Federal Register of Legislation - Australian Government

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ASA 502 Standards/Accounting & Auditing as made
These Auditing Standards establish requirements and provide application and other explanatory material regarding specific considerations by the auditor in obtaining sufficient appropriate audit evidence relating to certain aspects of litigation and claims 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 11 Nov 2009
Tabling HistoryDate
Tabled HR16-Nov-2009
Tabled Senate16-Nov-2009

 

ASA 502

(October 2009)

 

 

 

 

Explanatory Statement

 

ASA 502 Audit Evidence—Specific Considerations for Litigation and Claims

 

 

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 502 Audit Evidence—Specific Considerations for Litigation and Claims

The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 502 Audit Evidence—Specific Considerations for Litigation and Claims 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 501 Audit Evidence—Specific Considerations for Inventory and Segment Information, conforms with ISA 501 Audit Evidence—Specific Considerations for Selected Items.

Operative Date

ASA 502 Audit Evidence—Specific Considerations for Litigation and Claims is operative for financial reporting periods commencing on or after
1 January 2010
.

Purpose of Auditing Standard ASA 502 Audit Evidence—Specific Considerations for Litigation and Claims

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

Main Features

The Auditing Standard:

(a)                 sets out the procedures the auditor should include when designing and performing audit procedures to identify litigation and claims involving the entity which may give rise to a risk of material misstatement;

(b)                requires the auditor to endeavour to communicate in writing with the entity’s external legal counsel, if a risk of material misstatement regarding litigation and claims is identified, or where audit procedures performed indicate that other material litigation and claims may exist;

(c)                 requires the auditor to endeavour to communicate in writing with the entity’s internal legal counsel, if in-house legal counsel has the primary responsibility for litigation and claims involving both
in-house and external legal counsel;

(d)                describes the written representations that the auditor must request from management and, where appropriate, those changed with governance; and

(e)                 describes the auditor’s responsibilities:

(i)                  when the response from legal counsel contains a material disagreement with management’s original evaluation of a particular matter; and

(ii)                when management refuses to give the auditor permission to communicate with legal counsel, or legal counsel refuses to respond appropriately and the auditor is unable to obtain sufficient appropriate audit evidence by performing alternative audit procedures.

Preamble and Overall Objectives

ASA 502 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 502 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 15/09 Proposed Auditing Standard: Litigation and Claims (Re-issuance of ASA 508), was issued on
17 April
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 502 Audit Evidence—Specific Considerations for Litigation and Claims.

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 508 Enquiry Regarding Litigation and Claims (April 2006)

The main differences between the Auditing Standard and the Auditing Standard that it supersedes, ASA 508 Enquiry Regarding Litigation and Claims (April 2006), are:

1.            Auditing Standard ASA 502 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.            The following requirement included in the Auditing Standard is in part, or full, additional to the extant Auditing Standard ASA 508:

·                     The auditor shall request management and, where appropriate, those charged with governance to provide written representations that all known actual or possible litigation and claims whose effects should be considered when preparing the financial report have been disclosed to the auditor and accounted for and disclosed in accordance with the applicable financial reporting framework.
(Ref: Para. 7)

An equivalent requirement is included in extant Auditing Standard ASA 580 Management Representations.

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

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

5.            Application and other explanatory material linked to the additional requirement listed in 2. above is also included in the Auditing Standard.