Professional Documents
Culture Documents
LECTURE 1 Introduction to the Audit Function Assurance Framework Australian Corporate Audits Auditing Standards
Lecture Overview
Announcements Overview course requirements Introduction to the course
Assurance Auditing Legal requirements Auditing standards
Announcements
1. Tutorial Allocation
Once classes are full no more will be admitted No new classes will be scheduled Staff-assisted changes
Will be allowed for exceptional circumstances only; and only where the class is not already at maximum size
NOTE: this is a very practical course. Rote learning is inappropriate. Need to apply skills to specific scenarios
Financial Reporting
Financial statements are prepared by company management They are presented to shareholders (Most) shareholders have no way of checking that they present a true and fair view of the company This gives rise to agency costs
Assurance
Agency costs can be reduced by having an independent third party provide assurance as to whether the financial statements are true and fair. The third party:
Conducts procedures to determine the truth and fairness of the financial statements Issues an opinion on their truth and fairness to the shareholders.
Absolute Assurance
Absolute assurance can never be provided because of:
The nature of accounting:
Valuation issues, Accounting policy choice and judgments, Contingent items,
Reasonable Assurance
Reasonable assurance is a high but not absolute level of assurance The conclusion is expressed in a positive form
The financial statements are true and fair.
An audit engagement provides a reasonable level of assurance. The opinion is expressed in an audit report.
Limited Assurance
Limited assurance is a lower level of assurance than reasonable assurance.
The actual level of assurance depends upon the nature of the procedures that are carried out.
Auditing
The American Accounting Association (AAA) has defined auditing as:
A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.
(Ref: A Statement of Basic Auditing Concepts)
In practice, this means that they are free of material errors in:
$ amounts Disclosures.
There are other types of auditors reports, which will be discussed in later lectures,
Company Audits
There are a wide variety of circumstances under which an assurance engagement can be conducted. However, the main focus in this course will be on audits of general purpose financial statements of Australian companies. These are governed by the
Corporations Act 2001
This requirement applies to all Australian companies, except exempt proprietary companies (very small ones)
the individual auditor or audit company must conduct the audit or review in accordance with the auditing standards.
ASA 101.9
The auditor shall apply the mandatory components of the Australian Auditing Standards when conducting an audit or review in accordance with those Standards. The mandatory components are included in each Auditing Standard under the headings listed below:
(i) Application (paragraph Aus 0.1). (ii) Operative Date. (iii) Objective(s). (iv) Definition(s). (v) Requirements.
ASA 101.10
The auditor shall consider the whole text of an Auditing Standard to understand, interpret and apply the mandatory components. The explanatory material is included in each Auditing Standard under the headings listed below:
(i) Application (paragraph Aus 0.2). (ii) Introduction. (iii) Application and Other Explanatory Material. (iv) Conformity with International Standards on Auditing. (v) Appendices.
Explanatory material does not create or extend mandatory components. (Ref: Para. A1)
Other Standards
There are several other standards that affect assurance engagements
APES 110
Australian Code of Ethics for Professional Accountants
ASQC1
Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, and Other Assurance Engagements
Other Standards
Standards on Review Engagements (ASREs)
These cover review engagements on historical financial information.
Other Documents
The AUASB has released two other documents that have no legal force but are designed to explain concepts. Framework for Assurance Engagements
This is a conceptual framework for assurance.
AUASB Glossary
This defines a large number of auditing terms
Note, many of the definitions are repeated in the standards (giving them legal force)