QUESTION
Audit Clarity Project
The Clarity Project involved the International Auditing & Assurance Standards Board (IAASB) reviewing and reissuing all its standards to improve the clarity of wording and make their application more consistent. Subsequently the Australian Auditing & Assurance Standards Board (AUASB) has adopted this work and reviewed all existing ASAs. The complete new set of revised ASAs was issued and became legally binding in October 2009.
SOLUTION
1. Introduction
The introduction of the Clarity Project by the International Auditing & Assurance Standards Board (IAASB) for reviewing issues related to accounting and auditing standards with the main focus of the IAASB to ensure structured responsibilities for the assured practitioner along with a clear statement of the accounting standards. The project was introduced in 2009 with a complete publishing of the new standards for the following fiscal of 2010.
The Australian government has recently harmonised its commitments with the international standards and has completed the effective adoption of the clarity project. The ASA has changed its own drafts to comply with the international rules and regulations.
(www.charteredaccountants.com.au – accessed on 23/04/2012)
With the introduction of the Clarity Project accounting standards have been subject to a large number of changes which have been analysed and discussed in the course of the paper. The changes in the accounting standards have been applicable from June 2010 onwards in all the financial statements.
2. Changes in the Auditing Standards
The clarity project has effectively restructured the accounting systems and has imposed certain new standards as well as altered existing standards to maintain effectiveness and efficiency in the system. Some of the main changes in the standards that have been introduced are:
2.1 Changes in ASA 102: Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements
The ASA 102 is a new standard being introduced the main aim of the ASA standard apples to firms, practitioner auditors and quality controllers. The main aim of the standard is to enforce ethical requirements on the practitioner groups. The standard describes an ethical code of conduct to be applied by the practitioners while evaluating and editing accounts. It is important to evaluate and consider the ethical nature of auditor practices to ensure that fair picture is presented to all the shareholders.
2.2 Changes in ASA 200: Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards
The auditor needs to meet all the objectives set under the ASA 200.The main objective of the Auditor however remain to prepare the financial reports within the prescribed framework of the ASA. Secondly, all the financial reports and other statements have to be prepared in accordance with the Australian auditing standards. The complete lists of the prescribed rules and regulations have been specified by the AUSB. The principle of professional judgement has also been effectively described in the standard. Finally, the standard requires documentation of any failure to meet the required standard.
2.3 ASA 240: The Auditors Responsibility with respect to Fraud in Audit of Financial Report
The auditors have been prescribed in a certain ethical manner and have a certain responsibility to report fraud in the financial reporting system. The auditor needs to manage and supervise the risk associated with fraud in the financial reporting. The auditors need to effectively engage in activities to maintain appropriate ethical standards. Despite all the financial reporting the auditor must be able to effectively justify each journal entry while editing the accounts of the company also is able to check the appropriateness of each of the entries. The auditor should be able to evaluate the judgements and decisions made by management in making the accounting estimations and identify the existence of a bias within the system. The auditor should be able to revaluate the statements if required. However there is no change in the documentation of the prescribed standard the auditor has to complete the documentation in compliance with the previous standards that have been enforced.
2.4 ASA 240: Legal Considerations while conducting an Audit of a Financial Report
The role of the auditor is to ensure legal compliance with the rules and regulations prescribed by the Australian standards. If the auditor identifies a noncompliance in the financial reporting should be able to perform the required procedures to ensure the legal compliance with the rules and regulations. An effective auditor should be able to identify the misjudgement in the financial reporting and take appropriate action to rectify the mistake. The management of the company should be able to provide the auditor sufficient evidence for their compliance with the rules and regulations of the standard in such a case the auditor should be able to approach the legal framework effectively and easily. The auditor is liable to consider legal advice in case of presence of any fraud in the financial reporting.
The auditor is the first person who can recognise a fraud in the financial reporting system; therefore the auditor bears the responsibility of effective identification of such a case, Moreover taking the required action against the management or the financial reporting system to eliminate the fraud at the very first step.
(Overview of the revised and redrafted Australian Auditing Standards, 2010 – AUASB.gov.au)
3. Ensuring Compliance with the Standards
Many national standards, legislator and financial bodies have raised concerns over the effective implementation of the clarity project and the subsequent standards that have been introduced. The main concern however remains to increase the awareness of the changes in the standards and then the appropriate training and development to be given to the auditors to ensure the effective implementation of such standards. Education and creation of awareness is the top priority of the Australian government to ensure nationwide compliance of the new auditing standards so that all the stakeholders are able to benefit from the new rules enforced. The IAASB should immediately draw out plan to review and view the effective implantation of the standards so that a national unity of the auditing and accounting system is established (IAASB , 2008).
4. Conclusion
The clarity project though has completed it successful implementation in 2009 , it has introduced a wide variety of changes related to the auditing procedures and standards. Firstly it is essential for financial bodies to ensure compliance with the new standards. The Auditing standards that have been introduced should be able to provide creation of ethical disclosures by corporations and in case of existence of financial misreporting the auditors should be able to take effective actions against the management of the company. An effective Audit system will be able ensure a clean financial reporting system.
5. References
- “Clarity project.” /www.charteredaccountants.com.au. N.p., n.d. Web. 23 Apr. 2012. </www.charteredaccountants.com.au/Industry-Topics/Audit-and-assurance/Current-issues/Clarity-project.aspx>.
- Government of , Australia. “Overview of the revised and redrafted Australian Auditing Standards.” AUASB 1.1 (2010): 1-28. www.auasb.gov.au. Web. 23 Apr. 2012.
- International Auditing and Assurance, standards Board. “IAASB CLARITY PROJECT UPDATE.” International Auditing and Assurance Standards Board 1.1 (2008): 1-5. www.ifac.org. Web. 23 Apr. 2012.
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