Professional Documents
Culture Documents
• Limitations of an audit:
– There is no guarantee that the financial report is
free from error or fraud.
– The nature of audit procedures and processes are
required to be performed within a reasonable
period and at a reasonable cost (ASA 200, ISA
200).
– Judgement is required in the process of
preparation of the financial statements.
Different assurance services
2. Compliance audit:
– Involves gathering evidence to ascertain whether
rules, policies, procedures, laws and regulations
have been followed.
• A tax audit is an example of a compliance
audit.
Different assurance services
3. Performance audit:
– Refers to the economy, efficiency and
effectiveness of an organisation’s activities.
• Usually done by internal auditors or can be
outsourced to external auditors.
Different assurance services
4. Comprehensive audit:
– Combines elements of financial report audit,
compliance audit and performance audit.
• Often occur in the public sector.
Different assurance services
5. Internal audit:
– Provides assurance about various aspects of an
organisation’s activities.
• Often contain elements of performance
audits, compliance audits, internal control
assessments and reviews.
Different assurance services
• Unmodified:
– Also known as an UNQUALIFIED OPINION or clean
opinion – as in a ‘clean bill of health’.
– Financial report is true and fair, presents fairly the
financial position of the company, information
complies with AAS and Corp Act.
Different audit opinions
• Modified:
– Modifications that do not affect the auditor’s
opinion:
• Emphasis of matter.
– Modifications that affect the auditor’s opinion:
• Qualified Opinion
• Adverse opinion
• Disclaimer of Opinion.
Different audit opinions
Different audit opinions
1. Preparer responsibility
– It is the responsibility of those charged with
governance to prepare the financial statements.
– The information should include the following
attributes:
• Relevant: has an impact on the decisions made
by users regarding the performance of the
entity.
• Reliable: Information is free from material
misstatements (errors or fraud.)
Preparers and auditors
1. Preparer responsibility
– The information should include the following
attributes:
• Comparable: information needs to be
comparable through time. Comparable against
the same entity over time and against other
entities.
• Understandable: Users need to be able to
interpret the information presented in order to
make decisions.
Preparers and auditors
1. Preparer responsibility
– The information should include the following
attributes:
• True and fair: requires the consistent and
faithful application of an applicable framework
when preparing report.
Preparers and auditors
2. Auditor responsibility
– Auditor also has responsibilities relating to the audit.
• Professional scepticism: maintaining independent
of the entity and having a questioning mind to
thoroughly investigate all evidence presented.
• Professional judgement: use of judgement based
on level of expertise, knowledge and training
obtained by the auditor.
• Due care: being diligent, applying standards and
documenting each stage of the audit process.
Preparers and auditors
3. Assurance providers
• Assurance services are provided by accounting and
consulting firms.
• There are three tiers of assurance providers in Australia.
– First tier comprises of the ‘Big 4’, which includes
Deloitte, EY, KPMG and PWC
– Mid tier comprises of firms with significant
presence and most have international affiliations.
Preparers and auditors
3. Assurance providers
• There are three tiers of assurance providers in Australia.
– Next tier made up of regional and local accounting
firms.
Demand for audit and assurance services
3. Theoretical frameworks:
– The demand for audit can be explained by the
following three theories:
• Agency theory: Due to the remoteness of the
owners from the entity, the owners have an
incentive to hire an auditor to assess
information provided by management.
Demand for audit and assurance services
3. Theoretical frameworks:
– The demand for audit can be explained by the
following three theories:
• Information hypothesis: Due to the need for
reliable information, users will demand that
information be audited to aid in decision
making.
• Insurance hypothesis: Investors demand
audited financial statements to insure against
potential losses.
Demand for audit and assurance services
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Financial reporting council (FRC):
– Oversees the process used for setting
accounting and auditing standards.
– Also monitors and reports on auditor
independence.
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Auditing and assurance standards board
(AUASB):
– Responsible for the formulation of auditing
standards.
– AUASB redesigned auditing standards to
bring in line with international standards.
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Auditing and assurance standards board
(AUASB):
– Responsible for issuing ASRE, ASAE and GS
standards and statements.
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• International auditing and assurance
standards board:
– Develop and issue International Standards
on Auditing (ISAs).
– Operates under the auspices of
International Federation of Accountants
(IFAC).
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Accounting professional and ethical standards
board (APSEB):
– Established as an independent body by CPA
Australia and CAANZ to issue professional
and ethical standards.
– APES standards are mandatory for all
members of CPA Australia, CAANZ and NIA.
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Australian securities and investments
commission (ASIC):
– Government body that administers the ASIC
Act and much of Corporations Act.
– Plays a role in overseeing of the audit
function.
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Australian securities exchange (ASX):
– Formed in 1987 after merging of six state
based exchanges.
– Provide additional obligations for entities
wishing to list on the exchange.
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Companies auditors and liquidators
disciplinary board (CALDB):
– Responds to ASIC and APRA regarding
breaches of Corporations Act or ASIC Act.
– Board may cancel or suspend auditor, may
give warning or ask for undertaking to
improve conduct.
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Professional bodies (including CPA Australia
and Chartered Accountants Australia and New
Zealand):
– Include professionals in public practice,
industry, academia and government.
The role of regulators and regulations
1. Regulators:
– There are a number of regulators that impact the
audit process. They include:
• Professional bodies (including CPA Australia
and Chartered Accountants Australia and New
Zealand)
– Requires further post-graduate study and
minimum work experience periods to join
as members.
The role of regulators and regulations
2. Regulation:
– Corporations act:
• Provides guidance on conducting audit of financial
reports.
• This includes that certain accounts need to be
audited (s. 301,) the audit report stating whether
it is true and fair & in accordance with accounting
standards (s. 307,) standards must be applied (s.
307A,) retention of audit working papers (s.
307B,) and independence declaration (s. 307C.)
The role of regulators and regulations
2. Regulation:
– CLERP 9:
• Significant changes brought about from 1 July
2004 including auditing standards having ‘force of
law.’
• Other changes include:
–Disclosure of non-audit services provided by
auditor.
The role of regulators and regulations
2. Regulation:
– CLERP 9:
• Other changes include:
–Enhanced independence and employment
requirements.
–Auditor rotation based on not exceeding being
auditor for more than five out of the last seven
years.
Audit expectation gap
Audit expectation gap