(September 2006)
Explanatory Statement
Australian National Audit Office (ANAO) Auditing Standards
Issued by the Australian Auditor-General
Explanatory Statement
Mandate of the Auditor-General
The Office of Auditor-General is a statutory office created by the Auditor-General Act 1997 (the Act). The Auditor-General is appointed to audit, and report to the Parliament of the Commonwealth of Australia on, the activities and performance of the Australian Government and its agencies, authorities, companies and their subsidiaries.
The Act sets the terms and conditions of the Office of the Auditor-General and states the functions and powers of the Auditor-General. Functions and powers may also be conferred on the Auditor-General by other legislation.
The Act creates the Australian National Audit Office (ANAO), which consists of the Auditor-General and staff appointed under the Public Service Act 1999. The function of the ANAO is to assist the Auditor-General in performing Auditor-General functions. The Auditor-General may also engage people under contract to assist in the performance of an Auditor-General function.
Reasons for Setting ANAO Auditing Standards
The Auditor-General sets the ANAO Auditing Standards to meet the requirement of section 24 of the Act.
Section 24 provides as follows:
“The Auditor-General must, by notice in the Gazette, set auditing standards that are to be complied with by persons performing any of the following functions:
(a) an audit referred to in Division 1 or 2;
(b) an audit under Division 2 of Part 7;
(c) an audit under section 56 of the Financial Management and Accountability Act 1997.”
These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.
The functions referred to in paragraph (a) of section 24 are:
- financial statements audits of
- Agencies in accordance with the Financial Management and Accountability Act 1997 (Section 11 of the Act),
- Commonwealth authorities and their subsidiaries in accordance with the Commonwealth Authorities and Companies Act 1997 (section 12 of the Act) and
- Commonwealth companies and their subsidiaries in accordance with the Commonwealth Authorities and Companies Act 1997 (section 13 of the Act), and
- performance audits of agencies, Commonwealth authorities and their subsidiaries, and Commonwealth companies and their subsidiaries, in accordance with sections 15 to 18 of the Act.
The functions referred to in paragraph (b) of section 24 are audits by the ANAO’s Independent Auditor of the ANAO’s annual financial statements under section 44 of the Act and any performance audits undertaken under section 45 of the Act.
The function referred to in paragraph (c) of section 24 is the audit of the Finance Minister’s annual financial statements required by section 55 of the Financial Management and Accountability Act 1997. These financial statements are the annual consolidated financial statements of the Australian Government.
The persons performing the functions mentioned in section 24 of the Act will include the Auditor-General, the staff of the Australian National Audit Office, and contractors appointed or engaged to assist in the performance of an Auditor-General function.
Process of making the ANAO Auditing Standards
It is the intention of the Auditor-General that audits conducted by the ANAO should be conducted to the same standards required of the auditing profession in Australia, to the extent that they are not inconsistent with any provision of the Auditor-General Act.
The ANAO Auditing Standards therefore incorporate, by reference, Australian Auditing and Assurance Standards that are current from time to time, being:
- standards made or formulated under section 227B of the Australian Securities & Investments Commission Act 2001 (the ASIC Act) by the Australian Auditing and Assurance Standards Board (AUASB Standards), and
- those standards issued by the AuASB (the Auditing and Assurance Standards Board which issued Australian Auditing and Assurance Standards up to 30 June 2004, on behalf of CPA Australia and The Institute of Chartered Accountants in Australia) which have not yet been revised and reissued (whether as standards or as guidance) by the AUASB, to the extent that they are not inconsistent with the AUASB standards.
AUASB standards
The primary functions of the AUASB under section 227B of the ASIC Act include:
- to make auditing standards (under section 336 of the Corporations Act 2001) for the purposes of the corporations legislation; and
- to formulate auditing and assurance standards for other purposes.
In making or formulating standards, the AUASB is required to follow any strategic directions given to it under the ASIC Act by the Financial Reporting Council (FRC).
The FRC on 6 April 2005 issued a Strategic Direction to the AUASB which included the following elements (among others):
- The AUASB should develop Australian Auditing Standards that have a clear public interest focus and are of the highest quality;
- The AUASB should use, as appropriate, International Standards on Auditing (ISAs) of the International Auditing and Assurance Standards Board (IAASB) as a base from which to develop Australian Auditing Standards; and
- The AUASB should continue to develop auditing and assurance standards other than for historical financial information.
The AUASB categorises the standards it makes or formulates as follows:
- Auditing Standards (“ASAs”)
- Standards on Review Engagements (“ASREs”);
- Standards on Assurance Engagements (“ASAEs”); and
- Standards on Related Services (“ASRSs”).
AUASB Auditing Standards (ASAs) apply to financial statements audits and also, as appropriate, to all audits of other historical financial information. An audit is designed to provide reasonable assurance.[1]
AUASB Standards on Review Engagements (ASREs) apply to the review of financial statements and also, as appropriate, to the review of other historical financial information. A review provides a lower level of assurance than an audit.
AUASB Standards on Assurance Engagements (ASAEs) apply to assurance engagements dealing with subject matters other than historical financial information.[2] These engagements may provide either reasonable or limited assurance, depending on the nature of the engagement.
AUASB Standards on Related Services (ASRSs) apply to engagements involving agreed upon procedures to information and other related services engagements as specified by the AUASB. These engagements do not provide any assurance.
Further information and explanation of the nature of AUASB standards can be found in the Foreword to AUASB Pronouncements issued on 28 April 2006 by the AUASB. The AUASB has also issued ASA 100 Preamble to AUASB Standards, which sets out the AUASB’s intentions on how the AUASB Standards are to be understood, interpreted and applied.
Standards made by the (former) AuASB
The establishment of the AUASB was the result of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 ("CLERP 9"), which came into effect on 1 July 2004. CLERP 9 reconstituted the former Auditing and Assurance Standards Board (“AuASB”)[3] as a statutory body under the oversight of the Financial Reporting Council.
A number of the standards (and various guidance statements) made by the AuASB survive its replacement by the AUASB, until such time as they are dealt with by the AUASB. These standards include AUS 806 Performance Auditing and AUS 808 Planning Performance Audits.
INTOSAI Auditing Standards
INTOSAI is the International Organisation of Supreme Audit Institutions. As a member of INTOSAI, the ANAO is encouraged to publish auditing standards that are consistent with INTOSAI Auditing Standards.
The ANAO Auditing Standards are consistent with the principles expressed in the INTOSAI Auditing Standards.
Purpose of ANAO Auditing Standards
The purpose of the ANAO Auditing Standards is to establish mandatory requirements and provide explanatory guidance for persons performing the functions specified in section 24 of the Auditor-General Act 1997.
AUASB Auditing Standard ASA 100 Preamble to AUASB Standards sets out the intentions of the AUASB on how the AUASB Standards are to be understood, interpreted and applied.
However, in the event of an inconsistency between a provision in an ANAO Auditing Standard and a provision in the Auditor-General Act or other legislation, the provision in the legislation prevails.
Ethical requirements
Persons who are required to comply with the ANAO Auditing Standards are expected to adhere to the highest standards of ethical behaviour.
The expected standard of behaviour for Australian Public Service employees has been formally set out in the Public Service Act 1999. Specifically, section 13 of the Public Service Act details the Code of Conduct. The Guide to Conduct in the ANAO incorporates the requirements of the Public Service Act Code of Conduct and provides further guidance in the context of the ANAO’s specific responsibilities.
AUASB Auditing Standards contain references to compliance with “relevant ethical requirements”. The references are included in certain mandatory requirements and explanatory guidance paragraphs in AUASB Standards.[4] The relevant ethical requirements relating to audit engagements referred to in the AUASB Auditing Standards are contained in the respective codes of professional conduct of the professional accounting bodies in Australia.[5] In addition, AUS 806 Performance Auditing, paragraph 08, mandates that the auditor should comply with the ethical requirements of CPA Australia and The Institute of Chartered Accountants in Australia.
It is important that all persons performing audit functions under the authority of the Auditor-General Act 1997 make themselves aware of and adhere to the expectations that exist of the ANAO.
Operative Date
These ANAO Auditing Standards replace the ANAO Auditing Standards published in the Commonwealth of Australia Gazette GN45 of 16 November 2005.
The individual standards apply in accordance with the operative dates given or indicated in each individual standard.
Main changes from the ANAO Auditing Standards gazetted on 16 November 2005
The main from the ANAO Auditing Standards of November 2005 is to update the requirements to capture AUASB Standards made with effect from 1 July 2006.
Consultation prior to re-issuing the ANAO Auditing Standards
There has been no consultation prior to re-issuing the ANAO Auditing Standards. Persons to whom the Standards apply will be employees of the ANAO or subject to the direction of the ANAO or contractors who, for the most part, will be familiar with AUASB Standards through membership of a professional accounting body.
The due process for the issue of AUASB Standards is set out in the Foreword to AUASB Pronouncements issued by the AUASB in April 2006. That due process includes the issue of exposure drafts of proposed standards for public comment.
[1] ASA 200 General Principles and Objectives Governing the Audit of a Financial Report contains explanatory guidance relating to reasonable assurance in the context of an audit engagement.
[2] Examples of such subject matters include the efficiency and/or effectiveness of an entity’s activities, prospective financial information and the effectiveness of internal controls.
[3] The AuASB previously existed as a board of the Australian Accounting Research Foundation, which was jointly controlled and funded by The Institute of Chartered Accountants in Australia and CPA Australia
[4] These requirements in AUASB standards will apply to the extent they are not inconsistent with the requirements of the Auditor-General Act 1997 and the Public Service Act 1999.
[5] In Australia, the codes of conduct of the professional accounting bodies, as issued from time to time, are APES 110 Code of Ethics for Professional Accountants, issued by the Accounting Professional and Ethical Standards Board for CPA Australia and The Institute of Chartered Accountants in Australia; and Pronouncements of the Board of Directors – Code of Ethics issued by the National Institute of Accountants.