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Auditing standards: s311 responsibilities
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List of Q&As relating to Auditing standards: s311 responsibilities: 
 
s311 obligations (ANT16/2009) 
Corporations Act breaches (ANT05/2008) 
Qualified audit reports (ANT26/2007)  
 

 
s311 obligations 
as reported in ANT16/2009 
 
Q: What are my obligations as auditor if I suspect that a corporate client is trading while insolvent? 
 
A: Section 311 of the Corporations Act requires an auditor to report to the Australian Securities and Investments Commission (ASIC) any matters where there is reasonable grounds to suspect a significant contravention of the Corporations Act. Reporting of non-significant contraventions is also required if the auditor believes it will not be adequately dealt with either by reporting to management or by disclosure in the audit report or accounts. The primary source of assistance in understanding this obligation is ASIC’s Regulatory Guide 34, Auditor’s Obligations: Reporting to ASIC on the ASIC website (PDF). 
 
Appendix 1 provides examples of the types of contraventions that may be considered significant and that an auditor might have to report and specifically cites insolvent trading in paragraphs RG 34.49 to 34.52. Para 34.49 states: ”Given the nature of a contravention of s 588G (the section which prohibits insolvent trading) and the possible detriment that there may be to creditors or employees, it is unlikely that a suspected contravention could be adequately dealt with by commenting on it in the auditor’s report or bringing it to the attention of the directors”. 
 
Members may also wish to avail themselves of the Institute’s legal service, which is described as point 3 on the following web page. Further, if members are concerned by the professional and ethical implications, they may wish to contact the Chartered Accountants Advisory Group. 
 
 
Corporations Act breaches 
as reported in ANT05/2008 
 
Q: Does an audit qualification for non-compliance with accounting standards require notification to ASIC under Section 311 of the Corporations Act? 
 
A: Yes, a notification to ASIC would usually be required in these circumstances. 
 
Under Section 311(1)(a) of the Corporations Act, an auditor is required to notify ASIC if the auditor has reasonable grounds to suspect a contravention of the Act and they believe that the contravention is either significant or, if not significant, cannot be adequately dealt with by inclusion in the audit report or by bringing it to the attention of the directors. 
 
ASIC’s Regulatory Guide 34 Auditors Obligations: Reporting to ASIC (formerly know as practice note 34) provides detailed guidance on the application of this section of the Act. This guide states at paragraph 20 that one example of a likely significant breach is “a breach of accounting standards or the true and fair view requirement”. This is on the basis that compliance with accounting standards is required by the Corporations Act (section 296) and therefore a breach (or suspected non-compliance) of an accounting standard is a breach (or suspected breach) of the Corporations Act.  
 
Non-compliance with accounting standards is further discussed in paragraphs 33 to 35 of the Guide. This section states that an auditor’s obligations to include breaches of accounting standards under section 308(2) and 309(2) do not relieve auditors from their reporting obligations under s 311. The practice note considers that departures from accounting standards would generally be either significant or, even if not significant, it might not be dealt with adequately in the audit report or by drawing it to the directors’ attention and therefore should be reported under Section 311. 
 
The Technical Standards team wrote an article in Charter (PDF) in April 2005, which summarised the reporting responsibilities under s311.  
 
 
Qualified audit reports 
as reported in ANT26/2007 
 
Q: Does an audit qualification for non-compliance with accounting standards require notification to ASIC under Section 311 of the Corporations Act? 
 
A: Yes, a notification to ASIC would usually be required in these circumstances. 
 
Under Section 311(1)(a) of the Corporations Act, an auditor is required to notify ASIC if the auditor has reasonable grounds to suspect a contravention of the Act and they believe that the contravention is either significant or, if not significant, cannot be adequately dealt with by inclusion in the audit report or by bringing it to the attention of the directors. 
 
ASIC’s Practice Note 34 Auditors Obligations: Reporting to ASIC provides detailed guidance on the application of this section of the Act (note that from 5 July 2007, Practice Note 34 may also be referred to as “Regulatory Guide 34”). This Practice Note states at paragraph 20 that one example of a likely significant breach is “a breach of accounting standards or the true and fair view requirement”. This is on the basis that compliance with accounting standards is required by the Corporations Act (section 296) and therefore a breach (or suspected non-compliance) of an accounting standard is a breach (or suspected breach) of the Corporations Act.  
 
Non compliance with accounting standards is further discussed in paragraphs 33 to 35 of the Practice Note. This section states that an auditor’s obligations to include breaches of accounting standards under section 308(2) and 309(2) do not relieve auditors from their reporting obligations under s 311. The practice note considers that departures from accounting standards would generally be either significant or, even if not significant, it might not be dealt with adequately in the audit report or by drawing it to the directors’ attention and therefore should be reported under Section 311. 
 
The Technical Standards team wrote an article in charter in 2005 which summarised the reporting responsibilties under s311. The article is available here (PDF).