education and preparation of members for implementation of the reissued standards for periods commencing on or after 1 July 2006. The AUASB Chairman and senior staff members also conducted numerous speaking engagements during the year, focusing on the implications of the auditing standards for the profession. In addition, the Chairman participated in a panel and presented on the oversight of auditing standard setting at the XVIII World Congress of Accountants and attended the International Organization of Securities Commissions (IOSCO) Auditing Forum.
As part of monitoring the impact of implementation of the new ASAs, a quantitative research survey was commissioned by the AUASB to gauge the awareness and understanding of the new Auditing Standards. The survey focused on smaller practitioners who do not have the technical resources of the large and mid-tier firms, and the findings from the survey were shared directly with the accounting bodies and the Financial Reporting Council (FRC). Over the last quarter of the financial year the accounting bodies held a number of workshops and briefings to address the new Auditing Standards.
In response to a request by the FRC to the AUASB to consider making an amendment to the Auditing Standards to require a statement in the auditor’s report on an entity’s compliance with International Financial Reporting Standards (IFRSs), an amending standard was approved in June 2007, impacting on ASA 700 The Auditor’s Report on a General Financial Report, with consequential amendments required to draft letters and auditor’s reports in nine other standards. The AUASB and the FRC consider that this will further enhance the recognition of compliance with IFRSs in Australian financial reports.
The ASAs will be progressively reviewed to improve quality, clarity and presentation and will be impacted by the developments of the International Auditing and Assurance Standards Board’s (IAASB’s) ‛Clarity of IAASB Standards’ project as well as other international standard setting activities.
Reissuing other auditing and assurance standards and guidance statements
The focus of the AUASB’s work programme for 2006-07 has been on the revision of other standards and guidance statements, and this will continue to be the focus of the work programme for the 2007-08 year. The AUASB has also spent considerable effort in clarification of the structure and policies for development of AUASB pronouncements, the levels of authority to be attached to different pronouncements and developing drafting guidelines. As a result, the Framework for Assurance Engagements, within which standards and guidance are to be issued, was revised and reissued in June 2007, following exposure for public comment. The Foreword to AUASB Pronouncements has also been revised and will be reissued in the second half of 2007.
The reviews of guidance statements and other 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. The standards that are not legally enforceable are being progressively reviewed and reissued as Standards on Assurance Engagements (ASAEs), Standards on Review Engagements (ASREs) or Standards on Related Services (ASRSs). The Standard on Assurance Engagements has been revised and reissued as ASAE 3000, as well as a number of industry-specific guidance statements. Projects to revise standards on Review Engagements, Performance Auditing and other guidance statements are well under way, as is the development of a new standard on Compliance Engagements.
The status of the 2006-07 AUASB work programme is reported in Appendix F. The AUASB’s standards setting priorities for 2007-08 have been approved by the FRC and are summarised in Appendix F.
Auditing Small and Medium-Sized Entities
In March 2007, the AUASB released for public comment a discussion paper on Auditing Small and Medium-Sized Entities (SMEs) and participated in the accounting bodies’ round table discussion on SMEs in the same month. The Chairman also presented on this topic at the IAASB’s Strategic Review Forum held in April 2007. The discussions at both forums indicated that there was little appetite for separate auditing standards or differing levels of assurance for audits for SMEs.
Relationship with the International Auditing and Assurance Standards Board and other national standards setters
Consistent with its Strategic Direction, the AUASB has, wherever possible, used the ISAs as a base for its 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. 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 will have major implications for the strategy adopted by the AUASB in reviewing its Auditing Standards vis-a-vis ongoing conformity between ASAs and ISAs. Mr Ian McPhee, AUASB and IAASB member, 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 resources for this taskforce. The IAASB approved ED ISA 250 for public exposure in May 2007 and ISA 210 was expected to be released for exposure in July 2007. Mr McPhee is also the Chairman of a Taskforce charged with redrafting ISA 260 Communication of Audit Matters with those Charged with Governance.
Participation in and input into the work of the IAASB are considered integral to the ability of the AUASB to continue as an effective national standard setter, and are 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, being a member of the IAASB and its Steering Committee and AUASB Principal Executive, Mr Richard Mifsud, serving as Mr McPhee’s IAASB Technical Advisor throughout the past year.
The AUASB also actively engages with and monitors the activities of other national standards setters, most notably through participation in the IAASB‑National Standards Setters (NSS) forum which met in March 2007, and the Trans-Tasman Accounting and Auditing Standards Advisory Group (TTAASAG), which meets on a quarterly basis.
Facilities, technical support and resources
In September 2006, the AUASB relocated to Level 7, 600 Bourke St, Melbourne, to occupy offices as a co-tenant with the Australian Accounting Standards Board, as it had done at the previous premises at 530 Collins St, Melbourne.
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, and to provide staff needed to address the ongoing workload. 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 profession, who provided input on several projects being 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 throughout the year), 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, which comprised Johanna Foyster, Claire Grayston, Nina Lewis, Marina Michaelides, Howard Pratt and Margaret Salter (Senior Project Managers), Alan Marrone (Senior Consultant), Craig Angove, Brett James and Michael Sadhu (Project Managers), Chiara Carotenuto (Research Project Officer) and Christine Purtell (Executive Assistant) for their work in supporting the AUASB. Thanks are also extended to Leone Mansell and Litsa Pillios 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 revision of selected guidance statements, 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), are now well under way and will continue to dominate the AUASB’s work programme throughout the coming year. Monitoring the impact of the new legally enforceable Auditing Standards and communicating with stakeholders in relation to the application of the ASAs will be ongoing and a high priority during the 2007-08 year as practitioners adjust their audit practices.
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 relevant to stakeholders’ needs.
SIGNED
Merran H Kelsall
Chairman, Auditing and Assurance Standards Board
15 October 2007
Auditing and Assurance Standards Board Directors’ report of operations
Technical activities of the Auditing and Assurance Standards Board during 2006-07
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 12 of the ASIC 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 Australian 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 2006-07 are listed at Appendix C. During the year, the AUASB held 11 meetings for a total of 15 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 sub 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 sub section 1455(4) of the Corporations Act 2001.
In April 2006 the AUASB issued 35 Auditing Standards as legally enforceable standards with effect for financial reporting periods commencing on or after 1 July 2006. These are listed at Appendix G.
The AUASB’s work during 2006-07 has involved:
- clarification of the structure and policies for the development of AUASB pronouncements, the drafting rules and the levels of authority to be attached to the various pronouncements, resulting in the issue of the Framework for Assurance Engagements;
- completing the review and reissue of Auditing Standards and progressing the review and reissue of guidance statements required due to regulatory and legal changes, as well as international and best practice developments;
- commencement of projects to revise and issue pronouncements on Assurance Engagements and Concise Financial Reports (issued in July 2007). Other projects to develop pronouncements in respect of Review Engagements, Compliance Audits and Performance Audits and industry‑specific guidance are also well underway; and
- undertaking the revision of ISA 210 Terms of Audit Engagements and ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements in Clarity format on behalf of the IAASB.
During the year, the AUASB issued the following Auditing Standards:
Legally enforceable AUASB Auditing Standards | |
ASA 550 |
Related Parties (October 2006) |
ASA 2007-1 |
Amendments to Australian Auditing Standards (June 2007) |
During the year, the AUASB issued the following other pronouncements:
Other pronouncements |
Framework for Assurance Engagements (June 2007) |
During the year, the AUASB issued the following compiled versions of Auditing Standards:
Compiled versions of Auditing Standards | |
Compiled ASA 200 |
Objective and General Principles Governing an Audit of a Financial Report (June 2007) |
Compiled ASA 210 |
Terms of Audit Engagements (June 2007) |
Compiled ASA 510 |
Initial Engagements — Opening Balances (June 2007) |
Compiled ASA 570 |
Going Concern (June 2007) |
Compiled ASA 700 |
The Auditor’s Report on a General Purpose Financial Report (June 2007) |
Compiled ASA 701 |
Modifications to the Auditor’s Report (June 2007) |
Compiled ASA 710 |
Comparatives (June 2007) |
Compiled ASA 800 |
The Auditor’s Report on Special Purpose Audit Engagements (June 2007) |
Compiled ASRE 2410 |
Review of an Interim Financial Report Performed by the Independent Auditor of the Entity (June 2007) |
During the year, the AUASB issued the following guidance statements:
Guidance statements | |
AGS 1070 |
Special Considerations in the Audit of Risk Management Requirements for Registrable Entities and Licensees (July 2006) |
Addendum to AGS 1064 |
Audit Implications of Prudential Reporting Requirements for General Insurers (October 2006) |
During the year, the AUASB issued the following guidance notes:
Auditing Guidance Notes |
Auditor’s Report on AASB 124 Remuneration Disclosures contained in the Annual Directors’ Report (August 2006) |
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 Advisor. Meetings of the IAASB held during the year were as follows:
- 10 to 13 July 2006 in Brussels;
- 18 to 22 September 2006 in Montreal;
- 25 to 27 October 2006 in New York;
- 4 to 8 December 2006 in London;
- 13 to 16 February 2007 in New York; and
- 16 to 20 April 2007 in Sydney.
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 periodically updated 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 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 $6,000 per annum.
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 (formerly the Office for Regulation Review), 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 2006-07 the AUASB prepared a RIS to address the effects of the options that were available to the AUASB in issuing Auditing Standard 2007‑1 Amendments to Australian Auditing Standards issued on 27 June 2007. 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 (review) disallowance period of 15 sitting days.
Legally enforceable auditing standard 2007-1 Amendments to Australian Auditing Standards made on 27 June 2007 was lodged and registered with the FRLI and is to be tabled in both Houses of Parliament. The disallowance period for these Auditing Standards is expected to end on 15 October 2007.
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 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 below.
Commonwealth Fraud Control Guidelines
The AUASB has in place a Fraud Control Plan and fraud control mechanisms, which are appropriate to its needs. The AUASB complied with the requirements of the Commonwealth Fraud Control Guidelines for the year ended 30 June 2007.
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 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 |
Email: |