ASA 330 - The Auditor’s Procedures in Response to Assessed Risks - April 2006

Administered by Department of the Treasury

Legislation au F2006L01378 Not in force Legislative Instrument

Legislation content

 (April 2006)

 

 

 

 

Explanatory Statement

 

ASA 330 The Auditor's Procedures in Response to Assessed Risks

 

 

Issued by the Auditing and Assurance Standards Board

 

Explanatory Statement

Reasons for Issuing ASA 330 The Auditor's Procedures in Response to Assessed Risks

The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 330 The Auditor's Procedures in Response to Assessed Risks due to the requirements of the legislative provisions explained below.

The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, as from 1 July 2004. Under section 336 of the Corporations Act 2001, 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.

Process of making Auditing Standards

Section 1455 of the Corporations Act 2001 and Corporations Regulation 10.5.01 gave interim legal endorsement from 1 July 2004 to the majority of Auditing Standards made by the former Auditing & Assurance Standards Board of the Australian Accounting Research Foundation. The AUASB has reviewed the Auditing Standards and has proceeded to make them as legally enforceable Auditing Standards under the Corporations Act 2001.

The Auditing Standards have been made also in accordance with the Financial Reporting Council’s Strategic Direction to the AUASB dated 6 April 2005, pursuant to section 225 of the ASIC Act.

The Strategic Direction, inter alia, provides that the AUASB develops 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 a base;
  • conform with the Australian regulatory environment; and
  • are capable of enforcement.

In implementing the Strategic Direction, the AUASB has undertaken a process of thorough review and revision that has:

  • addressed the enforceability of mandatory requirements;
  • clarified auditors’ obligations under the Auditing Standards;
  • provided for sector neutrality in the Auditing Standards; and
  • included other amendments as necessary.

Purpose of Auditing Standard ASA 330 The Auditor's Procedures in Response to Assessed Risks

The purpose of Auditing Standard ASA 330 is to establish mandatory requirements and to provide explanatory guidance on determining overall responses and designing and performing further audit procedures to respond to the assessed risks of material misstatement at the financial report and assertion levels in a financial report audit.

Auditing Standard ASA 330 is to be read in conjunction with the Preamble to AUASB Standards, which sets out the intentions of the AUASB on how the Auditing Standards are to be understood, interpreted and applied.

Operative Date

This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.

Main changes from Auditing Standard AUS 406 (February 2004) The Auditor's Procedures In Response to Assessed Risks

The main differences between ASA 330 and AUS 406 are that in ASA 330:

  1. The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 406 by the word ‘should’.
  2. The explanatory paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 406 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been redrafted to clarify that the matter forms part of the explanatory guidance.
  3. The following implied obligations in AUS 406 have been elevated and re-stated as specific mandatory requirements:

(a)                when the auditor plans to perform only substantive procedures, the auditor shall design substantive procedures, for the relevant assertions, that are effective in reducing risks of material misstatement to an acceptably low level (paragraph 14);

(b)                if the auditor’s procedures detect a material misstatement that was not identified by the entity and that is indicative of a material weakness in internal control, the auditor shall communicate that weakness to management and those charged with governance on a timely basis (paragraph 44);

(c)                when the auditor plans to use audit evidence about the operating effectiveness of controls obtained in a prior audit, the auditor shall perform audit procedures during the current period to establish the continuing relevance of the audit evidence (paragraph 52);

(d)                when the approach to significant risks consists only of substantive procedures, the auditor shall perform tests of details only or a combination of tests of details and substantive analytical procedures to address such significant risks (paragraph 73); and

(e)                where the auditor plans to use audit evidence from the performance of substantive procedures in a prior audit, the auditor shall perform audit procedures during the current period to establish the continuing relevance of the audit evidence (paragraph 84).

Consultation prior to issuing this Auditing Standard

The AUASB has consulted publicly as part of its due process in developing this Auditing Standard. Exposure Draft ED 2/05 Proposed Auditing Standard: The Auditor’s Procedures in Response to Assessed Risks (Re-issuance of AUS 406) was issued on 31 August 2005 with a 45 day comment period. Submissions were received by the AUASB and it has considered these submissions as part of the development and finalisation of this Auditing Standard.

Overview

The Auditing and Assurance Standards Board (AUASB) issued Auditing Standard ASA 330 The Auditor's Procedures in Response to Assessed Risks, effective for financial reporting periods commencing on or after 1 July 2006. This Auditing Standard was introduced as part of the legislative framework established by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004, which created the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001. The AUASB is authorised to create Auditing Standards under section 336 of the Corporations Act 2001, and these standards are legislative instruments governed by the Legislative Instruments Act 2003. The purpose of ASA 330 is to establish mandatory requirements and provide explanatory guidance to auditors on determining responses to the assessed risks of material misstatement in financial reports, ensuring the reliability and integrity of corporate disclosures. This Auditing Standard aims to enhance the quality and consistency of audit practices by aligning them with international standards, clarifying auditors' obligations, and improving sector neutrality.

Scope and Application

Auditing Standard ASA 330 The Auditor's Procedures in Response to Assessed Risks applies to auditors who are engaged in performing audits of financial reports in accordance with the Corporations Act 2001 and other relevant legislation. The standard is specifically designed to ensure that auditors establish and implement appropriate responses to the assessed risks of material misstatement at the financial report and assertion levels. The standard is applicable to all entities that require an audit under the Corporations Act 2001, including companies, limited partnerships, and other entities subject to audit requirements. ASA 330 applies nationally across Australia, as it is issued by the Auditing and Assurance Standards Board, an independent statutory body established under the Australian Securities and Investments Commission Act 2001. The standard’s requirements are binding and must be adhered to by all auditors conducting audits of financial reports in Australia. There are no specific exclusions or exemptions outlined in the standard itself, though certain entities may be exempt from audit requirements under other provisions of the Corporations Act 2001. The application and enforcement of ASA 330 may be further detailed in subordinate instruments issued by the Auditing and Assurance Standards Board or other relevant regulatory bodies.

Key Provisions

The Auditing Standard ASA 330 The Auditor's Procedures in Response to Assessed Risks, issued by the Auditing and Assurance Standards Board (AUASB), provides mandatory requirements and explanatory guidance for auditors in designing and performing audit procedures in response to assessed risks of material misstatement in a financial report audit. It is effective for financial reporting periods commencing on or after 1 July 2006. Section 14 of ASA 330 mandates that an auditor must design and implement overall responses to address the risks of material misstatement at the financial report level, while Section 18 requires auditors to design and perform further audit procedures whose nature, timing, and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level. The Standard also addresses specific procedures such as tests of controls (Section 28) and substantive procedures (Section 34), and it provides guidance on evaluating audit evidence obtained (Section 38). The Auditing Standard imposes several obligations on auditors, including the requirement to perform risk assessments (Section 15) and to design appropriate responses to mitigate identified risks (Section 18). Auditors must also ensure that they obtain sufficient appropriate audit evidence to reduce to an acceptably low level the risk that the auditor's conclusions based on audit procedures will be different from the amounts or disclosures included in the financial report (Section 12). Additionally, Section 42 of the Standard mandates that auditors must communicate significant deficiencies in internal control to management and those charged with governance in a timely manner. Breaches of the Auditing Standard ASA 330 can result in civil and criminal consequences. For instance, under Section 1324 of the Corporations Act 2001, an auditor who fails to comply with the Auditing Standards can be subject to civil penalty proceedings. The maximum penalty for a corporation is $21,000, and for an individual, it is $4,200. Furthermore, under Section 1317 of the same Act, an auditor found to be in breach may also face criminal penalties, including fines and imprisonment, depending on the severity of the breach. The penalties are designed to enforce compliance and ensure the integrity of financial reporting processes.

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