Auditing Standard ASA 2020-1 Amendments to Australian Auditing Standards

Overview

The Auditing and Assurance Standards Board (AUASB) has enacted the Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement and ASA 2020-1 Amendments to Australian Auditing Standards pursuant to the legislative provisions of the Australian Securities and Investments Commission Act 2001 and the Corporations Act 2001. The AUASB, a non-corporate Commonwealth entity, issues these auditing standards to align with the International Standards on Auditing (ISAs) and to address the need for improved risk assessment processes in the auditing profession. The primary objective of ASA 315 is to replace the existing auditing standard with a more robust and consistent risk identification and assessment process, while ASA 2020-1 encompasses the necessary amendments to other auditing standards resulting from the reissuance of ASA 315. The standards aim to enhance the auditor's ability to identify and assess risks of material misstatement, particularly in relation to information technology risks and the use of automated tools and techniques. The Legislative Instrument is compatible with human rights, as it does not diminish or limit any applicable human rights or freedoms.

Scope and Application

The Auditing and Assurance Standards Board (AUASB), established under the Australian Securities and Investments Commission Act 2001 and the Corporations Act 2001, has issued Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement and ASA 2020-1 Amendments to Australian Auditing Standards. This legislation serves to align Australian auditing standards with the International Standards on Auditing (ISA) 315 and involves the revision of existing standards to incorporate recent enhancements. ASA 315 applies to auditors and entities subject to audit under the corporations legislation, focusing on the risk assessment process during financial audits to ensure material misstatements are identified and assessed effectively. The standard is effective for financial reporting periods commencing on or after 15 December 2021, with early adoption permitted. The AUASB’s process involves public consultation, and the standards are legislative instruments under the Legislative Instruments Act 2003. The statement of compatibility with human rights confirms that the Auditing Standards do not diminish any human rights or freedoms and are compatible with international human rights instruments.

Key Provisions

The Auditing and Assurance Standards Board (AUASB) has issued the Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement and ASA 2020-1 Amendments to Australian Auditing Standards, which is intended to replace the previous ASA 315 standard. The purpose of this new standard (sections 2-3) is to align Australian auditing standards with the International Standard on Auditing (ISA) 315, thereby ensuring consistency and quality in the risk assessment process for auditors. It is designed to enhance the robustness and consistency of the risk identification and assessment process. ASA 315 sets out clarified and enhanced requirements, along with additional application material, to support auditors in their risk assessment processes (section 6). ASA 2020-1 includes consequential and conforming amendments to other auditing standards to reflect the reissuance of ASA 315. The new standard imposes specific obligations on auditors to thoroughly identify and assess risks of material misstatement in financial reports. Auditors must implement a more rigorous process for understanding the entity and its environment, including its internal control systems, to identify potential risks (section 6). Moreover, the standard requires enhanced guidance on Information Technology risks and the use of automated tools and techniques, ensuring auditors are equipped to handle modern auditing challenges (section 6). These obligations are designed to ensure that auditors can provide greater assurance on the accuracy and reliability of financial statements. The Auditing and Assurance Standards Board (AUASB) has developed these auditing standards in line with its strategic direction, ensuring they have a clear public interest focus and are of the highest quality (section 2). The AUASB consulted publicly during the development process, receiving submissions which were considered in finalising the standards (section 9). The standards are legislative instruments under the Legislative Instruments Act 2003 and are intended to facilitate the Australian economy while ensuring compliance with the Australian regulatory environment. The AUASB has also prepared a Regulatory Impact Statement Preliminary Assessment (RIA), which has been cleared by the Office of Best Practice Regulation (OBPR). Non-compliance with these auditing standards can result in civil or criminal penalties under the Corporations Act 2001, depending on the severity and intent of the breach. The AUASB ensures that these standards are capable of enforcement, thereby maintaining accountability and integrity within the auditing profession.