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determine the groups to whom the auditor has reporting responsibilities…

- - - - In Australia, the regulatory body with public company oversight is the Australian Securities & Investments Commission (ASIC).
        
        The auditor has an obligation to report in writing to ASIC under s. 311 of the Corporations Act if, in the course of the performance of their duties as an auditor of a company, they:
        • have reasonable grounds to suspect that there has been a contravention of, or a failure to comply with, any of the provisions of the Corporations Act
        • believe that the matter will not be adequately dealt with by: –– comment in the auditor’s report, or
        –– notifying the directors.
        
        Section 311 does not require that the auditor be satisfied beyond reasonable doubt that a breach has occurred before being required to report to ASIC. This means that the auditor need not conduct exhaustive and conclusive investigations, nor rely exclusively on evidence that would be admissible in criminal proceedings.
        
        Rather, s. 311 requires an auditor to take action where the auditor has ‘reasonable grounds’ to suspect a contravention of the Corporations Act. This requires that there must be some facts or some evidence that would lead a reasonable auditor to hold that suspicion.
        
        It should also be pointed out that under s. 311, an auditor’s duty is limited to reporting contraventions or breaches of the Corporations Act of which the auditor becomes aware in the course of the performance of the audit. ASIC does not expect the auditor to actively search for contraventions but requires auditors to show vigilance and follow up where breaches are suspected.
        
        Before reporting suspected contraventions of the Corporations Act to ASIC, auditors must be able to demonstrate that they have asked questions of directors or considered the impact of any comment that might be made in the auditor’s report.
        
        The auditor’s belief that the contravention could not be ‘adequately dealt with’ in the auditor’s report or by raising the matter with directors must be based on more than just the auditor’s personal feelings. It should be capable of withstanding subsequent scrutiny.
        
        confidentiality
        
        However, the law may override the duty of confidentiality. The auditor of a financial institution may have a duty to report fraud to supervisory authorities. Also, the auditor may have a duty to report misstatements to authorities where those charged with governance fail to take corrective action.
        
        The auditor should obtain legal advice to determine the appropriate course of action in these circumstances.
  - - - if the entity has an audit committee, the appropriate persons with whom to communicate will commonly be the members of the audit committee
      - Effective audit committees could be expected to enquire of the auditor the extent to which executive management has been aggressive in its choice of accounting policies, and may ask the auditor to inform them of any circumstances that may affect independence, such as the provision by the audit firm of non-audit services for that client.
      - Even if the auditor communicates with the audit committee, or any other subcommittee of the governing body, they still need to determine whether they need to communicate to the full governing board (ISA 260, para. 12).
    - - normally issued at the conclusion of every audit engagement
      - This letter outlines significant issues identified by the auditor during the course of the audit, especially from their assessment of the entity’s business and inherent risk, and any recommended improvements in risk identification and internal control.
      - There are a few issues that the auditor should communicate on a timely basis to those charged with governance—usually before the management letter is written
        
        fraud
        
        if the auditor has identified a fraud or obtained information that indicates a fraud may exist, they should communicate these matters on a timely basis (immediately) to the appropriate level of management (ISA 240, para. 41).
        
        going concern
        
        The auditor shall also communicate on a timely basis to those charged with governance events or conditions identified that may cast significant doubt on the entity’s ability to continue as a going concern. The communication should include:
        (a) whether the events or conditions constitute a material uncertainty;
        (b) whether management’s use of the going concern basis of accounting is appropriate in the preparation of the financial statements;
        (c) the adequacy of related disclosures in the financial statements; and
        (d) where applicable, the implications for the auditor’s report (ISA 570, para. 25).
        
        ISA 570, para. 24 requires that the auditor communication also consider the implications for the auditor’s report when management is unwilling to make or extend its period of assessment of the going concern basis of accounting.
    - - the responsibility of the auditor is to report to those charged with governance (e.g. the board of directors for a listed company) and not to management (those with executive responsibility for the conduct of the day-to-day activities of the entity).
        
        The auditor needs to take into account the governance structure of the entity and the information to be communicated. For example, if the entity has an audit committee, the members of the audit committee will commonly be the appropriate persons (see following discussion).
        
        For issues considered as significant during the audit, the auditor needs to identify the appropriate persons who are charged with governance and with whom audit matters are to be communicated (ISA 260, para. 11).
      - internal control deficiency
        
        those charged with goverance
        
        auditor should communicate in writing such deficiencies to those charged with governance (ISA 265, para. 9). This communication should be done on a timely basis.
        
        management
        
        The auditor should also communicate these significant deficiencies to management at the appropriate level of responsibility,
        as well as other deficiencies identified during the audit that are deemed to be sufficiently important to merit management’s attention (ISA 265, para. 10).
        
        The appropriate level of management is that which has the responsibility and authority to evaluate the deficiencies in internal control and take the necessary remedial action.
        
        For significant deficiencies, this is likely to be the chief executive officer or the chief financial officer.
        
        For other deficiencies, the appropriate level may be operational management who have direct involvement in the control area identified and have the authority to take appropriate remedial action (ISA 265, para. A19).
      - Even if the auditor communicates with the audit committee, or any other subcommittee of the governing body, they still need to determine whether they need to communicate to the full governing board (ISA 260, para. 12).
      - In the case of listed entities, the auditor is required to communicate with those charged with governance:
        (a) A statement that the engagement team and others in the firm … have complied with relevant ethical requirements regarding independence; and
        (i) All relationships and other matters between the firm … and the entity that, in the auditor’s professional judgment, may reasonably be thought to bear on independence. This shall include total fees charged during the period covered by the financial statements for audit and non-audit services provided by the firm …; and
        (ii) The related safeguards that have been applied to eliminate identified threats to independence or reduce them to an acceptable level (ISA 260, para. 17).
      - There are a few issues that the auditor should communicate on a timely basis to those charged with governance—usually before the management letter is written
        
        fraud
        
        if the auditor has identified a fraud or obtained information that indicates a fraud may exist, they should communicate these matters on a timely basis (immediately) to the appropriate level of management (ISA 240, para. 41).
        
        going concern
        
        The auditor shall also communicate on a timely basis to those charged with governance events or conditions identified that may cast significant doubt on the entity’s ability to continue as a going concern. The communication should include:
        (a) whether the events or conditions constitute a material uncertainty;
        (b) whether management’s use of the going concern basis of accounting is appropriate in the preparation of the financial statements;
        (c) the adequacy of related disclosures in the financial statements; and
        (d) where applicable, the implications for the auditor’s report (ISA 570, para. 25).
        
        ISA 570, para. 24 requires that the auditor communication also consider the implications for the auditor’s report when management is unwilling to make or extend its period of assessment of the going concern basis of accounting.
- - - - Shareholder
        
        Regulatory Body
        3 Those Charged with governance and management
        
        Shareholder [p292]: Auditors report are address to them.
        
        Regulatory body [p294]: Responsibility to report to ASIC when
        a. the auditors have reasonable grounds (does not need to be beyond reasonable doubt) to suspect that there has been a contravention of, or a failure to comply with, any of the provisions of the Corporations Act
        b. the auditors believe (must be more than personal feelings and be capable of withstanding scrutiny) that the matter will not be adequately dealt with by comment in the auditor's report or notifying the directors
        
        Those charged with governance and management [p295]:
        a. Issues considered significant must be communicated to those charged with governance.
        b. Significant deficiency in internal control need to be communicate in writing to those charged with governance
        c. Communicate to management where they have the responsibility and authority to deal with the deficiencies in internal control
        d. Need to communicate to those charged with governance, that the audit firm has complied with relevant ethical requirements regarding independence
        e. Management letter to management.
  - - - • An auditor must form an opinion concerning whether:
        –– The financial report is in accordance with the Corporations Act 2001 (Cwlth), including whether the report complies with Australian Accounting Standards (s. 307(a)(i)) and whether it gives a true and fair view of the financial position and performance of the entity (s. 307(a)(ii)).
        –– The auditor has been provided with all the information, explanations and assistance required to undertake the audit (s. 307(b)).
        –– The entity has kept financial records sufficient to enable the preparation and auditing of a financial report (s. 307(c)).
        –– The entity has kept all other registers and records required by the Corporations Act (s. 307(d)).
      - • The auditor must report to members whether the financial report is, in the auditor’s opinion, properly drawn up:
        –– in compliance with Australian Accounting Standards –– to give a true and fair view (s. 308(1)).
        • If the auditor is not of that opinion, they must state why.
        • If, in the auditor’s opinion, the financial report has not been drawn up in accordance with a particular accounting standard, the auditor’s report must give particulars of the quantified financial effect on the financial report of failing to draw it up in accordance with that accounting standard (s. 308(2)).
        • The auditor’s report must also describe any defect or irregularity in the financial report
        (s. 308(3)(a)) in regard to a deficiency, failure or shortcoming for matters contained in s. 307, on which there is no reporting requirement under s. 308(1). Thus, on an exception basis (meaning they will only report such matters if there is a deficiency, failure or shortcoming), they will include in their report any defects or irregularities for the matters covered in
        s. 307(b)–(d) (s. 308(3)(b)).
      - Aus Accounting Standards
        
        If a company’s financial report for a financial year, as prepared in accordance with Australian Accounting Standards under s. 296 of the Corporations Act, would not otherwise give a true and fair view, the directors must provide further information and explanations to give a true and fair view (s. 297).
        
        This means that financial report preparers must adhere to the Australian Accounting Standards and cannot justify a departure on the basis that adherence to a specific accounting standard would result in misleading financial information.
      - GPFR
        
        an unmodified opinion shall only be expressed when the auditor is satisfied that the GPFR is presented fairly in accordance with Australian Accounting Standards.
        
        The wording used to express the auditor’s opinion is either of the phrases ‘gives a true and fair view’ or ‘presents fairly, in all material respects’. These phrases are regarded as being equivalent (ISA/ASA 700, para. 25), and their use is determined by the law or regulation governing the audit of financial statements in a particular jurisdiction
        
        In accordance with the requirements of the Corporations Act, the phrase ‘true and fair’ is used in the auditor’s report issued in Australia.
      - Small entity excemptions
        
        a small proprietary company’s financial report does not have to comply with particular Australian Accounting Standards if the report is prepared in accordance with a shareholder direction under s. 293 of the Corporations Act. Also, under the Reduced Disclosures Requirement (RDR) initiative of the Australian Accounting Standards Board (AASB),
        
        Tier 2 requirements
        
        The RDR is available to a wide range of entities in both the private and public sectors in preparing general purpose financial statements:
        (a) for-profit private sector entities that do not have public accountability;
        (b) all not-for-profit private sector entities; and
        (c) public sector entities other than the Australian Government and State, Territory and Local Governments (AASB 2010).
        
        Further, as outlined later in this module, certain types of companies limited by guarantee may be exempted from needing to prepare a GPFR, while others may have their GPFR reviewed rather than audited.
        
        Further, the Australian Securities and Investments Commission may grant relief from compliance with a particular accounting standard under s. 340 of the Corporations Act.