List of Q&As relating to Auditing standards: application to other specific issues:
Audit reports for New Zealand companies
Bank confirmations
Schedule of lessor's outgoings
Auditing internal controls
Ethical clearance letter
Solicitors’ representation letters
Engagement quality control reviewers
Loan declarations
Auditing revenue for a charitable entity
Financial advisers certificate
Audit reports for New Zealand companies
as reported in ANT16/2008
Q: As a member of the Institute of Chartered Accountants, can I sign audit reports for New Zealand companies?
A: Section 199(1) of the New Zealand Companies Act 1993 reads:
“A person must not be appointed or act as an auditor of a company unless: …
“(c) The person is a member, fellow, or associate of an association of accountants constituted outside New Zealand where -
“(i) the association is, by notice in the Gazette, approved for the time being for the purposes of this section by the Register; and
“(ii) The person is eligible to act as an auditor in the country, state, or territory in which the association is constituted.”
For the purposes of Section 199(1)(c), the register in New Zealand has gazetted the Institute of Chartered Accountants in Australia
However, while it is technically possible for a member of the Institute to sign a New Zealand audit report, the Institute would urge its members to use caution in accepting such an engagement. The Institute recommends that members seek specific New Zealand legal advice relating to their particular circumstances before accepting such an engagement. Members should also carefully consider whether their familiarity with the NZ reporting and legislative framework, auditing standards and tax legislation is sufficient to enable them to reduce the risk of failing to identify material errors and misstatements in the financial statements to an acceptable level.
Bank confirmations
Q: Where can I find the specimen standard bank confirmation certificates? I understand they are no longer printed and sold.
A: The specimen standard bank confirmation certificate is Appendix 1 of AGS 1002 ‘Bank Confirmation Requests’. This is available for download from the auditing section of the Institute's Members' Handbook or from the AUASB website. A specimen letter to accompany the request is Appendix 3 of AGS 1002, while Appendix 2 contains a request specific to Treasury operations.
Schedule of lessor's outgoings
as reported in ANT16/2007
Q: I notice that the example audit report from AUS 802 Appendix 2, Example 3 entitled "Schedule of Lessor's Outgoings" has not been carried forward to ASA 800. Is there a reason for this?
A: The AUASB considered it unnecessary to carry forward, from AUS 802, all the example reports relating to "Other Financial Information". The illustrative reports are not intended to cater for all situations. ASA 800 has been written using ISA 800 as a base and with a view to simplifying the Standard wherever possible without compromising quality. The Standard includes requirements on the basic elements of an auditor's report, explanatory guidance and appendices which enable practitioners to construct their own reports, in accordance with the Standard, and recognizing the specific circumstances of the engagement. The AUS 802 examples may still be helpful.
Thanks to Howard Pratt at the AUASB for clarifying this for us.
Auditing internal controls
as reported in ANT43/2006
Q: I have heard there are new audit requirement for increased consideration of internal controls. Can you tell me more?
A: In 2004, the AUASB issued four new or revised standards containing a more risk-based approach to auditing. These were applicable for periods beginning on or after 15 December 2004, making them applicable to 30 June 2006 audits. The standards were:
- AUS 202 Objective and General Principles Governing an Audit of a Financial Report (revised)
- AUS 402 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatements (revised)
- AUS 406 The Auditor's Procedures in Response to Assessed Risks (new)
- AUS 502 Audit Evidence (revised)
The new standards substantially increased the auditor’s obligations to understand the client’s internal control systems, assess risks more rigorously and link audit procedures to these assessed risks. A summary of the changes can be found in a February 2005 Charter article, Time to Make the Change, by Richard Mifsud and Neeta Gobin (members and candidates viewing only).
These standards have now been reissued as ASA’s as part of the “force of law” revisions. However their content remained largely unchanged and so the new risk based models will require ongoing application to audits for financial reporting periods beginning on or after 1 July 2006.The equivalent ASA standards are ASA’s 200, 315, 330 and 500.
Ethical clearance letter
as reported in ANT41/2006
Q: If tendering for an audit, does my obligation to send an ethical clearance letter to the existing auditor mean that I should send it prior to submitting the tender, or can I send it after being advised that I have won the tender?
A: Section 210 of APES 110 Code of Ethics for Professional Accountants (“the Code”) discusses changes in professional appointments, and in this context mentions those who are considering tendering for an engagement currently held by another professional accountant. The Code recognises that a potential tenderer should determine whether there are any reasons, professional or other, for not accepting the engagement, and that this may require direct communication with the existing accountant. On this basis, the decision to send an ethical clearance letter before submitting the tender would appear to be a matter for the professional judgement of the tenderer, in his consideration of risk management factors.
The specific obligation to send an ethical clearance letter to the existing auditor is contained in paragraph AUST210.11.1 of the Code. The wording of that paragraph refers to “The proposed accountant, who is asked to replace an existing auditor or to accept nomination as auditor”. In the context of the tender, being asked to replace the existing auditor or to accept nomination as auditor does not occur until the tender process has been completed and the audit client has notified the winning tender. After being so notified, the winning tender then has the obligation detailed in paragraph AUST210.11.1 to send the ethical clearance letter to the existing auditor.
The Code goes on to suggest at paragraph 210.15 that, when replying to requests to submit tenders, an accountant should consider stating in the tender that, before accepting the engagement, contact with the existing accountant will be requested.
It should be noted that the receipt of an ethical clearance letter does not bestow any right of objection on the existing auditor. The purpose of the ethical clearance letter is to enable the proposed auditor to make a decision as to whether the audit engagement or the nomination ought to be accepted.
Solicitors’ representation letters
as reported in ANT38/2006
Q: I recently received a letter from a solicitor indicating their concern that recent case law has raised doubts about legal professional privilege attaching to solicitor’s representation letters. What should I do?
A: The decision referred to is the NSW Supreme Court (Westpac Banking Corporation Limited v 789 Ten Pty Limited [2005] NSWSC 321). The court held that when solicitors provide information to auditors at the request of their clients, unlike advice provided in letters to clients themselves, that information may not be protected by legal professional privilege.
The difficulties this poses for auditors were considered by the AUASB at its September meeting and the AUASB agreed that it would not be feasible at this stage for the AUASB to provide any additional definitive guidance on this matter given that the issues surrounding the case are unresolved and that in the meantime auditors were generally able to perform alternative audit procedures to obtain sufficient appropriate audit evidence on legal matters. The AUASB agreed to continue to monitor the issues relevant to the case, including in regards to the impact of privilege on the auditors ability to obtain a solicitor's representation letter in other countries.
The Institute has also made representations to Treasury in relation to this issue seeking appropriate legislative amendment, if necessary.
Engagement quality control reviewers
as reported in ANT35/2006
Q: Is an Engagement Quality Control Review (EQCR) needed for a half year review of a listed entity for 30 June 2006 half years?
A: Auditors of listed entitities are required to appoint an EQCR for all listed entity audits of historical financial information. This includes half year and full year audits.
An EQCR is not technically required for half year reviews, although each firm must have a written policy setting our the criteria for determining whether an ECQR should be appointed for reviews. However, if the firm has been appointed auditor of a listed entity the Institute's view is that it would generally be appropriate to appoint an ECQR for the half year review.
The requirement to appoint an ECQR for listed entity audits and set out criteria for reviews and other audits is included in AUS 206 paragraph 36 (effective for audits of historical financial information for audits commencing on or after 15 June 2005). This is mirrored in the Quality Control standard - APS 5 (paragraph 62(a)) from 31 December 2005, now superceded by APES 320 (paragraph 60(a)).
Loan declarations
as reported in ANT34/2006
Q: I have been requested by a client to sign a declaration relating to a business loan, stating that I had explained the financial consequences of signing the documents, the nature of the loan facility and the risks of the borrower not repaying the loan on the due date to the client. What should I do?
A: Members must exercise caution when signing these documents. We have published a couple of articles in Charter on these "certificates" to assist members. They are on the following links:
http://www.charteredaccountants.com.au/files/documents/Financial_advisers.pdf
http://www.charteredaccountants.com.au/files/documents/Financial_Advice_Cert.pdf
For additional assistance there are several articles dealing with a client’s solvency that may also assist. An article that relates to declarations of solvency required by insurers of building contractors contains some relevant material and is on the following link http://www.charteredaccountants.com.au/files/documents/Builders_solvency.pdf.
AGS 1040 Franchising Code of Conduct - Auditor's Reports is also relevant and a copy is in the members handbook.
Auditing revenue for a charitable Entity
as reported in ANT 48/2005
Q: My client is a small charity which operates a cash basis of accounting and has limited control over receipts. Is there any guidance available to assist me in my audit work?
A: In February 2000, the AUASB published AGS 1054, “Auditing Revenue of Charitable Entities”. This AGS examines the characteristics of charitable entities, discusses audit strategy and control issues for this type of client and provides example audit reports. It is included in the member’s handbook.
Financial advisers certificate
as reported in ANT 20/2005
Q: One of my clients has asked me to sign a financial advisers certificate to support their application for a lease. Can I do this?
A: The risk for a member who signs such a certificate is that if the client defaults in meeting his or her obligations owed to the financier, the financier may take action against the member to recover moneys owing to it.
The Institute's advice is therefore to treat such certificates with care and to only sign a form of words which, based on the circumstances of their client relationship and the level of work able to be performed, is appropriate to their situation.
There is no specific standard dealing with this issue however guidance on the risks involved and the types of wording that may be appropriate in the circumstances can be found in AGS 1044 "Audit report of information provided other than in a financial report" and AUS 902 Review of financial reports. |
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