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Chapter 14 Other Assurance Services Copyright 2006 McGraw-Hill Australia Pty Ltd 14- Learning Objective 1: The Current Framework for Assurance Services Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-2 Force of Law Auditing Standards (1 July 2006) The force of law auditing standards apply to all audits and reviews of Corporations Act 2001 financial reports that commence on or after July 2006, (these would be under the left branch of figure 1.2): • for such audits, the Australian Auditing Standards is now be designated as ASA’s, and will have to same numbering as the equivalent ISA’s • for such reviews, the Australian Auditing Standard AUS 902, is now designated as Australian Standard on Review Engagements ASRE2410, equivalent to the International Standard on Review Engagements ISRE 2410 Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-3 A review of levels of assurance Form of engagement for all subject matter (historical financial information) Level of assurance for all subject matter (historical financial information Expression of opinion reasonable assurance (audit) reasonable (high) positive Limited assurance (review) limited (moderate) negative agreed upon procedures nil report of factual findings Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-4 Learning Objective 2: Limited Assurance (Review) Engagements • Used when limited (moderate) rather than reasonable (high) level of assurance deemed appropriate • Report provides negative assurance of whether anything has come to auditor’s attention that causes auditor to believe that the subject matter is not fairly presented Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-5 Reviews of financial reports • Limited assurance engagements for financial reports are called reviews • In planning for a review engagement, knowledge of entity is vital • Major evidence collection procedures are: – – inquiries of management; and analytical procedures Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-6 Reporting considerations • Important that client and user understand that a review is being undertaken, not an audit: • Engagement letter and discussion with client must ensure that differences between review and audit are understood • Review report must clearly show that lower level of assurance than that obtained from an audit is provided Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-7 Example of an unqualified review report Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-8 Example of an unqualified review report (Cont.) Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-9 Example of an unqualified review report (Cont.) Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-10 Learning Objective 3: Agreed-Upon Procedures • Such procedures are broad-ranging and can be in any area where the client and user perceive them to be beneficial For example: – – Accounts payable listing is complete and accurate Academy Awards votes are confidentially maintained and properly counted Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-11 Importance of understanding what is agreed upon • Engagement letter should clearly set out: – – – – Nature of engagement, and the fact that procedures performed are not an audit or review; List of procedures to be performed as agreed; Anticipated form of report; and Restrictions on distribution of report Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-12 Learning Objective 4: Assurance services on financial information other than general purpose reports • Special purpose reports; • Components of financial reports; • Summarised financial reports; and • Due diligence engagements Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-13 Learning Objective 5: Assurance Services Required by Specific Legislation or Regulations • Future-oriented (prospective) financial information; • Internal controls, e.g superannuation reporting obligations; and • Statistical or highlight-style information, e.g reporting by authorised deposit-taking institutions (e.g banks and building societies) for national regulator (Australian Prudential Regulation Authority - APRA) Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-14 Assurance services other than financial report assurance currently being provided Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-15 Prospective financial information • Forecasts – prepared on basis of assumptions of future events expected to take place, and reflect expected future position • Projections – present hypothetical courses of action and prepared on basis of assumptions not necessarily expected to take place Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-16 Reporting on prospective financial information • Two levels of assurance contained in report: – – Positive assurance is provided as to prospective financial information being prepared in accordance with assumptions (e.g calculations), fairness of presentation Moderate assurance is provided on best estimate assumptions (No opinion is expressed on hypothetical assumptions.) Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-17 Reporting on effectiveness of internal controls • Becoming more common, owing to greater emphasis on corporate governance; • Increased demand for this information by management, directors and some regulatory bodies; and • Demonstrated by recent changes in the USA as a result of the introduction of the Sarbanes-Oxley Act (SOX) Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-18 Reports on internal control (IC) • Establishing suitable criteria for testing controls is a key aspect If entity clearly sets out what constitutes a satisfactory IC system, then easier for auditor to undertake audit There is however no suitably detailed description of IC that would serve as an audit criteria for all entities • Auditor should assess both design and operating effectiveness of IC systems Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-19 Reporting on statistical or highlight information • Potential growth area for assurance services; • This information is commonly provided, either as part of or separate from a financial report; • Currently auditor provides no assurance on such information but must review for misstatements of fact or material inconsistencies (Refer Ch 13); • Auditor could provide separate assurance on these key performance indicators Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-20 Learning Objective 6: Assurance Services Being Promoted by the Assurance Profession • Many possibilities, but the following are currently provided or proposed, and most expected to have high growth prospects: – – – – – – Risk assessment (p 671); Business performance measurement (pp 672); Assurance for e-commerce — business to consumer: WebTrust (pp 672); Assurance for e-commerce — business to business: SysTrust (pp 673); ElderCare (pp 674); and Assurance on information provided to boards directors by management (pp 675) Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14-21 ... Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14- 14 Assurance services other than financial report assurance currently being provided Copyright... Auditing Standards is now be designated as ASA’s, and will have to same numbering as the equivalent ISA s • for such reviews, the Australian Auditing Standard AUS 902, is now designated as Australian... Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 14- 3 A review of levels of assurance Form of engagement for all subject matter (historical financial
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