Frequently Asked Questions

FAQs Auditing standards reporting requirements

I have provided both audit and non-audit services to my client during the year. What disclosures does my client have to make in their financial report in relation to these services?

Auditor remuneration for audit and non-audit services must be disclosed separately in the financial statements under AASB 1054 Australian Additional Services. Paragraph 10 of AASB 1054 requires the disclosures of fees to each auditor or reviewer, including any network firm, separately for the audit or review of the financial statements and for all other services performed during the reporting period.

AASB 1054.11 requires a description of the nature of the other services provided. The disclosure should include descriptions and amounts for each type of other service provided by each auditor or reviewer. For example, if you prepared the tax return, performed a due diligence engagement and reviewed a regulatory return, the description and fees for each service must be shown separately.

Where can I find guidance on the audit relief available for large proprietary companies?

[Updated 2012]

ASIC has exempted from audit (under Class Order 98/1417) large proprietary companies that have unanimous agreement from directors and shareholders not to have an audit, that have not previously had an audit and meet strict financial and other criteria. Resolutions to this effect must be made annually and ASIC notification at the start of each financial year. Companies that do not strictly meet the criteria for relief under the Class Order may apply for individual relief under ASIC Policy Statement 115.

Copies of the class order and policy statement can be found on the ASIC website.

Please can you point me in the direction of a Clarity audit report for a small foreign-owned non-reporting proprietary company that is exempted from lodgement with ASIC under CO 98/98?

[as reported in ANT25/2011]

There is no “off the peg” example that fits your circumstances exactly, but guidance is still available. A small non reporting entity that does not have to lodge accounts may elect to prepare special purpose financial statements, in which case the relevant reporting standard is ASA 800 Special Considerations – Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks. Because the financial report is prepared under a fair presentation framework but not under the Corporations Act, the examples countered in Appendix I should be of assistance to you. In particular, Illustration 3 – Special Purpose Financial Report – Regulatory Authority Requirements is helpful, appropriately edited. Illustration 4 is inappropriate because your client is not compelled to lodge with ASIC under the Corporations Act, and so the audit is the choice of the members.

In the event that your client elects to prepare a general purpose financial report under a fair presentation framework, even where it is not required to under the Corporations Act, the appropriate example report on which to base your audit report is found in ASA 700 Forming an Opinion and Reporting on a Financial Report Appendix 1 Illustration 1.

My client has decided to change from being a public company to being a proprietary company. What are the implications for me as auditor?

If the client will become a large proprietary company, it will still need to be audited unless it qualifies for audit relief under ASIC's CO 98/1417 (PDF). Note that application for the relief must be made before the beginning of the financial year. 
If the reconstituted company will be a small proprietary company on its next reporting date, it no longer needs an audit. However, because a small proprietary company can choose to have an audit if it wishes, we recommend that you resign as auditors when the company changes its status to make it clear that your audit responsibilities have ceased. Because the company is now a small proprietary company, there is no need to seek permission to resign from ASIC. 

Copies of the class order and policy statement can be found on the ASIC website.

Why do I need to document the terms of an engagement with my client and what should such documentation say?

The purpose of an engagement document is to set out the terms and conditions of the engagement that the practitioner is agreeing to undertake and have these confirmed by the client. APES 305 Terms of engagement sets the standard for engagement documentation and must be complied with when providing professional services to clients. It requires, in paragraph 3.1 and following , that the terms and conditions of an engagement must be recorded in written form but does not mandate this form. This means that the record can take the form of a letter, agreement or other appropriate document that the practitioner and the client deem appropriate. Paragraph 4 then provides guidance on the content of whatever is prepared. Its specific recommendations include:

  • recording the objective, scope and responsibilities of the work
  • the format and ownership of any report required.
  • the various responsibilities of the two parties and the involvement of any third parties
  • the fees and billing arrangements.
  • confirmation from the client of their agreement to the documentations’ contents which ensures both parties clearly understand and have documented their expectations and responsibilities before work commences so as to prevent misunderstandings arising later.

Details specifically concerning the scope of the engagement are set out in paragraph 4.4 of APES 305 . This paragraph has recently been revised by the APESB to include specific reference to the need to comply with accounting and auditing standards and also to make reference to any limitations of scope placed on the conduct of the engagement. The revised APES 305, issued in March 2013 is effective for engagements commencing on or after 1 July 2013.

Paragraph 5 provides guidance on circumstances which may require reissue of existing documentation e.g. change in client personnel or expectations. This paragraph has also recently been revised by the APESB as part of the reissue of APES 305 referred to above . The amended paragraph 5 deals more explicitly with the concept of a “recurring engagement ‘ and explain the types of circumstances which may affect the the need to issue updated engagement documentation".

In addition to the general principles in APES 305 more specific policy is available depending on the nature of the engagement being undertaken.

For audit engagements ASA 210 Agreeing the terms of audit engagements sets out the auditors responsibilities during this process which includes requiring that the auditor ensures that the necessary preconditions for audit work are complied with. Requirements specific to the other differing types of assurance engagements are in their respective standards e.g. ASAE 3100 covers compliance engagements, ASAE 300, other assurance engagements, and ASAE 3500 performance engagements APES 315 sets out the guidance in relation to compilation engagements, while APES 220 covers taxation services. In recent years the lack of engagement documentation for tax work has been a recurring theme of the Institute’s quality review program and so the Institute has prepared a sample engagement letter for tax engagements. This and a range of other engagement  tools are available  as part of the Institute’s suite of Practice management everyday tools under the heading “Managing your clients”. Member log-in is required.