CPA notes from HD student including worked examples. Page references are current for the 2021 textbook (edition 5).
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MODULE 1: The Auditing and Assurance Services Framework
PART A: Assurance environment 4
The internationalisation of auditing – IFAC, IAASB and IFIAR 5
Regulation of auditing in Australia: FRC, ASIC, APESB and AUASB 7
Regulation of auditing in New Zealand 10
PART B: International Framework for Assurance Engagements 11
Ethical principles 11
Quality control standards 18
Description of assurance engagements 25
Attestation and direct engagements 25
Reasonable and limited assurance engagements 26
Scope of the framework 27
Elements of an assurance engagement 28
PART C: Type of assurance engagements 39
Audits of financial statements 40
Audit of specialised areas 41
Review engagements 41
Historical non-financial reports assurance 41
Future oriented information assurance 42
Assurance on systems and processes 42
Assurance on aspects of behaviour 42
Performance of an activity 44
PART D: Application of standards 45
Application of ISAs 45
Application of ISREs 51
Application of ISAEs 51
Application of ISRSs 52
Australian perspective 52
PART E: Changing environment 53
Evolving business models 54
Climate-risk disclosure 54
Technological innovations 55
IFAC: International Federation of Accountants: headquartered in NYC and members are the associations of
professional accountants around the world.
IAASB: Intentional Auditing and Assurance Standards Board: an independent standard-setting body that
serves the public interest by setting high-quality international standards for auditing, quality control, review,
other assurance, and related services, and by facilitating the convergence of international and national
standards (IAASB 2016).
IFIAR: International Forum of Independent Audit Regulators: formed in 2006, with current membership of
over 50 independent public oversight bodies (such as ASIC in Australia).
Structure and hierarchy of IAASB pronouncements
IESBA (2016) Handbook of the Code of Ethics for Professional Accountants (Code) is the fundamental
pronouncement for assurance practitioners.
The Preface to this Handbook states that the IESBA develops and issues the Code for use by professional
accountants globally and a member body of IFAC or firm ‘shall not apply less stringent standards than those
stated in the Code’ (IESBA 2016, Preface).
Structure and hierarchy of IAASB pronouncements
The IAASB develops and issues standards for three
types of assurance engagements: audits, review
engagements and assurance engagements:
1. International Standards on Auditing (ISAs)—to
be applied to the audit of historical financial
information.
2. International Standards on Review Engagements
(ISREs)—to be applied to the review of historical
financial information.
3. International Standards on Assurance
Engagements (ISAEs)—to be applied in assurance
engagements dealing with information other than
historical financial information (e.g. prospectuses,
sustainability reports). Information that is ‘other
than historical financial’ may be future oriented
and/or non-financial.
Regulation of auditing in Australia: FRC, ASIC, APESB and AUASB p7
Financial Reporting Council An independent statutory agency.
Oversees: accounting standards-setting process, the auditing standard-setting
process and the monitoring of auditor independence.
Responsibilities: appointing the members of the Auditing and Assurance
Standards Board (AUASB).
Australian Securities and An independent Commonwealth body that was set up under the Australian
Investment Commission Securities and Investments Commission Act 2001 (Cwlth) (ASIC Act).
Works under the Corporations Act 2001 (Cwlth).
Responsibilities: registration of auditors, enforcement of rules regarding
auditor independence and use of auditing standards, and inspection of audit
firms
Accounting Professional An independent body (funded by professional accounting bodies in Aus)
and Ethical Standards Board Responsibilities: setting ethical standards in Australia (setting standards on
quality control, ethical conduct and compliance with auditing and assurance
standards)
Australian Auditing and An independent statutory agency under the ASIC Act.
Assurance Standards Board The AUASB’s mandate requires it to consider revisions and improvements to
the pronouncements initiated by the IAASB.
The Australian Framework for Assurance Engagements (Australian Framework)
conforms with the International Framework for Assurance Engagements (the
Framework) with only minor differences.
The AUASB issues guidance statements as well.
Preamble to Australian auditing standards
The ASAs also include some standards that do not exist at the international level. For example, ASA 101
Preamble to Australian Auditing Standards has no international equivalent, and outlines how the AUASB
intends the Australian standards to be understood, interpreted and applied.
‘Auditing standards’ (are legally enforceable) include:
• all the ASAs;
• ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity; and
• ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports, Other
Financial Information, and Other Assurance Engagements.
‘Auditing and assurance standards for other purposes’ consist of standards that are designed for assurance
engagements other than audits and reviews of historical financial information. These other assurance
engagements include, for example:
• reviews other than a review by the independent auditor of an entity, of an interim or other financial
report for other purposes;
• evaluations of the efficiency and/or effectiveness of an entity’s activities (performance audits);
• prospective financial information; and
• the effectiveness of internal controls.
Australian specific requirements
ISREs contain two standards:
• ISRE 2400 Engagements to Review Financial Statements where the practitioner, who is not the
auditor of the entity, undertakes an engagement to review the financial statements; and
• ISRE 2410 Review of the Interim Financial Information Performed by the Independent Auditor of the
Entity where the practitioner, who is the entity’s auditor, reviews interim financial information.
No international equivalent to Australian approach to reporting for companies limited by guarantee or not for
profits to report.
ASRE 2415 Review of a Financial Report: Company Limited by Guarantee or an Entity Reporting under the ACNC
Act or Other Applicable Legislation or Regulation:
• Tier 1: exempt from preparing a financial report
• Tier 2: must prepare a financial report but can choose to have it reviewed instead of audited (revenue
between 250K and 1m, or a charity with revenue below 250K)
• Tier 3: must prepare an audited financial report
Regulation of auditing in New Zealand p10
The External Reporting Board (XRB) is an independent Crown entity established under the Financial Reporting
Act 1993 with the following functions:
• developing and implementing an overall strategy for financial reporting standards and auditing and
assurance standards (including developing and implementing tiers of financial reporting and
assurance);
• preparing and issuing accounting standards;
• preparing and issuing auditing and assurance standards, including the professional and ethical
standards that will govern the professional conduct of auditors; and
• liaising with national and international organisations that exercise functions that correspond with, or
are similar to, those conferred on the XRB (XRB 2016a).
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