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ASA 220 Standards/Accounting & Auditing as amended, taking into account amendments up to Auditing Standard ASA 2020-2 Amendments to Australian Auditing Standards made under Section 336 of the Corporations Act 2001
Administered by: Treasury
Registered 28 Jul 2020
Start Date 08 Jul 2020

 

Compiled Auditing Standard

ASA 220

(June 2020)

Auditing Standard ASA 220
Quality Control for an Audit of a Financial Report and Other Historical Financial Information

This compilation was prepared on 8 July 2020 taking into account amendments made by ASA 2011-1, ASA 2013-2, ASA 2015-1, ASA 2017-2 and ASA 2020-2.

Compilation number:  5

Compilation date:        8 July 2020

Prepared by the Auditing and Assurance Standards Board

Title: Logo of the Auditing and Assurance Standards Board - Description: Australian crest, with text naming the Australian Government and the Auditing and Assurance Standards Board


Obtaining a Copy of this Auditing Standard

The most recently compiled versions of Auditing Standards, original Standards and amending Standards (see Compilation Details) are available on the AUASB website: www.auasb.gov.au

Contact Details

Auditing and Assurance Standards Board

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Melbourne   Victoria   3000

AUSTRALIA

 

Phone:  (03) 8080 7400

E‑mail: enquiries@auasb.gov.au

Postal Address:

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Melbourne   Victoria   8007

AUSTRALIA

COPYRIGHT

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This Auditing Standard reproduces substantial parts of the corresponding International Standard on Auditing issued by the International Auditing and Assurance Standards Board (IAASB) and published by the International Federation of Accountants (IFAC), in the manner described in the statement on Conformity with International Standards on Auditing.  The AUASB acknowledges that IFAC is the owner of copyright in the International Standard on Auditing incorporated in this Auditing Standard throughout the world.

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ISSN 1833‑4393

CONTENTS

COMPILATION DETAILS

AUTHORITY STATEMENT

CONFORMITY WITH INTERNATIONAL STANDARDS ON AUDITING

Paragraphs

Application.......................................................................................................... Aus 0.1-Aus 0.2

Operative Date................................................................................................................. Aus 0.3

Introduction

Scope of this Auditing Standard................................................................................................... 1

System of Quality Control and Role of Engagement Teams..................................................... 2-4

Effective Date.............................................................................................................................. 5

Objective..................................................................................................................................... 6

Definitions..................................................................................................................... 7-Aus 7.6

Requirements

Leadership Responsibilities for Quality on Audits....................................................................... 8

Relevant Ethical Requirements............................................................................................... 9-11

Acceptance and Continuance of Client Relationships and Audit Engagements..................... 12-13

Assignment of Engagement Teams............................................................................................ 14

Engagement Performance..................................................................................................... 15-22

Monitoring................................................................................................................................. 23

Documentation..................................................................................................................... 24-25

Application and Other Explanatory Material

System of Quality Control and Role of Engagement Teams...................................... A1-Aus A2.1

Leadership Responsibilities for Quality on Audits.................................................................... A3

Relevant Ethical Requirements............................................................................................ A4-A7

Acceptance and Continuance of Client Relationships and Audit Engagements................. A8-A10

Assignment of Engagement Teams.................................................................................. A11-A13

Engagement Performance................................................................................................ A14-A23

Engagement Quality Control Review............................................................................... A24-A33

Monitoring...................................................................................................................... A34-A36

Documentation........................................................................................................................ A37

 


 

COMPILATION DETAILS

Auditing Standard ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information (as Amended)

This compilation takes into account amendments made up to and including 30 June 2020 and was prepared on 8 July 2020 by the Auditing and Assurance Standards Board (AUASB).

This compilation is not a separate Auditing Standard made by the AUASB.  Instead, it is a representation of ASA 220 (October 2009) as amended by other Auditing Standards which are listed in the Table below.

Table of Standards

Standard

Date made

Operative Date

ASA 220         [A]

27 October 2009

Financial reporting periods commencing on or after 1 January 2010

ASA 2011‑1    [B]

27 June 2011

Financial reporting periods commencing on or after 1 July 2011

ASA 2013‑2    [C]

11 November 2013

Financial reporting periods commencing on or after 1 January 2014

ASA 2015‑1    [D]

1 December 2015

Financial reporting periods ending on or after 15 December 2016

ASA 2017‑2    [E]

30 May 2017

Financial reporting periods commencing on or after 1 January 2018

ASA 2020-2    [F]

30 June 2020

Financial reporting periods ending on or after 15 July 2020

 

[A]       Federal Register of Legislation – registration number F2009L04066, 9 November 2009

[B]       Federal Register of Legislation – registration number F2011L01379, 30 June 2011

[C]       Federal Register of Legislation – registration number F2013L01939, 14 November 2013

[D]       Federal Register of Legislation – registration number F2015L02032, 16 December 2015

[E]       Federal Register of Legislation – registration number F2017L01179, 13 September 2017

[F]       Federal Register of Legislation – registration number F2020L00885, 7 July 2020


 

Table of Amendments

Paragraph affected

How affected

By … [paragraph]

7(j)(i)

Amended

ASA 2011‑1 [20]

7(p) Footnote *

Amended

ASA 2011‑1 [21]

A23

Amended

ASA 2011‑1 [22]

2 Footnote 1

Amended

ASA 2013‑2 [30]

7(d)

Amended

ASA 2013‑2 [31]

7(d) Footnote 3

Amended

ASA 2013‑2 [32]

7(d) Footnote #

Addition

ASA 2013‑2 [33]

Aus 7.3

Addition

ASA 2013‑2 [34]

Aus 7.3 Footnote *

Addition

ASA 2013‑2 [35]

Aus 7.4‑Aus 7.7

Re‑numbered

ASA 2013‑2 [36]

20(d)

Amended

ASA 2015‑1 [34]

Footnote 4

Amended

ASA 2015‑1 [35]

Aus A5.1

Amended

ASA 2015‑1 [36]

Aus A6.2

Deleted

ASA 2015‑1 [37]

New A29

Addition

ASA 2015‑1 [38]

7(p) Footnote #

Amended

ASA 2017‑2 [14]

A9

Addition

ASA 2017‑2 [15]

A29

Re-numbered

ASA 2017-2 [16]

9

Amended

ASA 2020-2 [20]

10

Amended

ASA 2020-2 [21]

11

Amended

ASA 2020-2 [22]

Title of A6

Amended

ASA 2020-2 [23]

A6

Amended

ASA 2020-2 [24]

A9

Amended

ASA 2020-2 [25]

A9 Footnotes 6 and 7

Amended

ASA 2020-2 [26]


 

AUTHORITY STATEMENT

Auditing Standard ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information (as amended to 30 June 2020) is set out in paragraphs Aus 0.1 to A37.

This Auditing Standard 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.  This Auditing Standard 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.

Conformity with International Standards on Auditing

This Auditing Standard conforms with International Standard on Auditing ISA 220 Quality Control for an Audit of Financial Statements issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).

Paragraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.

The following requirement is additional to ISA 220:

·                Paragraph Aus 21.1 - For audits of financial reports of listed entities, and those other audit engagements, if any, for which the firm has determined that an engagement quality control review is required, the engagement quality control reviewer, on performing an engagement quality control review, shall also consider the following:

o               The engagement team’s evaluation of the firm’s independence in relation to the audit engagement;

o               Whether appropriate consultation has taken place on matters involving differences of opinion or other difficult or contentious matters, and the conclusions arising from those consultations; and

o               Whether audit documentation selected for review reflects the work performed in relation to the significant judgements made and supports the conclusions reached. 

This Auditing Standard incorporates terminology and definitions used in Australia.

The equivalent requirements and related application and other explanatory material included in ISA 220 in respect of “relevant ethical requirements”, have been included in Auditing Standard, ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements.  There is no international equivalent to ASA 102.

Compliance with this Auditing Standard enables compliance with ISA 220.

 


AUDITING STANDARD ASA 220

The Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.

This compiled version of ASA 220 incorporates subsequent amendments contained in other Auditing Standards made by the AUASB up to and including 30 June 2020 (see Compilation Details).

 

Auditing Standard ASA 220

Quality Control for an Audit of a Financial Report and Other Historical Financial Information

Application

Aus 0.1            This Auditing Standard applies to:

(a)        an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and

(b)       an audit of a financial report, or a complete set of financial statements, for any other purpose.

Aus 0.2            This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.

Operative Date

Aus 0.3            This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010.  [Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.]

Introduction
Scope of this Auditing Standard

1.                  This Auditing Standard deals with the specific responsibilities of the auditor regarding quality control procedures for the audit of a financial report and other historical financial information.  It also addresses, where applicable, the responsibilities of the engagement quality control reviewer.  This Auditing Standard is to be read in conjunction with relevant ethical requirements.

System of Quality Control and Role of Engagement Teams

2.                  Quality control systems, policies and procedures are the responsibility of the audit firm.  Under ASQC 1, the firm has an obligation to establish and maintain a system of quality control to provide it with reasonable assurance that:

(a)                The firm and its personnel comply with Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory requirements; and


(b)               The Reports issued by the firm or engagement partners are appropriate in the circumstances.[1]

This Auditing Standard is premised on the basis that the firm is subject to ASQC 1.  (Ref: Para. A1)

3.                  Within the context of the firm’s system of quality control, engagement teams have a responsibility to implement quality control procedures that are applicable to the audit engagement and provide the firm with relevant information to enable the functioning of that part of the firm’s system of quality control relating to independence.

4.                  Engagement teams are entitled to rely on the firm’s system of quality control, unless information provided by the firm or other parties suggests otherwise.  (Ref: Para. A2‑Aus A2.1)

Effective Date

5.                  [Deleted by the AUASB.  Refer Aus 0.3]

Objective

6.                  The objective of the auditor is to implement quality control procedures at the engagement level that provide the auditor with reasonable assurance that:

(a)                The audit complies with Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory requirements; and

(b)               The auditor’s report issued is appropriate in the circumstances. 

Definitions

7.                  For the purposes of this Auditing Standard, the following terms have the meanings attributed below:

Aus 7.1                       Assurance practitioner means a person or an organisation, whether in public practice, industry, commerce or the public sector, providing assurance services. 

(a)                Engagement partner[2] means the partner or other person in the firm who is responsible for the audit engagement and its performance, and for the auditor’s report that is issued on behalf of the firm, and who, where required, has the appropriate authority from a professional, legal or regulatory body. 

Aus 7.2                       Engagement partner should be read as referring to a public sector equivalent where relevant.

(b)               Engagement quality control review means a process designed to provide an objective evaluation, on or before the date of the auditor’s report, of the significant judgements the engagement team made and the conclusions it reached in formulating the auditor’s report.  The engagement quality control review process is only for audits of financial reports of listed entities and those other audit engagements, if any, for which the firm has determined an engagement quality control review is required.

(c)                Engagement quality control reviewer means a partner, other person in the firm, suitably qualified external person, or a team made up of such individuals, none of whom is part of the engagement team, with sufficient and appropriate experience and authority to objectively evaluate the significant judgements the engagement team made and the conclusions it reached in formulating the auditor’s report. 

(d)               Engagement team means all partners and staff performing the engagement, and any individuals engaged by the firm or a network firm who perform audit procedures on the engagement.  This excludes an auditor’s external expert engaged by the firm or a network firm.[3]

(e)                [Deleted by the AUASB.  Refer Aus 7.3]

Aus 7.3                       Firm means a sole practitioner, partnership, or corporation or other entity of assurance practitioners.  Firm should be read as referring to a public sector equivalent where relevant.

(f)                Inspection means, in relation to completed audit engagements, procedures designed to provide evidence of compliance by engagement teams with the firm’s quality control policies and procedures.

(g)                Listed entity means an entity whose shares, stock or debt are quoted or listed on a recognised stock exchange, or are marketed under the regulations of a recognised stock exchange or other equivalent body.

(h)               Monitoring means a process comprising an ongoing consideration and evaluation of the firm’s system of quality control, including a periodic inspection of a selection of completed engagements, designed to provide the firm with reasonable assurance that its system of quality control is operating effectively. 

(i)                 Network firm means a firm or entity that belongs to a network. 

(j)                 Network means a larger structure:

(i)                 That is aimed at cooperation; and

(ii)               That is clearly aimed at profit or cost‑sharing or shares common ownership, control or management, common quality control policies and procedures, common business strategy, the use of a common brand name, or a significant part of professional resources.

(k)               [Deleted by the AUASB.  Refer Aus 7.4]

Aus 7.4                       Partner means any individual with authority to bind the firm with respect to the performance of an audit of a financial report or historical financial information.  Partner should be read as referring to a public sector equivalent where relevant.

(l)                 Personnel means partners and staff.

(m)             [Deleted by the AUASB.  Refer Aus 7.5]

Aus 7.5                       Australian Auditing Standards means the suite of auditing standards issued by the AUASB, and includes ASA 805 Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement, and ASA 810 Engagements to Report on Summary Financial Statements.

(n)               [Deleted by the AUASB.  Refer Aus 7.6]

Aus 7.6                       Relevant ethical requirements means relevant ethical requirements as defined in ASA 102.*

(o)               Staff means professionals, other than partners, including any experts the firm employs.

(p)               Suitably qualified external person means an individual outside the firm with the competence and capabilities to act as an engagement partner, for example, a partner of another firm, or an employee (with appropriate experience) of a professional accountancy body# whose members may perform audits of financial reports or audits of other historical financial information, or of an organisation that provides relevant quality control services.

Requirements
Leadership Responsibilities for Quality on Audits

8.                  The engagement partner shall take responsibility for the overall quality on each audit engagement to which that partner is assigned.  (Ref: Para. A3)

Relevant Ethical Requirements

9.                  Throughout the audit engagement, the engagement partner shall remain alert, through observation and making enquiries as necessary, for evidence of breaches of relevant ethical requirements by members of the engagement team.  (Ref: Para. A4‑A5)

10.              If matters come to the engagement partner’s attention through the firm’s system of quality control or otherwise that indicate that members of the engagement team have breached relevant ethical requirements, the engagement partner, in consultation with others in the firm, shall determine the appropriate action.  (Ref: Para. A5)

Independence

11.              The engagement partner shall form a conclusion on compliance with independence requirements that apply to the audit engagement.  In doing so, the engagement partner shall: (Ref: Para. A5‑Aus A5.1)

(a)                Obtain relevant information from the firm and, where applicable, network firms, to identify and evaluate threats to independence;

(b)               Evaluate information on identified breaches, if any, of the firm’s independence policies and procedures to determine whether they create a threat to independence for the audit engagement;

(c)                Evaluate whether the identified threats are at an acceptable level; and

(d)               Take appropriate action to address the threats that are not at an acceptable level by eliminating the circumstances that create the threats, applying safeguards to reduce threats to an acceptable level, or withdrawing from the audit engagement, where withdrawal is possible under applicable law or regulation.  The engagement partner shall promptly report to the firm any inability to resolve the matter for appropriate action.  (Ref: Para. Aus A5.1, A6‑A7)

Acceptance and Continuance of Client Relationships and Audit Engagements

12.              The engagement partner shall be satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and audit engagements have been followed, and shall determine that conclusions reached in this regard are appropriate.  (Ref: Para. A9‑A10)

13.              If the engagement partner obtains information that would have caused the firm to decline the audit engagement had that information been available earlier, the engagement partner shall communicate that information promptly to the firm, so that the firm and the engagement partner can take the necessary action.  (Ref: Para. A10)

Assignment of Engagement Teams

14.              The engagement partner shall be satisfied that the engagement team, and any auditor’s experts who are not part of the engagement team, collectively have the appropriate competence and capabilities to:

(a)                Perform the audit engagement in accordance with Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory requirements; and

(b)               Enable an auditor’s report that is appropriate in the circumstances to be issued.  (Ref: Para. A11‑A13)

Engagement Performance

Direction, Supervision and Performance

15.              The engagement partner shall take responsibility for:

(a)                The direction, supervision and performance of the audit engagement in compliance with Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory requirements; and (Ref: Para. A14‑A16, A21)

(b)               The auditor’s report being appropriate in the circumstances.

Reviews

16.              The engagement partner shall take responsibility for reviews being performed in accordance with the firm’s review policies and procedures.  (Ref: Para. A17‑A18, A21)

17.              On or before the date of the auditor’s report, the engagement partner shall, through a review of the audit documentation and discussion with the engagement team, be satisfied that sufficient appropriate audit evidence has been obtained to support the conclusions reached and for the auditor’s report to be issued.  (Ref: Para. A19‑A21)

Consultation

18.              The engagement partner shall:

(a)                Take responsibility for the engagement team undertaking appropriate consultation on difficult or contentious matters;

(b)               Be satisfied that members of the engagement team have undertaken appropriate consultation during the course of the engagement, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm;

(c)                Be satisfied that the nature and scope of, and conclusions resulting from, such consultations are agreed with the party consulted; and

(d)               Determine that conclusions resulting from such consultations have been implemented.  (Ref: Para. A22‑A23)

Engagement Quality Control Review

19.              For audits of financial reports of listed entities, and those other audit engagements, if any, for which the firm has determined that an engagement quality control review is required, the engagement partner shall:

(a)                Determine that an engagement quality control reviewer has been appointed;

(b)               Discuss significant matters arising during the audit engagement, including those identified during the engagement quality control review, with the engagement quality control reviewer; and

(c)                Not date the auditor’s report until the completion of the engagement quality control review.  (Ref: Para. A24‑A26)

20.              The engagement quality control reviewer shall perform an objective evaluation of the significant judgements made by the engagement team, and the conclusions reached in formulating the auditor’s report.  This evaluation shall involve:

(a)                Discussion of significant matters with the engagement partner;

(b)               Review of the financial reports and the proposed auditor’s report;

(c)                Review of selected audit documentation relating to the significant judgements the engagement team made and the conclusions it reached; and

(d)               Evaluation of the conclusions reached in formulating the auditor’s report and consideration of whether the proposed auditor’s report is appropriate.  (Ref: Para. A27‑A33)

21.              [Deleted by the AUASB.  Refer Aus 21.1]

Aus 21.1          For audits of financial reports of listed entities, and those other audit engagements, if any, for which the firm has determined that an engagement quality control review is required, the engagement quality control reviewer, on performing an engagement quality control review, shall also consider the following:

(a)                The engagement team’s evaluation of the firm’s independence in relation to the audit engagement;

(b)               Whether appropriate consultation has taken place on matters involving differences of opinion or other difficult or contentious matters, and the conclusions arising from those consultations; and

(c)                Whether audit documentation selected for review reflects the work performed in relation to the significant judgements made and supports the conclusions reached.  (Ref: Para. A30‑A33)

Differences of Opinion

22.              If differences of opinion arise within the engagement team, with those consulted or, where applicable, between the engagement partner and the engagement quality control reviewer, the engagement team shall follow the firm’s policies and procedures for dealing with and resolving differences of opinion. 

Monitoring

23.              An effective system of quality control includes a monitoring process designed to provide the firm with reasonable assurance that its policies and procedures relating to the system of quality control are relevant, adequate, and operating effectively.  The engagement partner shall consider the results of the firm’s monitoring process as evidenced in the latest information circulated by the firm and, if applicable, other network firms and whether deficiencies noted in that information may affect the audit engagement.  (Ref: Para. A33‑A35)

Documentation

24.              The auditor shall include in the audit documentation:[4]

(a)                Issues identified with respect to compliance with relevant ethical requirements and how they were resolved.

(b)               Conclusions on compliance with independence requirements that apply to the audit engagement, and any relevant discussions with the firm that support these conclusions.

(c)                Conclusions reached regarding the acceptance and continuance of client relationships and audit engagements.

(d)               The nature and scope of, and conclusions resulting from, consultations undertaken during the course of the audit engagement.  (Ref: Para. A36)

25.              The engagement quality control reviewer shall document, for the audit engagement reviewed, that:

(a)                The procedures required by the firm’s policies on engagement quality control review have been performed;

(b)               The engagement quality control review has been completed on or before the date of the auditor’s report; and

(c)                  The reviewer is not aware of any unresolved matters that would cause the reviewer to believe that the significant judgements the engagement team made and the conclusions it reached were not appropriate.

* * *

Application and Other Explanatory Material
System of Quality Control and Role of Engagement Teams (Ref: Para. 2)

A1.            ASQC 1 deals with the firm’s responsibilities to establish and maintain its system of quality control for audit engagements.  The system of quality control includes policies and procedures that address each of the following elements:

·                     Leadership responsibilities for quality within the firm;

·                     Relevant ethical requirements;

·                     Acceptance and continuance of client relationships and specific engagements;

·                     Human resources;

·                     Engagement performance; and

·                     Monitoring. 

ASQC 1 contains requirements which are at least as demanding as its international equivalent, ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements*, as it addresses all the elements referred to in ISQC 1 and imposes obligations on the firm that achieve the aims of the requirements set out in ISQC 1. 

Reliance on the Firm’s System of Quality Control (Ref: Para. 4)

A2.            Unless information provided by the firm or other parties suggest otherwise, the engagement team may rely on the firm’s system of quality control in relation to, for example:

·                     Competence of personnel through their recruitment and formal training.

·                     Independence through the accumulation and communication of relevant independence information.

·                     Maintenance of client relationships through acceptance and continuance systems.

·                     Adherence to applicable legal and regulatory requirements through the monitoring process.

Aus A2.1         Notwithstanding reliance by the engagement team on the firm’s system of quality control, for audits undertaken in accordance with the Corporations Act 2001 (the Act), the engagement partner is required to comply with the auditing standards under section 307A of that Act. 

Leadership Responsibilities for Quality on Audits (Ref: Para. 8)

A3.            The actions of the engagement partner and appropriate messages to the other members of the engagement team, in taking responsibility for the overall quality on each audit engagement, emphasise:

(a)                The importance to audit quality of:

(i)                 Performing work that complies with Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory requirements;

(ii)               Complying with the firm’s quality control policies and procedures as applicable;

(iii)             Issuing auditor’s reports that are appropriate in the circumstances; and

(iv)             The engagement team’s ability to raise concerns without fear of reprisals; and

(b)               The fact that quality is essential in performing audit engagements. 

Relevant Ethical Requirements

Compliance with Relevant Ethical Requirements (Ref: Para. 9)

A4.            [Deleted by the AUASB.  Refer Aus A4.1]

Aus A4.1         The auditor is subject to relevant ethical requirements, including those pertaining to independence, relating to audit engagements as defined in ASA 102.*

Definition of “Firm,” “Network” and “Network Firm” (Ref: Para. 9‑11)

A5.            [Deleted by the AUASB.  Refer ASA 102]

Independence (Ref: Para. 11)

Aus A5.1         Examples of independence requirements that may be applicable are addressed in the Corporations Act 2001, Part 2M.3 Division 3, and relevant ethical requirements in ASA 102.

Threats to Independence (Ref: Para. 11(d))

A6.            The engagement partner may identify a threat to independence regarding the audit engagement that may not be at an acceptable level.  In that case, as required by paragraph 11(d), the engagement partner reports to the relevant person(s) within the firm to determine the appropriate action, which may include eliminating the circumstance that creates the threat, applying safeguards to reduce the threat to an acceptable level or withdrawing from the audit engagement, where withdrawal is possible under applicable law or regulation. 

Aus A6.1         The familiarity threat is particularly relevant in the context of financial report audits of listed entities.  For these audits, relevant ethical requirements and the Corporations Act 2001 specify the partner rotation requirements.

Considerations Specific to Public Sector Entities

A7.            Statutory measures may provide safeguards for the independence of public sector auditors.  However, public sector auditors or audit firms carrying out public sector audits on behalf of the statutory auditor may, depending on the terms of the mandate in a particular jurisdiction, need to adapt their approach in order to promote compliance with the spirit of paragraph 11.  This may include, where the public sector auditor’s mandate does not permit withdrawal from the engagement, disclosure through a public report, of circumstances that have arisen that would, if they were in the private sector, lead the auditor to withdraw. 

Acceptance and Continuance of Client Relationships and Audit Engagements (Ref: Para. 12)

A8.            ASQC 1 requires the firm to obtain information considered necessary in the circumstances before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client.[5]  Information such as the following assists the engagement partner in determining whether the conclusions reached regarding the acceptance and continuance of client relationships and audit engagements are appropriate:

·                     The integrity of the principal owners, key management and those charged with governance of the entity;

·                     Whether the engagement team is competent to perform the audit engagement and has the necessary capabilities, including time and resources;

·                     Whether the firm and the engagement team can comply with relevant ethical requirements; and

·                     Significant matters that have arisen during the current or previous audit engagement, and their implications for continuing the relationship.

A9.            Law, regulation, or relevant ethical requirements[6] may require the auditor to request, prior to accepting the engagement, the predecessor auditor to provide known information regarding any facts or circumstances that, in the predecessor auditor’s judgement, the auditor needs to be aware of before deciding whether to accept the engagement. In some circumstances, the predecessor auditor may be required, on request by the proposed successor auditor, to provide information regarding identified or suspected non‑compliance with laws and regulations to the proposed successor auditor. For example, where the predecessor auditor has withdrawn from the engagement as a result of identified or suspected non‑compliance with laws and regulations, the APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) requires that the predecessor auditor, on request by a proposed successor auditor, provides all such facts and other information concerning such non‑compliance that, in the predecessor auditor’s opinion, the proposed successor auditor needs to be aware of before deciding whether to accept the audit appointment.[7]

Considerations Specific to Public Sector Entities (Ref: Para. 12‑13)

A10.        In the public sector, auditors may be appointed in accordance with statutory procedures.  Accordingly, certain of the requirements and considerations regarding the acceptance and continuance of client relationships and audit engagements as set out in paragraphs 12, 13 and A8 may not be relevant.  Nonetheless, information gathered as a result of the process described may be valuable to public sector auditors in performing risk assessments and in carrying out reporting responsibilities.

Assignment of Engagement Teams (Ref: Para. 14)

A11.        An engagement team includes a person using expertise in a specialised area of accounting or auditing, whether engaged or employed by the firm, if any, who performs audit procedures on the engagement.  However, a person with such expertise is not a member of the engagement team, if that person’s involvement with the engagement is only consultation.  Consultations are addressed in paragraph 18, and paragraphs A22‑A23.

A12.        When considering the appropriate competence and capabilities expected of the engagement team as a whole, the engagement partner may take into consideration such matters as the team’s:

·                     Understanding of, and practical experience with, audit engagements of a similar nature and complexity through appropriate training and participation.

·                     Understanding of Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory requirements.

·                     Technical expertise, including expertise with relevant information technology and specialised areas of accounting or auditing.

·                     Knowledge of relevant industries in which the client operates.

·                     Ability to apply professional judgement.

·                     Understanding of the firm’s quality control policies and procedures. 

Considerations Specific to Public Sector Entities

A13.        In the public sector, additional appropriate competence may include skills that are necessary to discharge the terms of the audit mandate in a particular jurisdiction.  Such competence may include an understanding of the applicable reporting arrangements, including reporting to the legislature or other governing body or in the public interest.  The wider scope of a public sector audit may include, for example, some aspects of performance auditing or a comprehensive assessment of compliance with law, regulation or other authority and preventing and detecting fraud and corruption. 

Engagement Performance

Direction, Supervision and Performance (Ref: Para. 15(a))

A14.        Direction of the engagement team involves informing the members of the engagement team of matters such as:

·                     Their responsibilities, including the need to comply with relevant ethical requirements, and to plan and perform an audit with professional scepticism as required by ASA 200.[8]

·                     Responsibilities of respective partners where more than one partner is involved in the conduct of an audit engagement. 

·                     The objectives of the work to be performed.

·                     The nature of the entity’s business.

·                     Risk‑related issues.

·                     Problems that may arise.

·                     The detailed approach to the performance of the engagement. 

Discussion among members of the engagement team allows less experienced team members to raise questions with more experienced team members so that appropriate communication can occur within the engagement team. 

A15.        Appropriate teamwork and training assist less experienced members of the engagement team to clearly understand the objectives of the assigned work.

A16.        Supervision includes matters such as:

·                     Tracking the progress of the audit engagement.

·                     Considering the competence and capabilities of individual members of the engagement team, including whether they have sufficient time to carry out their work, whether they understand their instructions, and whether the work is being carried out in accordance with the planned approach to the audit engagement.

·                     Addressing significant matters arising during the audit engagement, considering their significance and modifying the planned approach appropriately.

·                     Identifying matters for consultation or consideration by more experienced engagement team members during the audit engagement. 

Reviews

Review Responsibilities (Ref: Para. 16)

A17.        Under ASQC 1, the firm’s review responsibility policies and procedures are determined on the basis that work of less experienced engagement team members is reviewed by more experienced engagement team members.[9]

A18.        A review consists of consideration whether, for example:

·                     The work has been performed in accordance with Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory requirements;

·                     Significant matters have been raised for further consideration;

·                     Appropriate consultations have taken place and the resulting conclusions have been documented and implemented;

·                     There is a need to revise the nature, timing and extent of work performed;

·                     The work performed supports the conclusions reached and is appropriately documented;

·                     The evidence obtained is sufficient and appropriate to support the auditor’s report; and

·                     The objectives of the engagement procedures have been achieved. 

The Engagement Partner’s Review of Work Performed (Ref: Para. 17)

A19.        Timely reviews of the following by the engagement partner at appropriate stages during the engagement allow significant matters to be resolved on a timely basis to the engagement partner’s satisfaction on or before the date of the auditor’s report:

·                     Critical areas of judgement, especially those relating to difficult or contentious matters identified during the course of the engagement;

·                     Significant risks; and

·                     Other areas the engagement partner considers important. 

The engagement partner need not review all audit documentation, but may do so.  However, as required by ASA 230, the partner documents the extent and timing of the reviews.[10]

A20.        An engagement partner taking over an audit during the engagement may apply the review procedures as described in paragraph A18 to review the work performed to the date when that partner assumes the responsibilities of engagement partner.

Considerations Relevant Where a Member of the Engagement Team with Expertise in a Specialised Area of Accounting or Auditing Is Used (Ref: Para. 15‑17)

A21.        Where a member of the engagement team with expertise in a specialised area of accounting or auditing is used, direction, supervision and review of that engagement team member’s work may include matters such as:

·                     Agreeing with that member the nature, scope and objectives of that member’s work; and the respective roles of, and the nature, timing and extent of communication between that member and other members of the engagement team.

·                     Evaluating the adequacy of that member’s work including the relevance and reasonableness of that member’s findings or conclusions and their consistency with other audit evidence.

Consultation (Ref: Para. 18)

A22.        Effective consultation on significant technical, ethical, and other matters within the firm or, where applicable, outside the firm can be achieved when those consulted:

·                     Are given all the relevant facts that will enable them to provide informed advice; and

·                     Have appropriate knowledge, seniority and experience. 

A23.        It may be appropriate for the engagement team to consult outside the firm, for example, where the firm lacks appropriate internal resources.  They may take advantage of advisory services provided by other firms, professional and regulatory bodies, or commercial organisations that provide relevant quality control services.

Engagement Quality Control Review

Completion of the Engagement Quality Control Review before Dating of the Auditor’s Report (Ref: Para. 19(c))

A24.        ASA 700 requires the auditor’s report to be dated no earlier than the date on which the auditor has obtained sufficient appropriate evidence on which to base the auditor’s opinion on the financial report.[11]  In the case of an audit of a financial report of a listed entity or when an engagement meets the criteria for an engagement quality control review, such a review assists the auditor in determining whether sufficient appropriate evidence has been obtained. 

A25.        Conducting the engagement quality control review in a timely manner at appropriate stages during the engagement allows significant matters to be promptly resolved to the engagement quality control reviewer’s satisfaction on or before the date of the auditor’s report.

A26.        Completion of the engagement quality control review means the completion by the engagement quality control reviewer of the requirements in paragraphs 20‑Aus 21.1, and where applicable, compliance with paragraph 22.  Documentation of the engagement quality control review may be completed after the date of the auditor’s report as part of the assembly of the final audit file.  ASA 230 establishes requirements and provides guidance in this regard.[12]

Nature, Extent and Timing of Engagement Quality Control Review (Ref: Para. 20)

A27.        Remaining alert for changes in circumstances allows the engagement partner to identify situations in which an engagement quality control review is necessary, even though at the start of the engagement, such a review was not required.

A28.        The extent of the engagement quality control review may depend, among other things, on the complexity of the audit engagement, whether the entity is a listed entity, and the risk that the auditor’s report might not be appropriate in the circumstances.  The performance of an engagement quality control review does not reduce the responsibilities of the engagement partner for the audit engagement and its performance. 

A29.        When ASA 701[13] applies, the conclusions reached by the engagement team in formulating the auditor’s report include determining:

·                     The key audit matters to be included in the auditor’s report;

·                     The key audit matters that will not be communicated in the auditor’s report in accordance with paragraph 14 of ASA 701, if any; and

·                     If applicable, depending on the facts and circumstances of the entity and the audit, that there are no key audit matters to communicate in the auditor’s report.

In addition, the review of the proposed auditor’s report in accordance with paragraph 20(b) includes consideration of the proposed wording to be included in the Key Audit Matters section.

Engagement Quality Control Review of Listed Entities (Ref: Para. Aus 21.1)

A30.        Other matters relevant to evaluating the significant judgements made by the engagement team that may be considered in an engagement quality control review of a listed entity include:

·                     Significant risks identified during the engagement in accordance with ASA 315,[14] and the responses to those risks in accordance with ASA 330,[15] including the engagement team’s assessment of, and response to, the risk of fraud in accordance with ASA 240.[16]

·                     Judgements made, particularly with respect to materiality and significant risks.

·                     The significance and disposition of corrected and uncorrected misstatements identified during the audit. 

·                     The matters to be communicated to management and those charged with governance and, where applicable, other parties such as regulatory bodies. 

These other matters, depending on the circumstances, may also be applicable for engagement quality control reviews for audits of financial reports of other entities.

Considerations Specific to Smaller Entities (Ref: Para. 20‑Aus 21.1)

A31.        In addition to the audits of financial reports of listed entities, an engagement quality control review is required for audit engagements that meet the criteria established by the firm that subjects engagements to an engagement quality control review.  In some cases, none of the firm’s audit engagements may meet the criteria that would subject them to such a review. 

Considerations Specific to Public Sector Entities (Ref: Para. 20‑Aus 21.1)

A32.        In the public sector, a statutorily appointed auditor (for example, an Auditor‑General, or other suitably qualified person appointed on behalf of the Auditor‑General), may act in a role equivalent to that of engagement partner with overall responsibility for public sector audits.  In such circumstances, where applicable, the selection of the engagement quality control reviewer includes consideration of the need for independence from the audited entity and the ability of the engagement quality control reviewer to provide an objective evaluation.

A33.        Listed entities as referred to in paragraphs Aus 21.1 and A29 are not common in the public sector.  However, there may be other public sector entities that are significant due to size, complexity or public interest aspects, and which consequently have a wide range of stakeholders.  Examples include state owned corporations and public utilities.  Ongoing transformations within the public sector may also give rise to new types of significant entities.  There are no fixed objective criteria on which the determination of significance is based.  Nonetheless, public sector auditors evaluate which entities may be of sufficient significance to warrant performance of an engagement quality control review.

Monitoring (Ref: Para. 23)

A34.        ASQC 1 requires the firm to establish a monitoring process designed to provide it with reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate and operating effectively.[17]

A35.        In considering deficiencies that may affect the audit engagement, the engagement partner may have regard to measures the firm took to rectify the situation that the engagement partner considers are sufficient in the context of that audit.

A36.        A deficiency in the firm’s system of quality control does not necessarily indicate that a particular audit engagement was not performed in accordance with Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory requirements, or that the auditor’s report was not appropriate.

Documentation

Documentation of Consultations (Ref: Para. 24(d))

A37.        Documentation of consultations with other professionals that involve difficult or contentious matters that is sufficiently complete and detailed contributes to an understanding of:

·                     The issue on which consultation was sought; and

·                     The results of the consultation, including any decisions taken, the basis for those decisions and how they were implemented.



[1]     See ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, and Other Assurance Engagements, paragraph 11.

[2]     [Footnote deleted by the AUASB.  Refer Aus 7.2, Aus 7.3 and Aus 7.4.]

[3]     See ASA 620 Using the Work of an Auditor’s Expert, paragraph 6(a).

*     See ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements.

#     For example, Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants.

[4]     See ASA 230 Audit Documentation, paragraphs 8-11, paragraph Aus 12.1 and paragraph A6.

*     Issued by the International Auditing and Assurance Standards Board.

*     See ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements.

    See ASA 102.

[5]     See ASQC 1, paragraph 27(a).

[6]     See, for example, paragraph R320.8 of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code).

[7]     See, for example, paragraphs R360.22-360.23 A1 of the Code.

[8]     See ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards, paragraph 15.

[9]     See ASQC 1, paragraph 33.

[10]    See ASA 230, paragraph 9(c).

[11]    See ASA 700 Forming an Opinion and Reporting on a Financial Report, paragraph 49.

[12]    See ASA 230, paragraphs 14-16.

[13]    See ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report.

[14]    See ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.

[15]    See ASA 330 The Auditor’s Responses to Assessed Risks.

[16]    See ASA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of a Financial Report.

[17]    See ASQC 1, paragraph 48.