AUDITOR GENERAL VICTORIA

Transcription

1 AUDITOR GENERAL VICTORIA 25 June 2003 The Technical Director International Auditing and Assurance Standards Board 535 Fifth Avenue, 26 1h Floor New York, New York United States of America Dear Sir, PROPOSED AMENDMENTS TO INTERNATIONAL AUDITING PRACTICE STATEMENT 1005: THE SPECIAL CONSIDERATIONS,,-IN THE AUDIT OF SMALL ENTITIES In response to the invitation to comment on the above Exposure Draft (ED), the following Australian Auditors-General offer their views: New South Wales Auditor-General; Auditor-General for the Northern Territory; Auditor-General for Western Australia; and Auditor-General of Queensland. We wish to express the strongest reservations regarding auditors preparing the accounts and financial statements of small entities for which they are the auditors. While providing guidance is acceptable, this should fall short of auditors actually preparing the accounts and assuming other management responsibilities, as, in such circumstances, real and perceived audit independence would be severely compromised. In the current environment following high profile corporate collapses, care should be taken to preserve the real and perceived independence of the auditor, whether a small or large entity is involved. Our comments on the specific matters raised in the ED are attached. I trust you will find the above comments useful. Should you require any further information, please contact the undersigned on or Mr Arthur McHugh on Yours faithfully Wayne Cameron Victorian A uditor-general Victorian Auditor-General's Office Level 34, 140 William Street, Melbourne Victoria 3000 Telephone (03) Facsimile (03) vic.gov. au Website www. audit. vic.gov.au

2 ATTACHMENT IFAC INTERNATIONAL AUDITING PRACTICES COMMITTEE PROPOSED AMENDMENTS TO INTERNATIONAL AUDITING PRACTICE STATEMENT 1005 THE SPECIAL CONSIDERATIONS IN THE AUDIT OF SMALL ENTITIES IAPS 1005 Suggested change Comment on suggested change paragraph 3 De/ete from the first sentence the words: Inclusion of these words may give the "... and may seek such assistance from impression that the provision of such the auditor". services by the auditor is necessarily permissible. 21 Reword final sentence to: Improves clarity of meaning. "... As noted in paragraphs 12 to 18 of this IAPS, the small entity audit client may have limited accounting and internal control systems, and as a result, the owner-manager may be reluctant to provide the management representations. 35 Reword first sentence to: Improves clarity of meaning. " Paragraph 20 of ISA 240 requires the auditor, during the audit-planning phase, to discuss with other members of the audit engagement team the susceptibility of the entity to material misstatements in the financial statements resulting from fraud and error..." 36 Reword final sentence to replace the Makes mandatory the consideration of words "still consider conducting" with.,must still conduct the". 42 Reword first sentence to: Improves clarity of meaning "Paragraph 5 of ISA 260 requires the auditor to identify the relevant officers who are charged with governance and to whom audit matters with respect to governance are communicated" 62 Reword first two sentences to: Improves clarity of meaning "The audit function is impacted by the increasing availability of computer-based accounting systems that are capable of meeting the financial and economic needs of small-sized entities. Accounting systems of small entities often make use of personal computers..." owner-manager's attitude and actions towards fraud and error.

3 81 Reword final sentence to: Improves clarity of meaning "... Any assistance provided by the auditor may impede auditor independence, therefore, the auditor should refer to the relevant sections of the Code." 94 Reword paragraph to: Improves clarity of meaning and makes discussions with owner-manager ISA 570 gives guidance on additional mandatory. audit procedures that may be relevant during the audit process when events or conditions have been identified that may cast significant doubt on the entity's ability to continue as a going concern. Such procedures may include a review of documentation such as cash flow and profit forecasts. In the audit of a small entity... Nevertheless, the auditor should discuss with the owner-manager... andin particular, the financing arrangements of the entity in the medium and long-term...". 107 Reword first sentence to add the following Improves clarity of meaning words at the end: "... to auditor independence..." 108 Reword first sentence to - Improves clarity of meaning usafeguards that may be particularly relevant for auditors to reduce threats to an acceptable level when providing other services to small entity audit clients, include the following:" 110 Reword paragraph to: Improves clarity of meaning "It is the responsibility of the ownermanager to ensure that accounting records are kept and financial statements are prepared, although the ownermanager may request the auditor to provide assistance. If the auditor is involved in making managerial decisions, the threat created cannot be reduced to an acceptable level by safeguards offered in paragraph 108. It is therefore important that the auditor does not make such decisions. Examples of such decisions include the following..."

4 114 Reword paragraph so that: Emphasises need to be aware. - in the second sentence the word kaims" is deleted and replaced with. objectives"; and - in the fourth sentence the word "remembers" is deleted and replaced with "must be aware" 115 Reword last sentence to add these words Elaborates on the scope of the at the end: Of the roles and engagement letter. responsibilities of management and auditors". 117 Delete the word "not audit work" and Improves clarity of meaning Replace with "non-audit work". 121 Reword the last sentence to add the words "during the audit-planning phase" after the word "cost". 122 Reword the first sentence to add the words Improves clarity of meaning Improves clarity of meaning U of the small entity" after the words "financial statements". 123 Reword paragraph to: Improves clarity of meaning The auditor of a small entity when preparing the accounting records or financial statements, applies professional judgement in considering whether those services result in a reduction of the audit work necessary to support the independent audit opinion. The preparation of accounting records or financial statements will seldom provide all, if any, of the audit evidence required by the auditor. In particular, those services usually only provide some of the necessary evidence regarding the completeness of a population or over the value of items stated in the financial statements and have the potential to call into question the objectivity of decisions made by the auditor. While audit evidence may be able to be obtained simultaneously at the time the accounting records or financial statements are being prepared, objectivity remains an issue..." i

5 128 Reword sentence to delete the word Only extraordinary events could ever "preparing" and replace it with the words see the actual preparation of accounts '.advising on the preparation of' by an auditor. The Provision of Accounting Services to the Small Entity Being Audited Paragraph 2 Delete the word "audit" (before "clients") Improves clarity of meaning in the first sentence. Paragraph 3 Add the words "for the small entity" after Improves clarity of meaning the word "perform". Paragraph 4 Reword second and following sentences Improves clarity of meaning to:... The auditor also acquires an in-depth knowledge of the entity, which assists in the planning and execution phases of the audit. The auditor nevertheless must be aware that assistance provided to the entity does not relieve the auditor from obtaining sufficient and appropriate audit evidence and must at all times ensure his real and perceived independence is not compromised." Paragraph 5 Reword paragraph to add the words: Improves clarity of meaning "independent audit" after the words..expressing an"; and..audit" after the words "form an objective"