Federal Register of Legislation - Australian Government

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ASA 501 Standards/Accounting & Auditing as made
This Auditing Standard establishes requirements and provides application and other explanatory material to auditors regarding specific considerations by the auditor in obtaining sufficient appropriate audit evidence relating to certain aspects of inventory and segment information in an audit of a financial report.
Administered by: Treasury
Exempt from sunsetting by the Legislation (Exemptions and Other Matters) Regulation 2015 s12 item 18
Registered 16 Nov 2009
Tabling HistoryDate
Tabled HR18-Nov-2009
Tabled Senate18-Nov-2009

 

ASA 501

(October 2009)

 

 

 

 

Explanatory Statement

 

ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information

 

 

Issued by the Auditing and Assurance Standards Board


Obtaining a Copy of this Explanatory Statement

This Explanatory Statement is available on the Auditing and Assurance Standards Board (AUASB) website: www.auasb.gov.au

Contact Details

Auditing and Assurance Standards Board

Level 7

600 Bourke Street

Melbourne   Victoria   3000

AUSTRALIA

Phone:    (03) 8080 7400

Fax:          (03) 8080 7450

E-mail:                 enquiries@auasb.gov.au

 

Postal Address:

PO Box 204

Collins Street West

Melbourne   Victoria   8007

AUSTRALIA


Reasons for Issuing Auditing Standard ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information

The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information pursuant to the requirements of the legislative provisions and the Strategic Direction explained below.

The AUASB is an independent statutory board of the Australian Government established under section 227A of the Australian Securities and Investments Commission Act 2001, as amended (ASIC Act).  Under section 336 of the Corporations Act 2001 (the Act), the AUASB may make Auditing Standards for the purposes of the corporations legislation.  These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.

Under the Strategic Direction given to the AUASB by the Financial Reporting Council (FRC), the AUASB is required to have regard to any programme initiated by the International Auditing and Assurance Standards Board (IAASB) for the revision and enhancement of the International Standards on Auditing (ISAs) and to make appropriate consequential amendments to the Australian Auditing Standards.  The IAASB has undertaken a programme to redraft, and in some cases, revise, in “clarity” format, the entire suite of ISAs.  Accordingly, the AUASB has decided to revise and redraft the Australian Auditing Standards using the equivalent redrafted ISAs.

The Auditing Standard, in conjunction with ASA 502 Audit Evidence—Specific Considerations for Litigation and Claims, conforms with ISA 501 Audit Evidence—Specific Considerations for Selected Items.

Operative Date

ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information is operative for financial reporting periods commencing on or after 1 January 2010.

Purpose of Auditing Standard ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information

The purpose of the Auditing Standard is to establish requirements and to provide application and other explanatory material to auditors regarding specific considerations by the auditor in obtaining sufficient appropriate audit evidence relating to certain aspects of inventory and segment information in an audit of a financial report.

Main Features

The Auditing Standard describes the:

(a)                 procedures to be performed by the auditor when inventory is material to the financial report, to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory;

(b)                auditor’s responsibilities in relation to attendance at physical inventory counting;

(c)                 auditor’s responsibilities when inventory under the custody and control of a third party is material to the financial report; and

(d)                requirements in respect of obtaining sufficient appropriate audit evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework.

Preamble and Overall Objectives

ASA 501 is to be read in conjunction with ASA 101 Preamble to Australian Auditing Standards, which sets out the intentions of the AUASB on how the Australian Auditing Standards, operative for financial reporting periods commencing on or after 1 January 2010, are to be understood, interpreted and applied.  ASA 501 is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.

Process of making Australian Auditing Standards

The AUASB’s Strategic Direction, inter alia, provides that the AUASB develop Australian Auditing Standards that:

·                     have a clear public interest focus and are of the highest quality;

·                     use the International Standards on Auditing (ISAs) of the International Auditing and Assurance Standards Board (IAASB) as the underlying standards;

·                     conform with the Australian regulatory environment; and

·                     are capable of enforcement.

In implementing the FRC’s Strategic Direction, the AUASB has undertaken a process of revision and redrafting of the Australian Auditing Standards that has:

·                     updated the form, layout and content of the Australian Auditing Standards;

·                     addressed the legal enforceability of mandatory obligations;

·                     maintained clarity of the auditor’s obligations;

·                     incorporated appropriate references to Australian laws and regulations;

·                     clearly identified, by use of the prefix “Aus”, AUASB additions to paragraphs in the requirements or the application and other explanatory material; and

·                     included other amendments as necessary.

Consultation Process prior to issuing the Auditing Standard

The AUASB has consulted publicly as part of its due process in developing the Auditing Standard.  Exposure Draft ED 02/09 Proposed Auditing Standard: Audit Evidence—Specific Considerations for Selected Items
(Re-issuance of ASA 501), was issued on 6 March 2009 with a 30 day comment period.

As an integral part of its consultation with the public, the AUASB sought comments on specific questions including:

·                     the completeness and accuracy of references in the Auditing Standard to relevant laws and regulations;

·                     the significant costs, if any, and benefits, of compliance with any additional requirements under the Auditing Standard; and

·                     whether or not there exist any matters of public interest affecting the issuance of the Auditing Standard.

Submissions were received by the AUASB and these were considered as part of the development and finalisation of the Auditing Standard.

Regulation Impact Statement

A Regulation Impact Statement (RIS) has been prepared in connection with the redrafting of Australian Auditing Standards in “clarity” format, including ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information.

The RIS considered both expected benefits and expected costs of the introduction of clarified auditing standards, including comments provided by stakeholders during the redrafting process.  It concluded that expected benefits to users of audit services, users of audit reports, auditors and the Australian economy in general are, on balance, likely to outweigh expected costs.

Main Differences from ASA 501 Existence and Valuation of Inventory (April 2006)

The main differences between the Auditing Standard and the Auditing Standard that it supersedes, ASA 501 Existence and Valuation of Inventory (April 2006), are:

1.             Auditing Standard ASA 501 is written in the “clarity” format using the equivalent International Standard on Auditing (ISA 501 Audit Evidence—Specific Considerations for Selected Items) as the underlying Auditing Standard.  Consequently, the format, layout, and paragraph numbering styles are different from the extant Auditing Standard.

2.             Auditing Standard ASA 501 includes requirements and guidance relating to inventory and segment information, while the extant Auditing Standard covers inventory only.

3.             The following requirement included in the Auditing Standard is in part, or full, additional to the extant Auditing Standard:

(a)                The auditor shall obtain sufficient appropriate audit evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework by:

(i)                  Obtaining an understanding of the methods used by management in determining segment information, and:

(ii)                 Evaluating whether such methods are likely to result in disclosure in accordance with the applicable financial reporting framework; and

(iii)               Where appropriate, testing the application of such methods; and

(b)                Performing analytical procedures or other audit procedures appropriate in the circumstances. (Ref: Para 13)  

4.             Certain guidance material in the extant Auditing Standard has been elevated to requirements.

5.             To improve clarity, certain requirements and guidance in the extant Auditing Standard have been re-written, however, the equivalent meanings have been retained.

6.             Application and other explanatory material linked to the additional requirements listed in 3. above is also included in the Auditing Standard.