CCH ProSystem free Audit Update eNewsletter  


 Spring 2010
 Audit Update Newsletter


 Authored by:
 Sothertons Chartered Accountants

 
 
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  • Spring 2010

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In an effort to support our customers to keep up-to-date with the changes within the industry, CCH ProSystem is pleased to provide you with a biannual Audit Update. The Update is a snapshot of the major legislative changes introduced into the Auditing world and includes the relevant links to the source documents to enhance your knowledge.

  • Corporations Amendment (Corporate Reporting Reform) Act 2010 passed through Parliament on 24 June, and took effect on 30 June 2010, read more

  • GS 016 Bank Confirmation Requests The AUASB has issued guidance on audit procedures used to obtain evidence relating to bank accounts and transactions, read more

  • Revised Home and Retirement Savings Audit Reports APRA has released new and revised audit reports for registrable superannuation entities' licensees, read more

  • Standardised Business Reporting AUASB has issued a bulletin on the possible impacts of Standardised Business Reporting, read more

  • ASAE 3402 Assurance Reports on Controls at a Service Organisation The AUASB has issued ASAE 3402 applying to reports issued for periods commencing from 1 July 2010, read more

  • Clarity Reminder All practitioners and firms providing assurance services are required to have established a quality control system in accordance ASQC 1 from 1 January 2010, read more

 

Corporations Amendment (Corporate Reporting Reform) Act 2010

On 24 June 2010 Parliament passed the Corporations Amendment (Corporate Reporting Reform) Act 2010, which includes provisions to simplify financial reporting. The changes came into effect on 30 June 2010.

Key reforms covered:

Relief from Parent Company Reporting

Where consolidated financial statements are prepared in compliance with Australian Accounting Standards, no parent company accounts will be required. However there is a requirement to disclose key parent financial information including:

  • Current and Total Assets;

  • Current and Total Liabilities;

  • Shareholders Equity;

  • Profit and Loss;

  • Total Comprehensive Income;

  • Guarantees, Contingent Liabilities and Capital Commitments.
Auditors will need to plan (including the assessment of materiality) and undertake audit procedures to obtain sufficient appropriate audit evidence in relation to the key financial information.

Companies looking to take advantage of this relief will need to ensure there is no requirement in their Constitutions to produce standalone parent financial statements.

Dividends

The profit based test for determining the capacity to pay dividends has been replaced by a solvency test for dividends declared after 28 June 2010. The solvency test requires dividends to be paid only when:

  • Assets to exceed liabilities measured in accordance with Australian Accounting Standards;

  • Fair and reasonable to all shareholders; and

  • It does not materially affect the ability to pay creditors.

Companies will need to review their constitutions to ensure they can continue to pay dividends in compliance with the Corporations Act. It should also be noted that companies not preparing financial statements in accordance with Australian Accounting Standards (non reporting entities such as small proprietary entities) will need to measure assets and liabilities in accordance to Australian Accounting Standards when determining their capacity to pay dividends.

Auditors will need to remember their obligations to ASA 250 Consideration of Laws and Regulations in an Audit of a Financial Report when assessing compliance for the new dividend requirements.

Companies Limited by Guarantee

The Act has introduced a three tier differential reporting framework for companies limited by guarantee. Tier 1 covers companies with revenue less than $250,000 and have not received a deductible gift. Such companies are not required to prepare an audited financial report.

Tiers 2 comprises companies with revenue less than $250,000 and have received a deductible gift or have revenue less than $1 million irrespective of the receipt of a deductible gift. Companies in this tier are required to prepare a financial report which at the election of the company may be reviewed rather than audited. The review can be conducted by a registered company auditor or an individual who is a member and has a practising certificate from:

  • Institute of Chartered Accountant in Australia;

  • CPA Australia Ltd;

  • National Institute of Accountants.

It should be noted that reviews are to be carried out in accordance with Australian Auditing Standards. This will also require the compliance with ASQC 1 Auditing Standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, and Other Assurance Engagement and firms that do not perform audits will need to implement quality control systems.

APES 110 Code of Ethics for Professional Accountants will apply and firms will need to consider the need to issue independence declarations in accordance with paragraph 290.30.

To take advantage of these changes many companies limited by guarantee will need to change their constitutions.

The Auditing and Assurance Standards Board (AUASB) has issued two pieces of guidance in relation to the reviews of companies limited by guarantee:

ASRE 2415 provides guidance on applying ASRE 2410 Reviews of a Financial Report Performed by the Independent Auditor of the Entity including the initial reviews of companies limited by guarantee.

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GS 016 Bank Confirmation Requests

The AUASB has issued guidance on audit procedures used to obtain evidence relating to bank accounts and transactions including updated bank confirmation requests. The new guidance is effective for reporting periods ending on or after 30 September 2010.

Guidance is provided on when bank confirmation requests are required, the timing of requests, bank response times, and detailed guidance for each stage of the confirmation process. The guidance also covers the use of electronic bank confirmation processes.

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Revised Home and Retirement Savings Audit Report

Australian Prudential Regulatory Authority (APRA) has released new and revised audit reports for registrable superannuation entities' licensees that provide home savings accounts and the providers of retirement savings accounts. The report formats are applicable for financial years ended 30 June 2010 and onwards.

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Standardised Business Reporting

AUASB has issued a bulletin Standardised Business Reporting and XBRL: Information for Audit and Assurance Practitioners on the possible impacts of Standardised Business Reporting (SBR) on assurance engagements. It should be noted there is no current requirement for assurance on XBRL tagged data. The bulletin provides examples of non-audit services and sets out ethical considerations including independence issues.

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ASAE 3402 Assurance Reports on Controls at a Service Organisation

The AUASB has issued ASAE 3402 Assurance Reports on Controls at a Service Organisation applying to reports issued for periods commencing from 1 July 2010. The standard sets out the requirements for service auditor reports on controls.

The AUASB has also issued an Explanation of the Applicability of AUASB Pronouncements where User Entity uses a Service Organisation. This release provides guidance on the applicability of ASAE 3402 as well as:

For the 6 or 12 months ending 30 June 2010 service auditors will follow the guidance on AGS 1042 except for investment management services for which GS 007 is applicable.

For the 6 month period ending 31 December 2010 and the 12 month period ending 30 June 2011 service auditors must follow the requirements of ASAE 3402 and the additional guidance for investment management services still resides in GS 007. For the 6 month period ending 30 June 2010 or the 12 month period ending 31 December 2010 user auditors will comply with ASA 402 (Clarity version October 2009 version) and additional guidance relating to investment management services will be provided by GS 007.

For 12 month periods ending 30 June 2010 user auditors will comply with ASA 402 (pre-Clarity - April 2006 version) with guidance relating to investment management services provided by GS 007.

The AUASB has indicated it will be revising GS 007 to bring it into line with Clarity and ASAE 3402 during the 2010/11 financial year.

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Clarity Reminder

All practitioners and firms providing assurance services are required to have established a quality control system in accordance ASQC 1 from 1 January 2010. These quality control requirements apply to audits and other assurance services including 30 June 2010 financial statement audits carried out under pre-Clarity Australian Auditing Standards. The CCH Audit Manual at the Audit Philosophy tab 5 at section 6-900 provides details of the requirements of a quality control system under ASQC 1.

Practitioners should also note that reviews carried out for the 6 months to 30 June 2010 are to be carried out under the Clarity version of ASRE 2410. Guidance in the CCH Audit Manual can be found at tab 65 Review Engagements.

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2010 CCH ProSystem Australia Pty Limited


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