Audit: CPA Australia has released a range of fact sheets to help business understand the new auditing standards, explain Prof. Christine Jubb and Jessie Wong.
With 2006/07 annual financial reports the first to be audited under the new auditing standards, CPA Australia believes it is a good time for business to give thought to the impact of the new auditing standards on the auditor's work and on the business itself.
In particular, CPA Australia urges those in management and those with governance responsibilities, including audit committee members, to make time to discuss the ramifications of the new standards with their auditor.
CPA Australia has compiled a series of fact sheets on key auditing standards that require auditors to interact with management and those with governance responsibilities.
The fact sheets are designed to enhance understanding of the audit function, the requirement for auditors to comply with the auditing standards, which are now written into the Corporations Act 2001 in the same way as accounting standards, and why auditors conduct audits in the way they do.
Auditors are required to comply with the auditing standards on all audits, regardless of the size of the business being audited.
The fact sheets are intended to enhance dialogue between auditors and those with whom they interact, particularly audit committee members and boards of directors. A different set of fact sheets has been developed for audit practitioners, designed to highlight changes from the previous auditing standards.
New naming conventions
One of the most important changes relates to new naming conventions for the categories of the auditor's report. In particular, if the auditor issues an unqualified opinion without an emphasis of matter, as well as being known as 'unqualified' it is also known as 'unmodified'.
Emphasis of matter sections in an unqualified auditor's report remain an option for the auditor in the event the auditor wishes to draw attention to a matter disclosed in the financial report.
However, what was previously known as an 'except for' opinion is now known as a 'qualified' opinion. Under the new terminology, this is the only circumstance in which the terms 'qualified' or 'qualification' are used.
The terminology for the adverse opinion remains the same, but an 'inability to form an opinion' has become a 'disclaimer of opinion'.
Other implications
The new auditing standards will affect client-auditor interactions. They may also affect the amount of time and assistance a business needs to provide to the audit team particularly the time with and access to senior management, directors and audit committee members.
Related-party information is now subject to more rigorous reporting and audit requirements. For example, auditors are urged to obtain a written representation from management concerning the completeness and adequacy of related-party information and disclosures.
The auditor is required to review the information provided and identify the names of all known related parties and the safeguards in relation to the completeness of financial reporting.
Auditors are now required to communicate with those charged with governance on matters including the auditor's independence, significant relationships that may have a bearing on independence, and the safeguards in place to maintain independence.
This is intended to ensure that business is informed and able to address possible risks relating to the audit.
Finally, more onerous audit documentation requirements may increase the overall workload involved in providing the audit service. Auditors are now obligated to document, in a timely manner, discussions of significant matters with those charged with governance, management and others.
Professor Christine Jubb is professor of accounting, Deakin Business School, and a member of the Auditing and Assurance Standards Board. Jessie Wong is CPA Australia professional standards technical adviser.
