For audits of a concise financial report prepared under the Corporations Act 2001 (“the Act”) and in accordance with Accounting Standard AASB 1039 Concise Financial Reports (as amended April 2015) (AASB 1039), the auditor complies with the requirements ASA 810 Engagements to Report on Summary Financial Statements. This Guidance Statement has been formulated by the Auditing and Assurance Standards Board (AUASB) to provide guidance to auditors reporting on such engagements.
Preamble
Important Note
Guidance Statements are developed and issued by the AUASB to provide guidance to auditors and assurance practitioners on certain procedural, entity or industry specific matters related to the application of an AUASB Standard(s).
Guidance Statements are designed to provide assistance to auditors and assurance practitioners to assist them in fulfilling the objective(s) of the audit or other assurance engagement. Accordingly, Guidance Statements refer to, and are written in the context of specific AUASB Standard(s); and where relevant, legislation, regulation or other authoritative publication. Guidance Statements are not aimed at providing guidance covering all aspects of the audit or other assurance engagement. Further, Guidance Statements do not establish or extend the requirements under an existing AUASB Standard(s).
Guidance Statement Concise Financial Reports Under the Corporations Act 2001 is not, and is not intended to be, a substitute for compliance with the relevant AUASB Standard(s) and auditors and assurance practitioners are required to comply with the relevant AUASB Standard(s) when conducting an audit or other assurance engagement.
Authority Statement
The Auditing and Assurance Standards Board (AUASB) formulates Guidance Statement GS 001 Concise Financial Reports Under the Corporations Act 2001 pursuant to section 227B of the Australian Securities and Investments Commission Act 2001, for the purposes of providing guidance on auditing and assurance matters.
This Guidance Statement provides guidance to assist the auditor to fulfil the objectives of the audit or assurance engagement. It includes explanatory material on specific matters for the purposes of understanding and complying with AUASB Standards. The auditor exercises professional judgement when using this Guidance Statement.
This Guidance Statement does not prescribe or create new requirements.
Application
1
For audits of a concise financial report prepared under the Corporations Act 2001 (“the Act”) and in accordance with Accounting Standard AASB 1039 Concise Financial Reports (as amended April 2015) (AASB 1039), the auditor complies with the requirements ASA 810 Engagements to Report on Summary Financial Statements. This Guidance Statement has been formulated by the Auditing and Assurance Standards Board (AUASB) to provide guidance to auditors reporting on such engagements.
2
For audits of other summary financial reports, the auditor complies with Auditing Standard ASA 810 Engagements to Report on Summary Financial Statements.
Introduction
4
The auditor’s objective in respect of a concise financial report prepared under the Act, is to express an opinion:
- whether the concise financial report complies with AASB 1039; and
- when included, whether the discussion and analysis complies with the requirements of AASB 1039.
Regulatory Requirements
5
The annual financial reporting requirements of a company, registered scheme and disclosing entity are found in section 314(1) of the Act.
6
Section 314(2) of the Act states:
A concise report for a financial year consists of:
- a concise financial report for the year drawn up in accordance with accounting standards made for the purpose of this paragraph; and
- the directors’ report for the year (see sections 298 300A); and
- a statement by the auditor:
- that the financial report has been audited; and
- whether, in the auditor’s opinion, the concise financial report complies with the accounting standards made for the purpose of paragraph (a); and
- a copy of any qualification in, and of any statements included in the emphasis of matter section of, the auditor’s report on the financial report (paragraph 7 of this guidance statement provides clarification regarding the implication of the term “Material Uncertainty Related to Going Concern”); and
- a statement that the report is a concise report and that the financial report and auditor’s report will be sent to the member free of charge if the member asks for them.
7
The term “Material Uncertainty Related to Going Concern” has been introduced to the Australian Auditing Standards applicable for financial reporting periods commencing on or after 15 December 2016. The term is not used in the Act and accordingly is not captured under paragraph 6(d) of this guidance statement; however a concise report includes a copy of any statements included in the Material Uncertainty Related to Going Concern section of the auditor’s report on the financial report.
8
Section 314 of the Act does not require a concise report to include the directors’ declaration made under section 295(4) of the Act in respect of the financial report for the year. Consequently, where the directors of an entity decide to include the directors’ declaration as part of the concise report, the auditor, under ASA 720 The Auditor's Responsibilities Relating to Other Information in Documents Containing an Audited Financial Report, needs to read the declaration, along with other documents comprising the concise report, to identify material inconsistencies with the concise financial report and material misstatements of fact.
9
Section 314(3) of the Act requires the auditor to report on whether the discussion and analysis, if required by AASB 1039 to be included in the concise financial report[1], complies with the requirements laid down by the Accounting Standard. Furthermore, section 314(3)(b) specifies that the auditor need not otherwise audit the statements made in the discussion and analysis.
10
The requirements of the Act relating to concise financial reports are based on the view that a concise financial report can provide members with information relevant to evaluating the business, without giving them fully detailed accounting disclosures. The concise report will, in many cases, be the only report that is sent to members[2]. The provision, to some members, of less detailed information is expected to be sufficient to meet their needs for an understanding of the financial performance, financial position and financing and investing activities of the company, registered scheme or disclosing entity.
Accounting Standard AASB 1039
11
The Australian Accounting Standards Board issued Accounting Standard AASB 1039 Concise Financial Reports, the latest revision of which, dated April 2015, is operative for financial reporting periods beginning on or after 1 January 2009.
Discussion and Analysis
12
AASB 1039, inter alia, specifies the minimum content of a concise financial report, including a requirement that the financial statements forming part of the concise financial report, other than those of a listed company, be accompanied by discussion and analysis to assist the understanding of members.
13
AASB 1039 adopts the view that the information reported in the financial statements forming part of the concise financial report will be enhanced by discussion and analysis of the principal factors which affect the financial performance, financial position and financing and investing activities of an entity. According to AASB 1039, the extent of discussion and analysis which is required to be provided in concise financial reports will vary from entity to entity, and from year to year, as is necessary in the circumstances to compensate for the brevity of the concise financial report, compared with the financial report for the year.
14
AASB 1039 does not require the financial statements, forming part of the concise financial report of listed companies, to be accompanied by discussion and analysis. This is so as to avoid repetition of information required to be included in the directors’ report by section 299A of the Act.
15
Whilst AASB 1039 does not mandate specific discussion and analysis disclosures, paragraph 27 of the Standard provides examples of the types of disclosures that may, at least, be expected to accompany the financial statements.
Discussion and analysis are not required for listed companies – see AASB 1039 paragraph 24. This is because, unlike other entities, listed companies are required by section 299A of the Act to provide an operational and financial report in the directors’ report (which is included in the concise report).
Unless members request a copy of the financial report (annual financial report) – see section 314(2)(e) of the Act.
Audit Activities
Engagement Acceptance
16
Given that the concise financial report is an alternative form of reporting to members under the Act, and that the Act prescribes the auditor’s reporting requirements, the AUASB takes the view that the audit of the concise financial report is treated, by auditors, as a separate engagement from the audit of the financial report for the year. This view has been taken also because procedures, additional to those performed on the financial report for the year, will be necessary when undertaking the audit of the concise financial report, particularly given that AASB 1039 requires, in certain circumstances, the inclusion of other information not found in the financial report for the year, such as discussion and analysis.
17
In order to avoid any misunderstandings in relation to the audit of the concise financial report, the auditor complies with the engagement acceptance requirements in ASA 810 Engagements to Report on Summary Financial Statements. The auditor agrees the terms of the audit engagement with the appropriate person(s) within the entity’s governance structure. The auditor records the terms of engagement in writing and obtains written acceptance from the appropriate person representing the entity. These terms may be included in the written terms of the audit engagement for the financial report. On recurring audits, the terms of the engagement are revised and reconfirmed as appropriate.
18
In addition to the specific requirements in ASA 810, the terms of engagement ordinarily include the objective and scope of the audit of the concise financial report (including the audit of discussion and analysis disclosures in that report). Such inclusions differentiate the engagement to audit the concise report from the engagement to audit the financial report.
Audit Procedures
Auditing Standards
19
AASB 1039 requires the concise financial report to be derived from the financial report for the year. Consequently, the audit procedures performed under the Auditing Standards by the auditor when auditing the financial report for the year are effectively performed on that information in the concise financial report that has been derived from the financial report for the year. Accordingly, there is no expectation that such audit procedures need be repeated on the relevant information in the concise financial report.
20
Reference to “audit” and “audit procedures” in the illustrative examples of an auditor’s report on the concise financial report (see Appendix 1) relate to all procedures that have been performed by the auditor (i.e. regarding both the financial report and the concise financial report).
21
When selecting and applying procedures in addition to those performed in relation to the financial report for the year, the auditor complies with ASA 810.
22
Under ASA 810, paragraph 8, the auditor is required to perform specified procedures. Furthermore, the auditor is required to perform additional procedures that the auditor considers necessary as the basis for the auditor’s opinion (on the concise financial report), for example, procedures addressing discussion and analysis.
Discussion and Analysis
23
As the inclusion of discussion and analysis is not required in the financial report for the year of some entities reporting under the Act, the audit of a concise financial report will include procedures to enable the auditor to reach a conclusion on the discussion and analysis, as part of forming an opinion on the concise financial report.
24
These procedures may include, a recalculation of ratios and/or trend analyses which have been included in the discussion and analysis; and ensuring that these disclosures are consistent with the information in the financial report for the year.
25
Whilst AASB 1039 requires that the financial statements and the specific disclosures in a concise financial report be consistent with the financial report for the year of the entity, it is recognised that because of the nature of discussion and analysis, such information (for example, a discussion and analysis of the main influences on the costs of the operations of the entity) goes beyond the type of disclosure which is included normally in the audited financial report for the year.
26
In such circumstances, the auditor selects and applies appropriate procedures to be able to reach a conclusion on the discussion and analysis and evaluates the results of such procedures when forming an opinion on whether the discussion and analysis complies with the requirements of AASB 1039. In selecting and applying procedures and evaluating results, the auditor exercises professional judgement in accordance with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.
27
Where information of a subjective and/or prospective nature is included in the discussion and analysis, either to comment on, or to augment the entity’s financial statements forming part of the concise financial report (for example, a discussion of the impact of significant economic or other events on the operations of the entity), the auditor assesses whether the inclusion of such information in the audited concise financial report has the potential to mislead users.
28
Under ASA 200, the auditor exercises professional judgement in assessing the inclusion of such information in the discussion and analysis. If the auditor considers that this information is overly subjective and/or prospective in nature, and/or that it is information which cannot be quantified or verified, then the auditor refers to Auditing Standard ASA 705 Modifications to the Opinion in the Independent Auditor’s Report, for requirements and guidance on modifying the auditor’s report. Depending on the circumstances, the modification to the auditor’s report may be as a result of a disagreement with the directors (those charged with governance) on the adequacy or appropriateness of disclosures in the concise financial report, or may be as a result of a limitation in scope.
29
In view of the matters discussed above, it is generally important that the auditor ascertains from the directors (those charged with governance), at an early stage in the audit, the extent and nature of the discussion and analysis that they intend to include in the concise financial report.
30
In ascertaining the extent and nature of the discussion and analysis at an early stage the auditor seeks to avert any difficulties which might otherwise arise with regard to the inclusion of such information. The directors (those charged with governance) are thus informed at that stage if, in the auditor’s opinion, there is any possibility that users of the concise financial report might be misled by the inclusion of overly subjective and/or prospective terminology and information in the discussion and analysis which forms part of the concise financial report.
Representations
31
Given that the Act does not require a directors’ declaration to be included in the concise report, prior to issuing the auditor’s report, under ASA 580 Written Representations, the auditor obtains a written representation from the entity’s directors which attests that the concise financial report (including, when applicable, discussion and analysis disclosures) complies with the requirements of AASB 1039 and the Act.
The Auditor’s Report
32
When reporting on a concise financial report, the auditor complies with the Act and ASA 810. As section 314 of the Act prescribes the auditor’s reporting obligations, the auditor adheres to the requirements in ASA 810, paragraph 10 in respect of the prescribed reporting obligations.
33
Under ASA 810, paragraph 10(b), the auditor evaluates whether the users of a concise financial report might misunderstand the auditor’s opinion. Due to the precision of wording recommended in this Guidance Statement, and the requirements of the Act, an auditor ordinarily concludes that users will not misunderstand the auditor’s opinion.
34
When expressing an unmodified opinion on a concise financial report prepared in accordance with the requirements of the Act, the auditor’s opinion uses one of the following phrases:
- In our opinion, the accompanying concise financial report, including the discussion and analysis of ABC Company, complies with Accounting Standard AASB 1039 Concise Financial Reports (other than a listed entity); or
- In our opinion, the accompanying concise financial report, complies with Accounting Standard AASB 1039 Concise Financial Reports (for a listed entity).
35
ASA 810, paragraph 16 lists the elements required to be included in an auditor’s report.
Modifications to the Opinion, Emphasis of Matter Paragraph, Other Matter Paragraph and Material Uncertainty Related to Going Concern Section
36
Under ASA 810, paragraph 19, where the auditor’s report on the financial report includes a qualified opinion, an emphasis of matter or other matter paragraph, or a material uncertainty related to going concern section, the auditor’s report on the concise financial report states this. In addition, the auditor’s report on the concise financial report describes:
- the basis for the qualified opinion on the financial report, and the effect thereof on the concise financial report;
- the matter referred to in the emphasis of matter or other matter paragraph or the material uncertainty related to going concern section in the financial report, and the effect thereof on the concise financial report.
37
Examples:
- AASB 1039 requires the concise financial report to be derived from, and consistent with, the financial report for the year. Accordingly, modifications to the auditor’s opinion on the financial report for the year will commonly be applicable to the auditor’s opinion on the concise financial report. Certain modifications to the auditor’s opinion on the financial report for the year, however, may not be applicable to the auditor’s opinion on the concise financial report, such as those relating solely to disclosures in the notes to the financial report for the year.
- The auditor may modify the auditor’s report relating to the concise financial report only. An example is when an auditor is of the opinion that the discussion and analysis does not comply with the requirements of AASB 1039.
38
Where the auditor’s report on the financial report contains an adverse or disclaimer of opinion, the auditor’s report on the concise financial report must, under ASA 810, paragraph 20:
- state that the auditor’s report on the financial report contains an adverse opinion or disclaimer of opinion;
- describe the basis for that adverse opinion or disclaimer of opinion; and
- state that, as a result of the adverse opinion or disclaimer of opinion, it is inappropriate to express an opinion on the concise financial report.
Key Audit Matters
39
Where an auditor’s report on the financial report includes communication of key audit matters in accordance with ASA 701[3] and the auditor is satisfied that the concise financial report is derived from and is consistent with the financial report, the auditor’s report on the concise financial report states that the auditor’s report on the financial report includes communication of key audit matters.
40
The auditor is not required to describe the individual key audit matters in the auditor’s report on the concise financial report. However, the auditor, using professional judgement, may include more detailed reference to key audit matters, either generically or specifically (ie by providing subheadings or descriptions). In making this determination, the auditor considers whether such inclusions are beneficial to the users understanding of the audit of the concise financial report, or whether such inclusions could be misleading if the underlying issues are not relevant to or disclosed in a similar manner in the concise financial report.
41
Illustration 2 of Appendix 1, demonstrates the wording used where the auditor states that the auditor’s report on the financial report includes communication of key audit matters. Illustration 3 of Appendix 1, demonstrates the wording that may be used where the auditor’s report on the concise financial report includes the key audit matters that were included in the auditor’s report on the financial report.
Other Information
Uncorrected material misstatement of other information included in financial report
42
Where an auditor’s report on the financial report includes a statement that describes an uncorrected material misstatement of the other information in accordance with ASA 720[4], and the uncorrected material misstatement does not relate to matters dealt with in the information included in a document containing the concise financial report, the auditor’s report on the concise financial report states that the auditor’s report on the financial report includes a statement that describes an uncorrected material misstatement of other information; and describes the uncorrected material misstatement of other information and the effect thereof, if any, on the information included in a document containing the concise financial report.
43
When an uncorrected material misstatement of the other information has been identified in the auditor’s report on the financial report and that uncorrected material misstatement relates to a matter that is included in the information in a document containing the concise financial report, a material inconsistency between the concise financial report and that information may exist or the information may be misleading. The auditor discusses the inconsistency with management and determines what revisions are required and considers the implications, if any, on the auditor’s report on the concise financial report.
Information included in a document containing a concise financial report
44
A document that includes a concise financial report may contain some or all of the same matters encompassed in the other information included in the annual report or may include matters that are not dealt with in the other information included in the annual report.
Where information contains matters already dealt with in other information included in the annual report
45
Where information is included in a document that includes a concise financial report and that information deals with some or all of the other information in the annual report, the work already performed on that other information in accordance with ASA 720 may be sufficient.
46
The auditor reads the information included in a document containing the concise financial report, and considers whether there is a material inconsistency between that information and the concise financial report. Where a material inconsistency is identified, the auditor discusses the inconsistency with management and determines what revisions are required and considers the implications, if any, on the auditor’s report on the concise financial report.
Where information contains matters not already dealt with in other information included in the annual report
47
Where information is included in a document that includes a concise financial report and that information deals with matters not dealt with in other information in the annual report, the auditor may still find ASA 720 helpful and follows the guidance contained in paragraph 46 of this guidance statement.
Remuneration Report[5]
48
Where a company includes a Remuneration Report in the annual directors’ report, the auditor reports thereon to members. The auditor, exercising professional judgement, may include a copy of the auditor’s report on the remuneration report with the auditor’s report on the concise financial report. Illustration 2 of Appendix 1 demonstrates the wording that may be used where the auditor’s report on the remuneration report is included in the auditor’s report of the concise financial report.
Illustrative Examples
49
The illustrative reports in Appendix 1 provide examples of an auditor’s report on a concise financial report.
See ASA 701 Key Audit Matters
See ASA 720 The Auditor’s Responsibilities Relating to Other Information
See Guidance Statement GS 008 The Auditor’s Report on a Remuneration Report Under Section 300A of the Corporations Act 2001.