Small Entities Audit Manual (SEAM)

Transcription

1 Small Entities Audit Manual (SEAM)

2 CPA Australia Ltd ( CPA Australia ) is the largest professional organisation in Australia with more than 132,000 members of the financial, accounting and business profession in Australia and overseas. For information about CPA Australia, visit our website: <cpaustralia.com.au>. Published in Melbourne First Edition... SAPSE Edition 2008 Second Edition... SAPSE Edition 2009 Third Edition... SAPSE Edition 2010 Fourth Editiion... SAPSE Edition 2011 Fifth Edition... SEAM Edition 2012 Sixth Edition... SEAM Edition 2013 ISBN Legal notice 2013 CPA Australia Ltd (ABN ) ( CPA Australia ). All rights reserved. This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Enquiries should be addressed to: Legal & Compliance, CPA Australia Ltd, 28 Freshwater Place, Southbank VIC 3006.

3 Foreword Foreword CPA Australia is pleased to present the 2013 edition of the Small Entities Audit Manual (SEAM). Auditing small entities brings many unique challenges. The applicable audit standards are the same as those for much larger audits. There is no substitute for knowledge of those standards in scaling the approach to each different audit situation. This publication is designed to help auditors in this process. Along with updated sample audit programs (previously issued in Sample Audit Programs for Small to Medium Enterprises (SAPSE), this manual contains extensive and practical explanation of many key areas that you are likely to come across in the audit of small entities. The content is organized into explanation and guidance on audit, review and compilations engagements; and specific sections applicable to engagements with: a self managed superannuation fund (including overview of SMSF, Audit Plan, Financial Report Audit, Compliance Audit and Finalising the Audit); an association incorporated or unincorporated (for example, a junior sporting association); a company limited by guarantee; a real estate agent s trust account; a member s trust account; and a solicitor s trust account. Much of this specific content can also be appropriately tailored to suit different situations for example audits and reviews different entities of a similar size. These materials may assist audit and assurance practitioners in the performance of the audit or where appropriate, review of small entities. They do not relieve members of their specific responsibilities in relation to the requirements of auditing standards and are not a substitute for reading the auditing standards. Members are reminded of the professional requirement that an audit or review shall be performed and the report prepared with due professional care by persons who have adequate training, experience and competence in auditing and assurance. Each audit is different and these sample audit programs should not be used without appropriate tailoring to the circumstances of individual engagements. These guides incorporate changes up until March 2012 and may not comply with auditing standards and statutory requirements issued after this date. To keep up-to-date with subsequent changes to auditing standards, you should refer to the CPA Australia s Members Handbook or the Auditing and Assurance Standards Board (AUASB) website: < These sample audit programs should complement your existing planning and risk identification. They do not relieve you of your obligation, as an auditor, assurance practitioner and member of CPA Australia, to ensure that you comply with professional and auditing standards during the conduct of all audits and review engagements. i

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5 Table of contents Foreword i Acknowledgements v Before you start! v 1. Overview of audits and reviews of financial statements 1:2 Introduction to the chapter 1:2 What is an audit? 1:2 What is a review? 1:3 Australian Auditing and Assurance Standards 1:3 Detailed methodology 1:6 Audit 1:6 Review engagements 1:28 Appendices 1:33 2. The audit of a self managed superannuation fund 2:2 Introduction to this chapter 2:2 Financial report audit 2:5 Appendices 2:8 3. The audit or review of an association 3:2 Audit or review of an incorporated association: Overview 3:2 Audit or review approach 3:3 Planning the audit or review 3:3 Business understanding, associated risks and financial statement assertions 3:4 Reporting 3:6 Appendices 3:8 4. Audit or review of a company limited by guarantee 4:2 Audit or review of a company limited by guarantee: Overview 4:2 Audit or review approach 4:2 Planning the audit or review 4:3 Reporting 4:6 Appendices 4:8 5. Overview of a compliance audit 5:2 Standards on Assurance Engagements 5:2 What is a compliance audit? 5:2 Overview of ASAE :2 Ethical requirements 5:3 Quality control 5:3 Professional scepticism 5:3 Acceptance and continuance 5:3 Overview of the audit approach under ASAE :5 Planning 5:6 iii

6 Small entities audit manual 2013 Performing 5:7 Evaluate, report and wrap-up 5:7 6. Compliance audit of a real estate agent s trust account 6:2 Audit of a real estate agent s trust account: Overview 6:2 Audit approach 6:2 Appendices 6:5 7. The audit of client monies 7:2 Introduction 7:2 Methodology 7:3 Appendices 7:5 8. Audit of a solicitor s trust account 8:2 Audit of a solicitor s trust account: Overview 8:2 Audit methodology 8:2 Appendices 8:5 iv

7 Introduction Acknowledgements Original contributions Stuart Horsburgh, BDO Melbourne Shirley Schaefer, BDO Adelaide Material updates Clare Azzopardi, External Audit Manager, Grant Thornton, Victoria (2008) Margaret M Salter, Director MMS Consulting Pty Ltd (2008) Greg Hayes from Hayes Knight Pty Ltd (2009) Dr Christine Jubb, The Australian National University (2010) Dr Christine Jubb, The Australian National University (2011) CPA Australia (2012 and 2013) Before you start! Purpose of this guide The SEAM sets out the methodology to be applied for the financial statements and compliance audits of certain entities as well as some example audit procedures. This guide is split into the following sections: Part A Chapter 1: Overview of audits and reviews of financial statements. Chapter 2: The audit of a self managed superannuation fund financial statement audit and compliance audit. Chapter 3: The audit or review of an association (both incorporated and unincorporated associations). Chapter 4: The audit or review of a company limited by guarantee. Part B Chapter 5: Overview of a compliance audit. Chapter 6: The audit of a real estate agent s trust account. Chapter 7: The audit of client monies. Chapter 8: The audit of a solicitor s trust account. The first part of this guide provides guidance for the auditors of historical financial statements in the format of financial statements. These audits are performed in accordance with the Auditing Standards as documented in table 1 of Appendix 1. The application of these auditing standards for two specific entities, an Association and Self-Managed Superannuation Fund (SMSF) has been illustrated in Chapters 2 and 3 respectively. The second part of the guide is for compliance audits performed using ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information and ASAE 3100 Compliance Engagements. These engagements are determining compliance with particular rules/legislation and the application of the methodology has been illustrated with the engagements in Chapter 6 8 as well as the SMSF compliance audit in Chapter 2. Appendices which contain information specific to the chapter are included at the end of each chapter (shown by the numbering convention Appendix 1A which is Appendix A at the end of Chapter 1) and appendices which are relevant to a number of chapters included at the end of the book (shown at Appendix A). How to use this guide The overview chapter for the specific engagement should be read (either Chapter 1 for financial statement audits or Chapter 5 for compliance audits) followed by the relevant chapter relating to the engagement. The example working papers/tools in the chapter can then be used to supplement your own audit documents. v

8 Small entities audit manual 2013 Disclaimer At all times, the audit is required to be conducted in accordance with Australian Auditing Standards relevant to the engagement. Reading this guide is not a substitute for reading the relevant auditing standards and specific legislation/guidance on the engagement. Whilst the SEAM should not be seen as a comprehensive audit methodology, it nonetheless provides a good framework for the engagements covered. Overview of the auditing standards In Australia, our auditing standards are based on the International Auditing Standards issued by the International Auditing and Assurance Standards Board (IAASB). The use of international standards ensures consistent quality audits across a number of jurisdictions. The professional bodies in Australia require compliance with the Australian Auditing Standards for all audits covered by this guide. The over-riding theme throughout these standards are that an Audit is an Audit and therefore all requirements in the standards need to be complied with, smaller audits would however have less complexity and therefore a number of auditing standards would not be relevant, for example Service Entities. In addition, the auditing standards acknowledge that the volume of audit documentation is less and certain documents may be able to be combined (for example, audit plan and audit strategy) nevertheless auditors of these smaller organisations have to consider the relevance of each requirement in the auditing standards. This means that the fundamental methodology, being risk based, is applicable for all audit engagements covered in this guide. The auditing standards contain a requirements section which includes all the mandatory requirements (the traditional black letter paragraphs) which is supported by the guidance section (the traditional grey letter paragraphs). Auditors however are required to consider all paragraphs within each standard. Auditing standards can be accessed on the AUASB website: < This guide refers to: Auditing standards (ASAs) which are the Australian auditing standards issued by the Australian Auditing and Assurance Standards Board (AUASB); Standards on Review Engagements (ASREs) issued by the AUASB; Standards on Assurance Engagements (ASAEs) issued by the AUASB; and Accounting Professional and Ethical Standards (APES) issued by the APESB. Relevant date The content of this publication is based on pronouncements and standards in place at January It is the responsibility of the auditor to ensure that they are using the most up-to-date legislation, guidance and standards. Australian Charities and Not-for-Profit Commission (ACNC) update Some of the entities covered in this guide may be impacted by the establishment in 2012 of the Australian Charities and Not-for-Profit Commission (ACNC). At the time of writing, the scope of the ACNC is registered charities only, and the ACNC Act has established the following financial reporting provisions which will come into effect on 1 July vi

9 Introduction Type of charity Definition Financial Reporting/Audit Requirements Small Income less than $250k No financial reporting obligations but will have to submit an Annual Information Statement. Medium Income between $250k and $1m Submit an annual information statement. Prepare and file audited/reviewed financial reports for the year ended 30 June 2014 onwards. Large Income greater than $1m Submit an annual information statement. Prepare and file audited financial reports for the year ended 30 June 2014 onwards. Note: the Government is currently consulting on the proposed financial reporting requirements applying to registered charities and therefore there may be some changes in these proposals and the contents of financial reports. vii

10 Commonwealth of Australia 2013 All legislation herein is reproduced by permission but does not purport to be the official or authorised version. It is subject to Commonwealth of Australia copyright. The Copyright Act 1968 permits certain reproduction and publication of Commonwealth legislation. In particular, s. 182A of the Act enables a complete copy to be made by or on behalf of a particular person. For reproduction or publication beyond that permitted by the Act, permission should be sought in writing from the following: For reproduction of Australian Accounting Standards Requests in the first instance should be to the Director of Finance and Administration, Australian Accounting Standards Board, PO Box 204, Collins Street West, Melbourne, VIC 8007; For reproduction of Australian Auditing & Assurance Standards Requests should be addressed to The Executive Director, Auditing and Assurance Standards Board, PO Box 204, Collins St. West, Melbourne VIC 8007.