The requirement to report in accordance with APRA’s annual prudential reporting requirements is in addition to the audit or review of financial reports required under the Act, and is to be treated by the auditor as a separate assurance engagement.

The auditor and the life company agree on the terms of the engagement in accordance with the requirements of Auditing Standard ASA 210 Agreeing the Terms of Audit Engagements (ASA 210) and ASAE 3000. These arrangements have to be legally binding and include the required terms of engagement specified in LPS 310.

An engagement letter (or other suitable form) confirms both the client’s and the auditor’s understanding of the terms of the engagement and the auditor’s acceptance of the appointment. Both parties sign the engagement letter to acknowledge that it is a legally binding contract.

For recurring engagements, the auditor considers whether circumstances require the terms of the engagement to be revised and whether there is a need to reconfirm in writing the existing terms of the engagement. While the auditor may decide not to reconfirm the terms of engagement each year, factors that may make it appropriate to do so include a recent change of senior management or those charged with governance, or any indication that the life company misunderstands the objectives and scope of LPS 310 prudential reporting engagements.

Ordinarily, matters that are contained in the engagement letter include the following:

• The objectives and scope of the annual prudential reporting engagement pursuant to LPS 310.
• The responsibilities of management and, where appropriate, those charged with governance, for the subject matter of the report.
• The role and responsibilities of the auditor in accordance with the requirements of LPS 310.
• Acknowledgement that the auditor, in meeting their role and responsibilities, will comply with the requirements of applicable AUASB Standards and will consider relevant Guidance Statements issued by the AUASB, except where inconsistent with the requirements of LPS 310 or where APRA specifies alternative standards and guidance to be used.
• Identification of the relevant AUASB Standards under which the engagement will be conducted and inclusion of a statement that, although it does not prescribe or create new mandatory requirements, the auditor will consider the guidance contained in this Guidance Statement.
• Agreement from management and, where appropriate, those charged with governance, to provide unrestricted access to records, documentation and other information requested in connection with the prudential reporting engagement.
• Agreement from management and, where appropriate, those charged with governance, to provide written representations requested by the auditor.
• Any limitations on the engagement (see paragraphs 112-115).
• The agreed use of the assurance report(s) issued by the auditor, and the extent to which, and the basis on which, the assurance reports may be made available to others (refer paragraphs 124-127).
• The auditor’s additional responsibilities to report to APRA under sections 80(3), 88 and 88A of the Life Act for which the auditor is provided protection in relation to the disclosure of such information under section 89.
• Confirmation that the auditor will meet the independence requirements under CPS 510 and ASA 102.
• The form of reporting and communication in relation to the engagement.

The engagement letter explains that any special purpose engagement of any aspect of the life company’s operations, risk management or financial affairs, will constitute a separate engagement(s) and that the details of such engagement(s) will be the subject of a separate engagement letter(s).

The engagement letter furthermore clarifies that, in accordance with LPS 310 and CPS 510, the auditor is not to be a party to any contractual arrangements, or any understandings with a life company, that seek in any way to limit the auditor’s ability or willingness to communicate to APRA. The auditor notifies APRA of any attempts by a life company to achieve such arrangements or understandings. APRA may liaise bilaterally with an auditor and may although not usually, request information directly from the auditor.