(April 2006)
Explanatory Statement
ASA 530 Audit Sampling and Other Means of Testing
Issued by the Auditing and Assurance Standards Board
Explanatory Statement
Reasons for Issuing ASA 530 Audit Sampling and Other Means of Testing
The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 530 Audit Sampling and Other Means of Testing 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 530 Audit Sampling and Other Means of Testing
The purpose of Auditing Standard ASA 530 is to establish mandatory requirements and to provide explanatory guidance on the use of audit sampling and other means of selecting items for testing when designing audit procedures to gather sufficient appropriate audit evidence.
Auditing Standard ASA 530 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 514 (April 1998) Audit Sampling and Other Selective Testing Procedures
The main differences between ASA 530 and AUS 514 are that in ASA 530:
- 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 514 by the word ‘should’.
- The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 514 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.
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 28/05 Proposed Auditing Standard: Audit Sampling and Other Means of Testing (Re-issuance of AUS 514) was issued on 9 December 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 530 Audit Sampling and Other Means of Testing in 2006, following the enactment of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004. This Act established the AUASB as an independent statutory body to create Auditing Standards under the Corporations Act 2001. The primary purpose of ASA 530 is to establish mandatory requirements and provide guidance on the use of audit sampling and other means of selecting items for testing when designing audit procedures to gather sufficient appropriate audit evidence. ASA 530 replaces the previous Auditing Standard AUS 514, with key differences including the use of the term "shall" to denote mandatory requirements, and the redrafting of explanatory guidance paragraphs to clarify their role. The AUASB consulted publicly in developing this Auditing Standard, issuing an exposure draft in December 2005 and considering submissions as part of the finalisation process.
Scope and Application
The Auditing and Assurance Standards Board (AUASB) has issued Auditing Standard ASA 530 Audit Sampling and Other Means of Testing, which applies to auditors who are engaged in the audit of financial reports and other historical financial information of entities, including companies, under the Corporations Act 2001. This standard is designed to provide mandatory requirements and explanatory guidance on the use of audit sampling and other methods for selecting items for testing when auditors design procedures to gather sufficient and appropriate audit evidence. The standard applies nationally across Australia and extends its reach to all entities required to comply with the auditing provisions of the Corporations Act 2001. The application of ASA 530 is mandatory for audits of financial periods commencing on or after 1 July 2006, and it supersedes the previous Auditing Standard AUS 514. The AUASB has ensured that this standard conforms to the strategic direction provided by the Financial Reporting Council and is enforceable under the legislative framework established by the Corporations Act 2001. The standard was developed through a comprehensive review process and public consultation, as mandated by the legislative provisions.
Key Provisions
The Auditing Standard ASA 530 Audit Sampling and Other Means of Testing (ASA 530) sets out the mandatory requirements and provides guidance on the use of audit sampling and other means of selecting items for testing when designing audit procedures to gather sufficient appropriate audit evidence (paragraph 1). This standard is intended to be read in conjunction with the Preamble to AUASB Standards, which outlines the AUASB's intentions for the understanding, interpretation, and application of the Auditing Standards (paragraph 2). ASA 530 is operative for financial reporting periods commencing on or after 1 July 2006 (paragraph 3). The main changes from the previous Auditing Standard AUS 514 include the use of the term 'shall' to describe mandatory requirements, as opposed to 'should' in AUS 514, and the clarification of explanatory guidance paragraphs, which now provide explicit guidance and illustrative examples (paragraph 6). The AUASB has undertaken public consultation in the development of this Auditing Standard, issuing Exposure Draft ED 28/05 on 9 December 2005 and considering submissions as part of the finalisation process (paragraph 9).
ASA 530 imposes obligations on auditors to design and perform audit procedures in a manner that ensures sufficient appropriate audit evidence is obtained. This includes the appropriate use of audit sampling and other means of selecting items for testing (paragraph 1). Auditors must ensure that the sample size and selection method are sufficient to reduce audit risk to an acceptably low level (paragraph A1). Furthermore, the standard requires auditors to document the rationale for the chosen sampling method and sample size, along with any exceptions identified during the testing process (paragraph A8). Auditors must also exercise professional judgement in determining the sufficiency and appropriateness of the audit evidence obtained (paragraph A11).
Breach of the mandatory requirements set out in ASA 530 could lead to various civil and criminal consequences, depending on the nature and extent of the non-compliance. Under the Corporations Act 2001, failure to comply with an Auditing Standard may result in civil penalty provisions being enforced, with potential penalties including fines and, in some cases, imprisonment (section 1317E). Additionally, auditors who fail to comply with ASA 530 may face professional disciplinary action from the Accounting Professional and Ethical Standards Board, which can include suspension or cancellation of their registration as an auditor (APESB Handbook). Furthermore, companies and directors who are found to have been involved in the preparation of financial reports that are misleading or deceptive due to non-compliance with ASA 530 may face legal action under the Corporations Act 2001, including fines and imprisonment (section 1311(1)).