ASA 2011-1 - Amendments to Australian Auditing Standards - June 2011

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Legislation au F2011L01379 Not in force Legislative Instrument

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ASA 2011-1

(June 2011)

Explanatory Statement

ASA 2011-1 Amendments to Australian Auditing Standards

Issued by the Auditing and Assurance Standards Board

Obtaining a Copy of this Explanatory Statement

This Explanatory Statement is available on the Auditing and Assurance Standards Board (AUASB) website: www.auasb.gov.au

Contact Details

Auditing and Assurance Standards Board

Level 7, 600 Bourke Street

Melbourne Victoria 3000

AUSTRALIA

Phone: (03) 8080 7400

Fax: (03) 8080 7450

E-mail: enquiries@auasb.gov.au

Postal Address:

PO Box 204

Collins Street West

Melbourne Victoria 8007

AUSTRALIA

Reasons for Issuing Auditing Standard ASA 2011-1 Amendments to Australian Auditing Standards

The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 2011-1 Amendments to Australian Auditing Standards pursuant to the requirements of the legislative provisions and the Strategic Direction explained below.

The AUASB is as an independent statutory board of the Australian Government established under section 227A of the Australian Securities and Investments Commission Act 2001, as amended (ASIC Act). Under section 336 of the Corporations Act 2001 (the Act), the AUASB may make Auditing Standards for the purposes of the corporations legislation. These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.

Under the Strategic Direction given to the AUASB by the Financial Reporting Council (FRC), the AUASB is required, inter alia, to develop auditing standards that have a clear public interest focus and are of the highest quality.

Operative Date

ASA 2011-1 Amendments to Australian Auditing Standards is operative for financial reporting periods commencing on or after 1 July 2011. Early adoption is permitted.

Purpose of Auditing Standard ASA 2011-1 Amendments to Australian Auditing Standards

The purpose of the Auditing Standard is to make amendments to the following Australian Auditing Standards:

ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports, Other Financial Information, and Other Assurance Engagements

ASA 101 Preamble to Australian Auditing Standards

ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements

ASA 210 Agreeing the Terms of Audit Engagements

ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information

ASA 240 The Auditor’s Responsibilities Relating to 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 with Those Charged with Governance

ASA 300 Planning an Audit of a Financial Report

ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment

ASA 320 Materiality in Planning and Performing an Audit

ASA 402 Audit Considerations Relating to an Entity Using a Service Organisation

ASA 500 Audit Evidence

ASA 501 Audit Evidence – Specific Considerations for Inventory and Segment Information

ASA 502 Audit Evidence – Specific Considerations for Litigation and Claims

ASA 540 Auditing Accounting Estimates, Including Fair Value Accounting estimates, and Related Disclosures

ASA 550 Related Parties

ASA 560 Subsequent Events

ASA 570 Going Concern

ASA 580 Written Representations

ASA 700 Forming an Opinion and Reporting on a Financial Report

ASA 705 Modifications to the Opinion in the Independent Auditor’s Report

ASA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

ASA 710 Comparative Information – Corresponding Figures and Comparative Financial Reports

ASA 800 Special Considerations – Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks

ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity

These amendments arise from:

Consequential changes necessary to acknowledge issuance, by the Accounting Professional and Ethical Standards Board, of APES 110 Code of Ethics for Professional Accountants, in December 2010; and
Editorial amendments made by the AUASB. The amendments seek to enhance the quality of the auditing standards through editorial changes to correct inadvertent grammatical errors; and improve consistency of expression and format.

The amendments do not have an impact on the requirements of the Auditing Standards.

Main Features

The Auditing Standard:

(a) Applies to audits and reviews of financial reports, and complete sets of financial statements, in accordance with the Corporations Act 2001 (the “Act”) and for other purposes.

(b) Applies, as appropriate, to audits and reviews of other historical financial information.

(d) Makes amendments to the Auditing Standards issued by the Auditing and Assurance Standards Board (AUASB) in October 2009, under section 336 of the Act. Those auditing standards became operative for audits and reviews for financial reporting periods commencing on or after 1 January 2010.

(e) Acknowledges the issuance of APES 110 Code of Ethics for Professional Accountants, issued by the Accounting Professional and Ethical Standards Board in December 2010.

(f) Comprises amendments that arise principally from editorial corrections, including improvements in consistency.

(g) Permits early adoption of the amendments.

(h) Does not introduce new requirements, new definitions or new application and other explanatory material.

(i) Is a new pronouncement of the AUASB and accordingly does not supersede a pre-existing Auditing Standard.

(j) Has been made for Australian legislative purposes and accordingly there is no equivalent International Standard on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board of the International Federation of Accountants (IFAC).

Other Auditing Standards

ASA 2011-1 is to be read in conjunction with the Australian Auditing Standards to which it relates. [See note (d) above]

Process of making Australian Auditing Standards

The AUASB’s Strategic Direction, inter alia, provides that the AUASB develop Australian Auditing Standards that:

have a clear public interest focus and are of the highest quality;
use the International Standards on Auditing (ISAs) of the International Auditing and Assurance Standards Board (IAASB) as the underlying standards;
conform with the Australian regulatory environment; and
are capable of enforcement.

The AUASB continually monitors changes in legislation and other relevant authoritative material that have an impact on the Australian Auditing Standards. In this context, the AUASB acknowledges the issuance of
APES 110 Code of Ethics for Professional Accountants, issued by the Accounting Professional and Ethical Standards Board in December 2010. The Australian Auditing Standards require an auditor to comply with relevant ethical requirements relating to audit engagements, and accordingly, the AUASB needs to amend ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements.

In implementing the FRC’s Strategic Direction and in accordance with its ongoing quality control policies, the AUASB has undertaken a thorough review of the Australian Auditing Standards. The review included wide consultation with, and detailed input from, constituents. The exercise was aimed at identifying inadvertent errors and instances of inconsistency that diminish the quality of the relevant auditing standard and consequently the Australian Auditing Standards as a whole.

The AUASB has determined that the two categories of amendments explained above improve the quality of the Australian Auditing Standards and therefore contribute to the AUASB’s compliance with the Strategic Direction. The amendments to the Australian Auditing Standards are achieved through an amending standard, namely: ASA 2011-1 Amendments to Australian Auditing Standards.

Consultation Process prior to issuing the Auditing Standard

The AUASB has consulted publicly as part of its due process in developing the Auditing Standard. Exposure Draft ED 01/11 Proposed Auditing Standard ASA 2011-1 Amendments to Australian Auditing Standards was issued on 20 April 2011, with a 33 day comment period.

As an integral part of its consultation with the public, the AUASB sought opinions on whether the proposed Auditing Standard was supported as a whole. In addition, comments were sought on specific questions which included whether:

there were additional amendments that should be included in the amending standard;
applicable laws and regulations had been appropriately addressed in the amending standard;
any significant costs, if any, and benefits arise from compliance with the amending standard. If significant costs arise whether they outweigh the benefits to the users of audit services; and
there exist any significant public interest matters affecting the issuance of the Auditing Standard.

Submissions were received by the AUASB and these were considered as part of the development and finalisation of the amending Auditing Standard.

Regulation Impact Assessment

A Regulation Impact Assessment (RIA) has been prepared in connection with the amendments to Australian Auditing Standards. The RIA has been approved by the Office of Best Practice Regulation (OPBR).

The RIA has considered both the expected benefits and expected costs of the amendments to Auditing Standards, including comments provided by stakeholders. It concluded that expected costs to providers of audit services would be insignificant and that, on balance, the improvement in quality to the Auditing Standards would likely outweigh expected costs.

Overview

The Auditing Standard ASA 2011-1 Amendments to Australian Auditing Standards was issued by the Auditing and Assurance Standards Board (AUASB), an independent statutory board established under the Australian Securities and Investments Commission Act 2001. This Standard was introduced to make amendments to existing Australian Auditing Standards in response to the issuance of APES 110 Code of Ethics for Professional Accountants by the Accounting Professional and Ethical Standards Board and to correct editorial errors in the standards issued in October 2009. These amendments aim to enhance the quality of the auditing standards through editorial changes, improving consistency of expression and format without introducing new requirements or definitions. The purpose of these amendments is to ensure that the auditing standards remain of the highest quality and have a clear public interest focus, in accordance with the Strategic Direction provided by the Financial Reporting Council. The amendments are applicable to audits and reviews of financial reports and other historical financial information, and early adoption is permitted. The AUASB engaged in a comprehensive consultation process with the public, releasing an Exposure Draft on 20 April 2011 for a 33-day comment period, seeking feedback on the proposed amendments. The AUASB considered these submissions in finalising the Auditing Standard. Additionally, a Regulation Impact Assessment was conducted and approved by the Office of Best Practice Regulation, concluding that the benefits of improved quality in the auditing standards would likely outweigh any insignificant expected costs to providers of audit services.

Scope and Application

The ASA 2011-1 Amendments to Australian Auditing Standards, issued by the Auditing and Assurance Standards Board (AUASB), applies to audits and reviews of financial reports and other historical financial information in accordance with the Corporations Act 2001 and for other purposes. This amendment applies to firms that perform audits and reviews and acknowledges the issuance of APES 110 Code of Ethics for Professional Accountants by the Accounting Professional and Ethical Standards Board. These amendments pertain to the Australian Auditing Standards issued by the AUASB in October 2009, which became effective for financial reporting periods commencing on or after 1 January 2010. The primary purpose of these amendments is to correct inadvertent grammatical errors and improve consistency of expression and format, without introducing new requirements, definitions, or application and other explanatory material. The amendments can be adopted early and, as a new pronouncement of the AUASB, do not supersede any pre-existing Auditing Standard. Additionally, since these amendments are for Australian legislative purposes, there is no equivalent International Standard on Auditing issued by the International Auditing and Assurance Standards Board. The AUASB has undergone a thorough review of the Australian Auditing Standards, including consultation with stakeholders, to identify errors and inconsistencies, ultimately improving the quality of the Auditing Standards and contributing to the AUASB's compliance with the Financial Reporting Council's Strategic Direction. The AUASB has also prepared a Regulation Impact Assessment (RIA) in connection with these amendments, which has been approved by the Office of Best Practice Regulation. The RIA considers both the expected benefits and costs of the amendments to Auditing Standards, including feedback from stakeholders, and concludes that the expected costs to providers of audit services would be insignificant and that the improvement in quality to the Auditing Standards would likely outweigh the expected costs. The AUASB has consulted publicly as part of its due process in developing the Auditing Standard, seeking opinions on whether the proposed Auditing Standard was supported as a whole, and on specific questions related to the amendments. Submissions received by the AUASB were considered as part of the development and finalisation of the amending Auditing Standard.

Key Provisions

Auditing Standard ASA 2011-1 Amendments to Australian Auditing Standards introduces changes to various Australian Auditing Standards (AAS) issued by the Auditing and Assurance Standards Board (AUASB). These amendments are primarily editorial, aimed at correcting inadvertent grammatical errors and improving consistency in expression and format (sections (f) and (g)). They apply to audits and reviews of financial reports, historical financial information, and complete sets of financial statements prepared in accordance with the Corporations Act 2001, as well as to firms that perform such audits and reviews (sections (a) to (d)). The amendments are effective for financial reporting periods commencing on or after 1 July 2011, although early adoption is permitted (section (g)). Notably, these amendments do not introduce new requirements, definitions, or additional explanatory material, nor do they supersede any existing AAS (sections (h) and (i)). The AUASB, established under the Australian Securities and Investments Commission Act 2001, has a mandate to develop auditing standards that serve the public interest and maintain high quality. In line with its strategic direction, the AUASB has undertaken a comprehensive review of the existing AAS, leading to the identification of necessary editorial corrections. These amendments were made in response to the issuance of APES 110 Code of Ethics for Professional Accountants by the Accounting Professional and Ethical Standards Board, ensuring that the AAS remain aligned with current ethical standards (sections (a) to (e)). The AUASB's process involves rigorous consultation with stakeholders, as evidenced by the public consultation period for Exposure Draft ED 01/11, which ran from 20 April 2011 for 33 days. Submissions received during this period were carefully considered before finalizing the amendments. Under the Corporations Act 2001, the AUASB is tasked with creating auditing standards that are of the highest quality and have a clear public interest focus. The amendments made by ASA 2011-1 are legislative instruments under the Legislative Instruments Act 2003. The AUASB ensures that these amendments conform with the Australian regulatory environment and are capable of enforcement. The Regulatory Impact Assessment (RIA), approved by the Office of Best Practice Regulation, concluded that the benefits of improved quality in the AAS would likely outweigh any insignificant expected costs to providers of audit services. Breaching the requirements of the Auditing Standards, including those amended by ASA 2011-1, can have significant consequences. Under the Corporations Act 2001, auditors who fail to comply with the auditing standards may face civil or criminal penalties. For individuals, the penalties can include substantial fines and imprisonment terms, depending on the severity and intent of the breach. For corporations, the penalties can be even more severe, potentially involving fines that are multiples of the financial gain or loss resulting from the breach. Additionally, non-compliance can lead to reputational damage, loss of client trust, and potential disqualification from practising as an auditor. These consequences underscore the importance of adhering to the Auditing Standards and the amendments introduced by ASA 2011-1.

Area of Law: Corporate Law & Governance
Instrument: Regulation
Concepts: Definitions & Interpretation; Repeal & Amendment; Enforcement Powers

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