SMSF audit reports
as reported in ANT34/2007
Q: ANT28 (19 July 2007) recently announced the release by the ATO of new SMSF audit reports. Do these reports apply to the current financial year (ie. years ending 30 June 2007)?
A: Yes. The new reports are to be used for financial years ending on or after 30 June 2007 as they have been amended to conform with the new auditing standards which are applicable to this financial year. It should be noted that these revised standards are legally enforceable in respect of Corporations Act audits, and must be used on audits of SMSFs.
The ATO application dates of 1 July 2007 refers to the date when the audit report is signed.
The 27 August 2007 edition of Retirement Alert Today (RAT) contained useful guidance on the audit of SMSFs.
It included:
Work Programs for the Audit of SMSFs
Last year the Institute sent a disk to members containing work programs for the audit of self managed superannuation funds. This material is available on the website along with a new file which contains some recommended updates to reflect the new legislation. Refer to the Updated Work Programs.
IMPORTANT: before using the above work programs, please check this document, which contains changes and updates, current to July 2007
Audit relief for large proprietary companies
as reported in ANT17/2007
Q: Where can I find guidance on the audit relief available for large proprietary companies?
A: 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.
UIG references in the audit report, notes and directors declarations
as reported in ANT05/2007
Q: Following the disbanding of the UIG what should happen to the references to "UIG consensus views" and "interpretations" currently contained in the wording of financial statements notes and the audit reports.
A: Now that the UIG's functions have been absorbed into the AASB, there is no need to refer to the UIG specifically.
The best available guidance for wording is probably that contained in the "force of law" standard on audit reporting ASA 700. While ASA 700 is not mandatory for audit reports for financial years beginning before July 1 2006, its wording best reflects the current situation in relation to AASB pronouncements.
The specimen audit report contained in appendix 1 to ASA 700 makes reference to relevant pronouncements in the auditor's opinion as follows. "...complying with Australian Accounting Standards (including the Australian Accounting Interpretations)..."
Where the UIG was referred to in a description of a general purpose financial report in the notes to the financial statements, the reference can now be removed. This is because AASB 1048 (an accounting standard) covers all UIG interpretations and so reference to the accounting standards is all that is necessary (see part D example 2 Note 1 of AASB 101.) However specific additional mention could still be made using words such as "other mandatory financial reporting requirements" or "including Australian Accounting Interpretations" if preferred.
Thanks to Richard Mifsud at the AUASB for his help with this one.
AFS Licensees & Reporting Requirements
as reported in ANT48/2006
Q: I have a client that holds an Australian Financial Services license and am confused about the reporting requirements.
A: AFS Licensees are required to lodge a profit and loss statement, balance sheet (Form FS70) and audit report (Form FS71) with ASIC annually.
When preparing the financial statements of the entity, the licensee must determine whether the entity is a reporting entity or not. Whilst the current legislation allows for a non-reporting entity to prepare 'special purpose' financials, ASIC, as the primary user, is requiring Licensees to lodge 'general purpose' financials (i.e. adopting all the Accounting Standards). This arises as ASIC Form FS 70 requires the annual financial statements of AFS licensees to comply with the accounting standards via s989C and Reg. 7.8.13(1). FS 70 allows for the rare circumstances in which an AFS licensee is not a reporting entity, but ASIC's Information Release 00/025, "Reporting requirements for non-reporting entities" states that ASIC believes that licensed securities dealers and futures brokers would only be non-reporting entities in rare and exceptional circumstances such as a securities dealer who is not carrying on business and has no proper authority holders. The auditor needs to review this decision to ensure the reporting entity assessment is reasonable.
The auditor can use an audit program for a services entity (large or small) depending on the size and complexity of the licensee's operations. This program will need to be modified to include work steps related to compliance with the financial requirements of the licence and the licensee's ability to continue to meet its obligations (s990 K(2)) as these matters are included in the audit report. ASIC's Policy Statement 166, "Licensing: Financial Requirements" covers financial requirements for licensees, including audit. It is available from ASIC at http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ps166.pdf/$file/ps166.pdf. Paragraph 166.27 onwards lists those matters that ASIC requires assurance on in the audit report.
In October 2004, the AUASB issued AGS 1068, Audit Requirements for Australian Financial Services Licensees under the Corporations Act 2001 to assist members auditing these entities.
Note that the auditor of an AFS Licensee needs to be a Registered Company Auditor.
Note also that ASIC have issued an updated Form FS71 'Audit Report' dated 1 October 2006. More details will be available in next week's ANT.
Withdrawal of Guidance Note on audit report
as reported in ANT40/2006
Q: ANT 34 noted the recent AUASB decision to withdraw, effective immediately, the Guidance Note: Improving Communication between Auditors & Shareholders (July 2003). Can I still use the wording in this note for my June 30 2006 audit reports?
A: Yes. The AUASB's withdrawal of this note is designed to ensure that it is no longer in force when the new "force of law" audit standards (specifically ASA 700 dealing with audit reports) become operative for financial years beginning on or after July 1 2006. However where audits are still being performed under the "pre force of law" AUS standards and the report is under AUS 702, the guidance to AUS 702 contained in this note can still be applied. ASA 700 should not be applied early.
Thanks to Howard Pratt at the AUASB for his help with this one.
Signing audit reports
as reported in ANT36/2006
Q: I am a registered company auditor and hold an Institute practicing certificate. I work for an ASIC approved audit company (AAC), but I am not a director of the company. Can I sign off audit reports in my own name when the clients' work is completed under the banner of the audit company?
A:The wording of S324AD allows the audit report issued by an AAC to be signed by either a director of the audit company or the lead or review auditor for the assignment. The ASIC Auditor rotation policy proposal issued April 2006, A5, also states ASIC's view "that any employee of the audit firm or AAC who is a registered company auditor (RCA) may act as the lead auditor". Note, however, that this paper is still only at the policy proposal stage.
This would therefore place the obligation on the AAC to decide who can sign audit reports in its name. In making this decision Professional Indemnity issues will need to be considered. If a member is an employee signing off on the audit report on behalf of the firm when they are not a director, they need to ascertain whether that could leave them personally liable. Members need to confirm (preferably in writing) that the AAC's PI insurance would cover them before issuing a report in both their own and the AAC's name as required by section 324AD. If the alternative approach of relying on the PI held in their own right under their CPP is adopted, written confirmation should be sought from their provider, as they are not, in this instance, the appointed auditor.
The Institute's Quality Review team takes the view that it is possible for a staff member to be the auditor, but subject to their holding a CPP and PI (and being appointed auditor of course, but that is not relevant to this query). Such a member is then subject to review.
AFS Licensees & Reporting Requirements
as reported in ANT 39/2005
Q: I have a client that holds an Australian Financial Services license and am confused about the reporting requirements.
A: AFS Licensees are required to lodge a profit and loss statement, balance sheet (Form FS70) and audit report (Form FS71) with ASIC annually.
When preparing the financial statements of the entity, the licensee must determine whether the entity is a reporting entity or not. Whilst the current legislation allows for a non-reporting entity to prepare ‘special purpose’ financials, ASIC, as the primary user, is requiring Licensees to lodge ‘general purpose’ financials (i.e. adopting all the Accounting Standards). This arises as ASIC Form FS 70 requires the annual financial statements of AFS licensees to comply with the accounting standards via s989C and Reg. 7.8.13(1). FS 70 allows for the rare circumstances in which an AFS licensee is not a reporting entity, but ASIC's Information Release 00/025, “Reporting requirements for non-reporting entities” states that ASIC believes that licensed securities dealers and futures brokers would only be non-reporting entities in rare and exceptional circumstances such as a securities dealer who is not carrying on business and has no proper authority holders. The auditor needs to review this decision to ensure the reporting entity assessment is reasonable.
The auditor can use an audit program for a services entity (large or small) depending on the size and complexity of the licensee's operations. This program will need to be modified to include work steps related to compliance with the financial requirements of the licence and the licensee's ability to continue to meet its obligations (s990 K(2)) as these matters are included in the audit report. ASIC's Policy Statement 166, “Licensing: Financial
Requirements” covers financial requirements for licensees, including audit. Paragraph 166.27 onwards lists those matters that ASIC requires assurance on in the audit report.
In October 2004, the AUASB issued AGS 1068, Audit Requirements for Australian Financial Services Licensees under the Corporations Act 2001 to assist members auditing these entities.
Note that the auditor of an AFS Licensee needs to be a Registered Company Auditor.
Audit Relief for Large Proprietary Companies
as reported in ANT 17/2005
Q: Where can I find guidance on the audit relief available for large proprietary companies?
A: 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.
Audit Requirements for 30 June 2005
as reported in ANT 15/2005
Q: I am just about to plan for a number of my 30 June 2005 audits. I keep hearing discussions about changes to the auditing requirements from 30 June 2004. I know that the 2004 audits were performed in accordance with the requirements, what changes do I have to make for 30 June 2005 audits?
A: The changes to the Corporations Act 2001 as a result of the CLERP 9 amendments need to be taken into consideration. These are mainly around auditor independence and are covered in ANT 24 and 25/2004 on 25 June and 2 July 2004.
There has also been the issuance of AGS 1068 “Audit requirements for Australian Financial Services Licensees under the Corporations Act 2001” and the reissue of AGS 1048 “The Special Considerations in the Audit of Small Companies”. The Auditing & Assurance Standards Board has also released the following auditing standards with the application dates showing subsequent to the name:
- AUS 110 – Assurance engagements other than audits or reviews of historical financial information (effective for assurance engagements where the assurance report is dated on or after 1 January 2005. Earlier application is permissible).
- AUS 206 – Quality control for audits of historical financial information (effective for audits of historical financial information for period commencing on or after 15 June 2005).
- AUS 210 – the auditor’s responsibility to consider fraud in an audit of a financial report (effective for audits of financial reports for periods commencing on or after 15 December 2004).
- AUS 202 – objective and general principles governing an audit of a financial report (operative for financial reporting periods commencing on or after 15 December 2004, although earlier application is encouraged).
- AUS 402 – understanding the entity and its environment and assessing the risk of material misstatements (operative for financial reporting periods commencing on or after 15 December 2004, although earlier application is encouraged).
- AUS 406 – the auditor’s procedures in response to assessed risks (operative for financial reporting periods commencing on or after 15 December 2004, although earlier application is encouraged)
- AUS 502 – Audit evidence (operative for financial reporting periods commencing on or after 15 December 2004, although earlier application is encouraged)
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