What are Australian Auditing Standards?

The goal of the Australian Auditing Standards is to establish guidelines to streamline financial reporting. Auditors must follow auditing standards on all audits, including initial audit engagements, to obtain reasonable assurance about the reliability of financial reports. The standards set by the AUASB are reviewed at least once every ten years, with most standards evaluated on a more frequent basis.

Who Must Follow Australian Auditing Standards?

Australian Auditing Standards apply to a few different groups of people and businesses. For one, auditors must abide by the regulations. This includes individual auditors and firms. Auditors must also submit annual declarations to the Australian Securities and Investments Commission to confirm their compliance with Australian Auditing Standards.

Furthermore, members of CPA Australia and the Institute of Public Accountants are required to abide by the code of ethics and professional standards established by the Accounting Professional & Ethical Standards Board. These regulations also apply to chartered accountants in Australia and New Zealand.

Businesses can also be subject to Australian Auditing Standards. Business owners who are required to have an independent audit must follow the standards outlined by the Australian Auditing and Assurance Standards Board. For example, businesses are required to provide auditors with all necessary information and truthfully respond to inquiries.

How are Australian Auditing and Assurance Standards Created?

The Australian Auditing and Assurance Standards Board uses a few different methods to develop audit procedures. Let’s cover a few of the main avenues in more detail: Explanatory material plays a crucial role in the development of auditing standards, clarifying the responsibilities of auditors and assurance practitioners.

Openly Discussing Proposals

Before the AUASB creates a new accounting or auditing standard, they communicate their views and proposals. This gives chartered accountants and auditing professionals the ability to express their viewpoints and propose adjustments before regulations are finalized.

Meeting with Interested Parties

In an effort to implement standards that benefit both regulators and audits, the AUASB holds meetings with interested parties. This could be businesses that are impacted by a proposed standard, regulators who are interested in the details, or auditors who are confused about implementation.

Publishing Board Papers

Once a new auditing standard is passed, the AUASB will issue a board paper discussing the requirements. All details related to changing procedures for businesses and auditors will be outlined in the board paper. If additional information is needed, the AUASB will issue follow-up papers that answer any questions.

Common Auditing Standard Requirements

Audit of a financial encompasses every aspect of audit engagements, from the audit report issued to the quality control exercised. Let’s go through some of the main auditing and accounting standards that auditors must implement.

Exercise Professional Judgment and Maintain Skepticism

The first requirement is that auditors exercise professional judgment and maintain skepticism. This means using your expertise and experience to draw informed conclusions and decisions surrounding factors found in the financial statements. This could be questioning information that doesn’t seem correct or approaching each situation with a questioning mindset. Auditors can’t take information at face value. Instead, they need to actively look for any material misstatements that might be hidden in the financial report to obtain reasonable assurance.

Identify and Assess Material Misstatement Risks in Financial Statements

One of the main goals of Australian Auditing Standards is to have rigid criteria for uncovering material misstatements. Lenders, investors, and regulators all rely on financial statements to make informed decisions. As a result, auditors need to determine the level at which misstatements become material. Additionally, procedures need to be in place to detect any anomalies or errors.

Obtain Sufficient Audit Evidence

Before audit reports can be issued, auditors need to have sufficient appropriate audit evidence. Examples of audit evidence include supporting documentation and historical financial information. This audit evidence will be used to support conclusions and the report issued. Other explanatory material provides guidance and clarification to auditors, helping them achieve reasonable assurance during the audit process.

Form an Opinion

Audits provide assurance that the financial statements are free from material misstatements and internal control deficiencies. If auditors do uncover significant issues during the process, they are required to disclose these problems in the audit report by issuing an unclean opinion.

Maintain Independence and Assess Internal Control

Audits are one of the few accounting services that require independence. An independent auditor is one who has no financial connection or personal relationship with the company being audited. This allows the auditor to remove any bias from decisions and fully evaluate the accuracy of the financial statements.

Why are Australian Auditing Standards Important?

Australian Auditing Standards play an important role in regulating both businesses and auditors to ensure the quality and integrity of financial statement audits. Let’s explore a few different reasons why Australian Auditing Standards are in place.

Accuracy and Reliability

Auditors are required to follow rigid standards when it comes to evaluating financial statements. This includes qualification criteria, fieldwork policies, and reporting guidelines. By ensuring financial statements are accurate and internal controls are operating effectively, auditors issue reports that third parties can rely on when making decisions.

Credibility

Having audited financial statements in accordance with Australian Auditing Standards adds credibility to the company. Third parties know that the auditors followed proper protocols when reviewing and issuing the financial statements. This infuses confidence in lending and investing decisions.

Consistency

Part of Australian Auditing Standards is issuing reports and financials that follow a specific format. For example, each balance sheet will be presented in the same way. This allows for quick and easy comparisons between companies.

Quality Management

Australian Auditing Standards provide robust requirements that auditors must follow to maintain quality assurance. These standards are in effect from initial planning through the final report issuance.

Fraud Detection in Financial Statements

Auditors who uphold Australian Auditing Standards are more likely to uncover instances of fraud and asset misappropriation. With the right procedures, auditors bring these issues to light to both management and regulators. For example, if an auditor uncovers a severe case of government fraud, they will notify the proper authoritative body. Preventing financial crime is one of the reasons why auditing standards are so important.

Ethical Parameters

Australian Auditing Standards not only issue procedures for auditors to follow when conducting audits, but they also outline ethical parameters. Auditors must maintain integrity, objectivity, professional competence, due care, confidentiality, and professional behavior when issuing auditing reports.

Penalties for Noncompliance with Australian Auditing Standards

Australian Auditing Standards are in place to protect everyone, including lenders, investors, business owners, and auditors. This means that noncompliance is a severe offense and can result in both civil and criminal penalties. For one, auditors can receive civil penalties up to $200,000. In addition, officers can be disqualified from participating in future corporations.

Additionally, Australian regulators can impose up to 2,000 penalty units or $220,000. Jail time is also another noncompliance side effect, with involved individuals facing up to five years in prison. The value and severity of penalties are determined by the Department of Justice and Community Safety.

Summary

• The Australian Auditing Standards are a set of regulations that dictate which procedures and policies auditors must follow when issuing an audit in Australia.
• Auditing standards are created through open discussion with relevant parties, holding meetings with impacted individuals and businesses, and issuing formal board papers.
• Common auditing standards include exercising professional judgment, maintaining skepticism, identifying misstatements, obtaining audit evidence, forming an opinion, and maintaining independence.
• Australian Auditing Standards are important because they generate accurate and reliable financial statements, credibility, consistency, quality management, fraud controls, and ethical parameters in the audit process.
• Australian regulators can impose both civil and criminal offences for noncompliance.