Considerations Foreign ADIs
Prudential Requirements for foreign ADIs (branches) may differ from those of locally incorporated ADIs and, consequently, these are considered by the appointed auditor. For example, foreign ADIs are not required to report in Australia with respect to branch capital adequacy. However, the Banking Act authority restricts the source and quantum of deposits that foreign ADIs may accept. In addition, APRA has set guidelines relating to the manner in which foreign ADIs inform depositors of the requirements of the Banking Act that do not apply to those ADIs. The appointed auditor reports to APRA on the foreign ADI’s compliance with all relevant Prudential Requirements.
APRA requires the appointed auditor of a foreign ADI to conform to APS 310 and other relevant Prudential Requirements as they apply to foreign ADIs. The appointed auditor of a foreign ADI considers the individual engagement requirements and circumstances at the foreign ADI when interpreting the guidance contained in this Guidance Statement.
As part of the requirements under APS 310, the appointed auditor of a foreign ADI (branch) is required to provide reasonable assurance over data sourced from accounting records, included in ADI Reporting Forms such as the “Statement of Financial Performance” and “Statement of Financial Position”
As a foreign ADI is not required to prepare a financial report under the Corporations Act, there is no requirement for a statutory financial report audit to be undertaken. Therefore, the accounting records of a foreign ADI would not generally be subjected to a full scope audit, unless the branch is included in the scope of the foreign ADI group audit, where the audit arrangements will be driven by head office audit requirements and applying materiality relevant to the entire group.
Since, generally, the appointed auditor of a foreign ADI has incomplete knowledge of the overseas operations of the foreign ADI, and would not have undertaken the statutory financial report audit of the foreign ADI, the appointed auditor considers the following additional matters (this is not a complete list):
- The reliance to be placed on work performed by overseas auditors (such as comfort or assurance in relation to systems and processes hosted offshore which impact the foreign ADI’s (branch’s) prudential reporting) and the requirements of ASA 600.
- The financial reporting framework applied by the foreign ADI for head office (group) reporting and whether adjustments are required to comply with APRA Prudential Requirements.
- Assessing materiality for APRA prudential reporting purposes, which may differ from materiality considerations for the purpose of head office (group) reporting.
- The requirements of Auditing Standard ASA 705 Modifications to the Opinion in the Independent Auditor’s Report, in particular, where sufficient appropriate evidence cannot be obtained.
- In the first year of reporting, the requirements of Auditing Standard ASA 510 Initial Audit Engagements – Opening Balances, in particular, with respect to the level of assurance which can be provided over opening balances.
Which includes a locally incorporated subsidiary of a foreign ADI.
For example, under APS 310, auditors are required to provide a consistent level of assurance for foreign ADIs and locally incorporated ‘stand-alone’ ADIs.
Refer to Attachment A of APS 310 for a complete list of foreign ADI Reporting Forms to be subjected to a reasonable and/or limited assurance engagement.