Under sections 301 of the Corporations Act 2001 all disclosing entities, public companies, large proprietary companies and managed investment schemes are required to have their financial reports audited and lodged with the Australian Securities & Investments Commission (ASIC).
What is the purpose of an audit?
Financial reports are used by a wide variety of people to evaluate an entity’s financial position, performance and changes during the financial year. Financial Reports help readers to make better informed decisions in their dealings with the entity.
Therefore, the main purpose of an audit is to provide an independent opinion as:
- whether the applicable financial reporting framework has been applied in the preparation of the financial report; and
- whether the financial reports are free from material misstatement; and
- whether financial reports show a true and fair view of the operating results, financial position and cash flows of the entity.
Auditor independence
An auditor is required to be independent from the entity it audits. The independence requirements applying to auditors are legally enforceable and are located within the following legislation and standards:
- Divisions 3, 4 and 5 of Part 2M.4 and s307C of the Corporations Act
- APES 110 Code of Ethics for Professional Accountants
- Auditing standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, and Other Assurance Engagements; and
- Auditing Standard ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information.
How long before you change Auditor?
Under the Corporations Act 2001 an individual auditor or authorised audit company must not play a significant role in the audit of a particular listed company or listed registered scheme for more than 5 successive financial years. The auditor must have at least 2 successive financial years break.
The auditor rotation requirements are primarily aimed at maintaining the independence and objectivity of the auditor, by reducing the familiarity threat through long associations with key auditors.
If you require any further information in regards to the above, contact The Quinn Group on (02) 9223 9166 or submit an online enquiry.
