The AUASB released the amended Australian Auditing Standards in October 2009. The standards relate to auditing of financial statements and financial reports starting from 1st January 2010 (Gay 2007). The standards also relate to companies that are required by law to have put in place internal control systems for their audit procedures, according to the provisions of the standards.
ASQC 1: Quality Control
This new auditing standard stipulates the quality control obligations for companies that offer assurance services. It is worth noting that the standard does not govern mutually agreed engagements (Arens 2007). The standard encompasses definitions, terminology, and allusions specific to Australia.
The Standards Requirements
The standard calls for documentation to serve as supporting evidence for companies’ compliance with the various components of the quality control system. Also, a company should institute procedures that promote the maintenance of documentary evidence. In addition, a company should put in place policies and procedures concerning documentation of grievances and claims and responses to such assertions (Leung 2009).
Auditor’s Report
ASQC 1 does not affect the particular form and the constituents of the auditor’s report. Despite this, it calls for a company to set up a control system to make sure auditor’s reports released are proper in the circumstances.
ASA 102: Compliance with Ethical Requirements
Difference in Scope
ASA 101 is a new standard that governs the operations of a company’s engagement quality-control assessor, auditor, and assurance specialists. The standard aims to see to it that the ethical requirements provided for in the AUASB standards remain relevant since all subsequent alterations regarding ethical requirements will be effected through ASA 102.
ASA 200: Objectives of Independent Auditor
According to this standard, the objectives of an independent auditor continue to be as follows:
- Obtaining reasonable evidence that the financial report as prepared covers all material transactions of the organization according to the relevant financial reporting standards.
- To produce and issue a financial report based on Australian auditing standards.
Key components of the requirements
- The standard provides that an auditing standard is applicable to an audit if it is effective and the situation stipulated in the standard exists.
- A comprehension of the complete text of the auditing standards is necessary in order to recognize the objectives of a standard and to apply it effectively.
- Claiming compliance to Australian audit standards implies that an auditor has applied all the audit standards that are related to the audit.
- It is the responsibility of the auditor to determine whether there are other audit procedures over and above those stipulated in the Australian Audit Standards required to fulfill the aims stipulated in the Australian Auditing Standards.
- The auditor should assess whether adequate evidence has been gathered for the audit.
- This auditing standard demands compliance with every provision of the standard with the following exceptions:
- Where the whole auditing standard is not pertinent.
- Where compliance with the standard is conditional and the condition is non-existent.
- Where the application relates to transactions that the auditor has established to be immaterial.
- Inability to fulfill a particular auditing standard objective(s) calls for:
- Documentation since it is a ‘‘material matter’’.
- The auditor to evaluate whether failure to meet the objective hinders them from meeting the general audit objectives.
- The auditor to assess whether the situation requires modification of the audit opinion in the financial report or for the auditor to repudiate the engagement (Cameron 2009).
Other Related Issues
In addition, ASA 200 provides for matters of professional judgment as well as exceptional situations when an auditor is allowed to deviate from the related audit procedures. Further, the standard requires an auditor to document every instance when he fails to meet a particular audit objective and if the objective is material to the particular auditing circumstance, the auditor should modify their audit opinion in the financial report.
ASA 2010: Audit Engagements
According to this standard, an auditor should accept or continue an audit engagement only after establishing that the prerequisites for the audit are available. Further, the standard specifies that a company’s management should be considered as consisting of the executive and board of governance in the entire audit report.
Key Components of the Standard’s requirements
- The standard stipulates that it is the responsibility of the auditor to establish whether the financial reporting procedures to be followed in the audit are appropriate.
- The auditor should secure a management letter detailing the following:
- That the management is aware of its liability in the preparation of the financial report.
- That the management is familiar with its duty of setting up efficient internal control procedures.
- That the management has allowed the auditor to access all the information they have asked for.
- The auditor is required to decline any engagement where the scope of their work has been limited by management and, as a result, they perceive that this situation will lead to a disclaimer of opinion.
- The standard has listed all elements that must form part of an engagement letter (The Auditing and Assurance Handbook 2009).
- The standard also stipulates other conditions for acceptance including:
- Where the financial reporting guidelines stipulated by the law are unacceptable.
- Where the phrasing of the auditor’s report is specified by the law.
ASA 240: Auditor’s Liability Concerning Fraud in Auditing of a Financial Report
Key Components of the Standard’s Requirements
- In those circumstances where management discussions are inconsistent, the auditor should investigate the irregularities.
- In establishing the general response to evaluating risks, the auditor must:
- Direct and monitor their engagement team taking into consideration the experience, skills, and competency of the members and the auditor’s evaluation regarding the risk of material misrepresentation in the financial report.
- Assess whether the selection and use of accounting policies of the firm indicate fraudulent financial reporting.
- Include an aspect of unpredictability in choosing the form, timing, and coverage of the audit process.
- The audit standard maintains the fundamental principle that the risk of executive prevailing over internal control system is always very significant in all firms.
References
Arens A 2007, Auditing in Australia, Prentice Hall Australia, Sydney.
Cameron R 2009, Study Guide Modern Auditing and Assurance Services, John Wiley & Sons, Brisbane.
Gay G 2007, Auditing and Assurance Services in Australia, McGraw-Hill, Sydney.
Leung P 2009, Modern Auditing and Assurance Services, John Wiley & Sons, Brisbane.
The Auditing and Assurance Handbook 2009, The Institute of Chartered Accountants in Australia, John Wiley & Sons, Brisbane.