Accounting Assignment Topic is: Australian Auditing and Assurance standards

Assignment Question is:

Outline the major revisions to the auditing standards and discuss their implications for auditors conducting audits.

Assignment Review frame is:

Introduction

The auditing standards prescribed by the Australian Auditing and Assurance Standards provides a framework that enables the auditors to conduct the audit procedure that helps them in presenting a true and fair opinion on the financial statements of the companies. These standards have to be followed mandatorily by all the auditors irrespective of their size of firms. In the year 2009, the AASB has released a clarity project which has revised as many as 43 standards which supports the financial systems integrity, better public confidence, capital market stability and strengthens the overall framework of the auditing environment in Australia.The following essay outlines the major revisions that have been brought about and their corresponding implications.

Major Revisions of Auditing Standards:

The main objective of the clarity project was to bring much more clarity and ease in understanding its requirements by the auditors and is applicable to reporting of companies on or after 1^st of January 2010. There has been nearly 43 revisions made to the auditing standards and of them the following are the major revisions:

ASA 260:Communication with those charged with Governance

The recent changes in the standard calls for an effective two way communication between the auditor and the people charged with the governance of the firm. It’s the duty of the auditor to also evaluate the effectiveness of the communication. The matters that needs to be effectively communicated are also outlined in the standard as those that includes the audit plan, scope of audit, timing of audit, outcome of the audit and lot more.The auditor must also bring to notice of the governance any kind of difficulties that he may have encountered. Also, the auditors have to document all that is communicated and just oral communication is not sufficient.  In many cases the management and the persons who are in charge of the governance are the same, then it should also be documented and analysis of the same has to be done well in advance.

ASA 265: Communicating the deficiencies in internal control to those charged with the Governance and Management

This is a new standard that has been formulated in the clarity project. If the auditor comes to know of any kind of deficiencies in the internal controls. The same has to be properly communicated to the people charged with the governance or management. The AASB has replaced the word material weaknesses with deficiency in internal control. This in clarifies the objective of the standard, the term material weakness implies many meanings and to make it clear and easy to understand the term deficiency in internal control has been included.  It also specifies the documentation of the communicated matter regarding the deficiencies and effective communication needs to be done on a timely manner. It’s up to the auditor to judge which hare the significant deficiencies that tends to be communicated and those that can hinder the main audit procedure.

ASA 540: Auditing, Accounting estimates, including fair value accounting estimates and related disclosures

Initially this standard was in ASA 545 but now this has been incorporated into this ASA 540. The auditor as per the standard has to undertake risk based approach for accoutnign of the fair market value estimates.  Besides many other changes and inclusions are made to the standards like

• Review of the previous financial statements in terms of the estimates
• Determining the risks levels of estimates that have higher uncertainty
• Clearly chalks out the procedure for auditor to define the response for assessed risks
• After the identification of the risks the auditor has to approach the substantive procedures in response to assessed risk.

ASA 550: Related Parties

The revisions of the ASA 550 have brought about new definitions of the related parties. [5] It has included several other points that can make the clarity format lot more useful for the auditors in conducting their audit procedure. The auditor has to understand the impact of the related parties on the financial statements and also the extent of misstatement of facts due to fraud. The auditor must also be prudent to reveal such other transactions that have been entered by the management with the related party and its implications on the financial statements. Besides, the auditor for the sake of the above mentioned points has to also check for the internal control mechanism followed by the management for related parties.  The auditor has to report and communicate to the persons in charge of the governance regarding any such other transactions that has been entered by the management with the related parties that is considered to be beyond the usual terms of business and also its related risks.  And finally the auditor must clearly document all the details corresponding to the related parties such as the name, address and nature of transactions.

ASA 600: Special Considerations-Audits of a group financial report

The consolidated financial statements presented by the groups must be first analyzed by the auditor to ensure that they come under the preview of group audits.There are new inclusions like

• Assessing the risk and the control procedures for group audit
• Audit engagement terms and conditions
• Strategy for group audit and plan for the same
• Component auditors must be identified and understand their roles
• Assess the risks and develop the response to such risks
• Effective communication to the governance regarding the aspects of the audit procedure
• Documentation of every audit procedure

 Conclusion

The main objective to revise the standards by the AASB has been to provide better clarity and thereby improve the audit practice in many ways. There have been several revisions made and the major revisions and it significant implications were discussed in the preceding paragraphs.  These standards must be mandatory followed by the entire auditor for firms reporting on or after 1^st January, 2010.

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