(April 2006)
Explanatory Statement
ASA 600 Using the Work of Another Auditor
Issued by the Auditing and Assurance Standards Board
Explanatory Statement
Reasons for Issuing ASA 600 Using the Work of Another Auditor
The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 600 Using the Work of Another Auditor 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 600 Using the Work of Another Auditor
The purpose of Auditing Standard ASA 600 is to establish mandatory requirements and to provide explanatory guidance when an auditor, reporting on the financial report of an entity, uses the work of another auditor on the financial information of one or more components included in the financial report of the entity.
Auditing Standard ASA 600 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 602 (July 2002) Using the Work of Another Auditor
The main differences between ASA 600 and AUS 602 are that in ASA 600:
- 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 602 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 602 some obligations are implied within certain explanatory paragraphs. Accordingly, these paragraphs have been re-drafted to clarify that the matter forms part of the explanatory guidance.
- The following implied obligation in AUS 602 has been elevated and restated as a specific mandatory requirement:
(a) when the other auditor issues, or intends to issue, a modified auditor’s report, the principal auditor shall consider:
(i) the nature and significance of the modification, in relation to the financial report of the entity on which the principal auditor is reporting; and
(ii) whether a modification is also required to the principal auditor’s report, under ASA 701 Modifications to the Auditor’s Report (paragraph 25).
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 30/05 Proposed Auditing Standard: Using the Work of Another Auditor (Re-issuance of AUS 602) 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) enacted Auditing Standard ASA 600 Using the Work of Another Auditor in 2006, as a response to the requirements of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004. This Act established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, and granted it the authority to make Auditing Standards for corporations under section 336 of the Corporations Act 2001. The purpose of ASA 600 is to establish mandatory requirements and provide guidance when an auditor uses the work of another auditor on the financial information of components included in an entity’s financial report. The standard, effective for financial reporting periods commencing on or after 1 July 2006, was developed through public consultation and incorporates the Financial Reporting Council’s Strategic Direction to the AUASB, aiming to ensure the highest quality standards that are enforceable and reflective of the Australian regulatory environment.
Scope and Application
The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 600 Using the Work of Another Auditor as a legislative instrument under the Corporations Act 2001, which applies to auditors who are reporting on the financial report of an entity and who engage in the use of work conducted by another auditor on the financial information of components included in the entity’s financial report. This Auditing Standard applies to financial reporting periods commencing on or after 1 July 2006 and has been developed to align with the International Standards on Auditing (ISAs) of the International Auditing and Assurance Standards Board (IAASB), while conforming to the Australian regulatory environment. The AUASB has also considered the Financial Reporting Council’s Strategic Direction to the AUASB dated 6 April 2005, which provides guidance on the development of Auditing Standards that focus on the public interest, are of high quality, and are enforceable. ASA 600 sets out mandatory requirements and explanatory guidance to assist auditors in fulfilling these requirements and is to be read in conjunction with the Preamble to AUASB Standards. The AUASB has undertaken a process of thorough review and revision of Auditing Standards, including addressing enforceability, clarifying auditors’ obligations, ensuring sector neutrality, and making other necessary amendments.
Key Provisions
The Auditing Standard ASA 600 Using the Work of Another Auditor, issued by the Auditing and Assurance Standards Board (AUASB), provides the necessary framework for auditors when they engage in the practice of using the work of another auditor. Section 336 of the Corporations Act 2001 empowers the AUASB to establish such standards, which have been made to be legally enforceable. The standard applies to financial reporting periods beginning on or after 1 July 2006. The main sections of ASA 600 require the principal auditor to determine the extent to which the work of another auditor can be used, and to decide on the necessary actions to be taken in relation to the other auditor’s work. The standard mandates that the principal auditor must obtain an understanding of the other auditor’s independence and professional competence, and evaluate the adequacy of their work (sections 11-15).
The obligations imposed by ASA 600 on the parties involved are comprehensive and aim to ensure a high standard of audit quality. Auditors must perform their duties with due care and ensure that the work of another auditor is sufficient for their purposes (section 10). They must communicate with the other auditor to understand the scope and findings of their work (section 12). In addition, the principal auditor must assess whether the other auditor’s findings affect the principal auditor’s report and make any necessary modifications (section 25). The standard also requires that if the other auditor issues a modified report, the principal auditor must consider the implications of this modification on their own report (section 25).
Failure to comply with the requirements of ASA 600 can result in significant consequences. While the standard itself does not specify particular offences or penalties, non-compliance may lead to legal action under the Corporations Act 2001. For instance, if an auditor fails to properly use the work of another auditor and this results in an inaccurate financial report, they could be subject to civil penalties or even criminal charges for misleading or deceptive conduct. The penalties for such breaches can include substantial fines and, in some cases, imprisonment, reflecting the serious nature of the auditor's responsibilities under the Act.