Term Paper: Auditing Standards in Australia

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Auditing Standards in Australia

The objective of this work is to examine Auditing Standards in Australia.

This case study conducts an examination of the Auditing Standard in Australia and specifically the 'Auditing Standard ASA 200' published in April 2006. The Auditing Standard ASA 200 is issued by the 'Auditing and Assurance Standards Board'. The purpose of the 'Auditing Standard' is to: (1) set out the objective of an audit of a financial report; (2) to require the auditor to comply with relevant ethical requirements relating to audit engagement; (3) to require the auditor to conduct an audit in accordance with Auditing Standards; (4) to require the auditor to comply with each of the Auditing Standards relevant to the audit in determining the audit procedures to be performed and to not represent compliance with Auditing Standards unless all of the Auditing Standards relevant to the audit have been complied with; (5) requires the auditor to, if possible, perform appropriate alternative audit procedures and to document certain matters where, in rare and exceptional circumstances, factors outside the auditor's control prevent the auditor from complying with an essential procedure contained within a relevant mandatory requirement. Where the auditor is unable to perform appropriate alternative audit procedures the auditor is required to consider the implications for the auditor's report; (6) requires the auditor to exercise professional judgment and to maintain an attitude of professional skepticism throughout the conduct of the audit; (7) requires the auditor to obtain reasonable assurance as to whether the financial report taken as a whole is free from material misstatement, whether due to fraud or error; and (8) requires the auditor to plan and perform the audit to reduce audit risk to an acceptably low level that is consistent with the objective of an audit. (Auditing and Assurance Standards Board, 2006)

TERMS & DEFINITIONS

ASA - Auditing Standards

ASRE - Standards on Review Engagements

ASAE - Standards on Assurance Engagement

ASR - Standards on Related Services

Auditor - Auditor - means either the engagement partner or the audit firm. Where it applies to the engagement partner, it describes the obligations or responsibilities of the engagement partner. Such obligations or responsibilities may be fulfilled by either the engagement partner or a member of the audit team. Where it is expressly intended that the obligation or responsibility be fulfilled by the engagement partner, the term "engagement partner" rather than "auditor" is used." (Auditing and Assurance Standards Board, 2006)

I. OBJECTIVE of an AUDIT

The reason that an audit is conducted of a financial report is to "enable the auditor to express an opinion as to whether the financial report is prepared in all material aspects in accordance with an applicable financial reporting framework." (Auditing and Assurance Standards Board, 2006) the term 'financial report' is stated to refer to "a structured representation of the financial information, which ordinarily includes accompanying notes, derived from accounting records and intended to communicate an entity's economic resources or obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework." (Auditing and Assurance Standards Board, 2006) the determination of the content of the financial report as well as the compilation in terms of its form is that which is required by the financial reporting framework and in certain frameworks of financial reporting a cash flow statement is all that is required to compose a financial report. The determination of which form of reporting is applicable lays with governance both in making this identification for financial reporting in preparing and presentation of the financial reporting. Responsibilities of those who prepare and present financial reports include the following responsibilities:

1) designing, implementing and maintaining internal control relevant to the preparation and presentation of a financial report that is free from material misstatement, whether due to fraud or error;

2) Selecting and applying appropriate accounting policies; and 3) Making accounting estimates that are reasonable in the circumstances. (Auditing and Assurance Standards Board, 2006)

II. AUDITING OPINIONS on FINANCIAL REPORTING

The ASA 700 contains requirements that are mandatory along with explanations and guidance on matters that must be considered by the auditor in the formation of an opinion regarding a general purpose financial report when "prepared in accordance with a financial reporting framework that is designed to achieve fair presentation and in terms of the form and content that the report of the auditor should present this information with. ASA 800 or 'The Auditor's Report on Special Purpose Audit Engagements' states the mandated requirements and provides guidance and explanation for the auditor when an opinion is being presented on:

1) a financial report prepared in accordance with an alternative comprehensive basis of accounting, such as a special purpose financial report prepared for the purpose of fulfilling the directors' financial reporting requirements of the Corporations Act 2001;

2) a component of a general purpose or special purpose financial report, such as a single financial statement, specified accounts, elements of accounts, or items in a financial statement; (3) compliance with contractual agreements; and 4) a summarized financial report. (Auditing and Assurance Standards Board, 2006)

This Auditing Standard is stated to be in conformance with 'International Standard on Auditing ISA 200 Objective and General Principles Governing an Audit of Financial Statements' that became effective on the 15th of December 2005.

III. MAPPING of AUDITING STANDARDS in AUSTRALIA

The following table labeled Figure 1 in this study provides the mapping of Australia's Auditing Standard in the divisions assigned and with a description of each of these.

Mapping of Auditing Standards in Australia

ASA Number

ASA Name

AUS Number

AUS Name

Foreword to AUASB Pronouncements

Forward to Australian Auditing and Assurance Standards and Guidance Statements

AUASB Glossary

Glossary of Terms

Preamble to AUASB Standards

Objective and General Principles Governing an Audit of a Financial Report

Objective and General Principles Governing an Audit of a Financial Report

Terms of Audit Engagements

Terms of Audit Engagements

Quality Control for Audits of Historical Financial Information

Quality Control for Audits of Historical Financial Information

Audit Documentation

Documentation

The Auditor's Responsibility to Consider Fraud in an Audit of a Financial Report

The Auditor's Responsibility to Consider Fraud in an Audit of a Financial Report

Consideration of Laws and Regulations in an Audit of a Financial Report

Consideration of Laws and Regulations in an Audit of a Financial Report

Communication of Audit Matters with Those Charged With Governance

Communicating with Management on Matters Arising from the Audit

Planning an Audit of a Financial Report

Planning

Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement

Understanding the Entity and its Environment and Assessing the Risks of Material Misstatements

Materiality and Audit Adjustments

Materiality and Audit Adjustments

The Auditor's Procedures in Response to Assessed Risks

The Auditor's Procedures in Response to Assessed Risks

Audit Considerations Relating to Entities Using Service Organizations

Audit Implications Relating to Entities Using a Service Entity

Audit Evidence

Audit Evidence

Existence and Valuation of Inventory

Existence and Valuation of Inventory

Source:

The work of Paul Nicoll entitled: "Audit in a Democracy" explores the role of public sector auditor in Australia and relates that the standards of the Australian Auditing and Assurance Standards Board is adopted by the Auditor-General for "regularity and performance..." (2005) Adoption of auditing standards is a method of ensuring that a level of consistency is present between the issues and approaches of auditing in the public and private sectors. Stated as an alternative to the adoption of common standards was the development of these by the Auditor-General. There have been forty-six standards developed by the Australian Auditing and Assurances Standard Board to be applied in both public and private sectors with two of these being specifically applicable for performance audits. It is stated that some standards "for financial statement audits also apply to performance audits. An example is 'Quality Control for Audit Work', on policies and procedures of an audit firm regarding audit work generally; and for procedures delegated to assistants." (Nicoll, 2005)

The standards adopted by the Auditor-General for performance audits are stated to be applicable and the same definition of materiality as for regularity, financial report or financial statement audits. These explain how in making the assessment of risk and materiality that the auditor considers factors that are both qualitative and quantitative and include the following:

1) the importance of the operations to achieving the entity's objectives;

2) the financial impact the operations have on the entity as a whole;

3) the nature of transactions, for example, high volumes, large dollar values and complex transactions;

4) the extent of interest shown in particular portions of the entity;

5) the economic, social, political and environmental impact of the operations;

6) the extent of management's actions regarding issues raised in previous audits;

7) the diversity, consistency and clarity of the entity's objectives and goals;

8) the nature, size and complexity of the operations;

9) the effectiveness of the internal control structure, including the level of internal audit coverage;

10) the nature and degree… [END OF PREVIEW]

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