Under LPS 310, in addition to the annual prudential reporting requirements, APRA may require a life company, by notice in writing, to arrange for its auditor (who may be the existing auditor or another auditor agreed to by APRA and who satisfies the criteria in LPS 310), to provide a report on a particular aspect of the life company’s operations, risk management or financial affairs. Although a special purpose engagement report will normally only be requested following consultation with a life company, APRA may commission such a report without prior consultation with a life company.

Unless otherwise determined by APRA, an auditor appointed to undertake a special purpose engagement will be required to provide limited assurance on the matters required to be reported on.

Under LPS 310, the auditor’s special purpose engagement assurance report is to be submitted simultaneously to APRA and the life company’s Board (or Board Audit Committee)^[22], within three months of the date of the notice commissioning the report, unless otherwise determined by APRA, and advised to the life company by notice in writing.

The APRA requirement for an auditor to undertake a special purpose engagement in a selected area of the life company’s operations, risk management or financial affairs constitutes a separate reporting engagement. The details of the engagement will normally be the subject of a specific request from APRA to the life company and a separate engagement letter from the life company to the auditor based on that request.

Following the determination by APRA of the specific area to be examined, the auditor, APRA and the life company agree on the terms of the engagement in accordance with the requirements of applicable AUASB Standards. These arrangements are legally binding and include the required terms of engagement specified in LPS 310.

The auditor accepts the engagement only when the auditor is satisfied that the auditor and the engagement team, if applicable, have met the relevant ethical requirements relating to the assurance engagement. The concept of independence is important to the auditor’s compliance with the fundamental ethical principles of integrity and objectivity and the auditor must be able to meet the independence requirements stipulated under both CPS 510 and ASA 102.

An engagement letter (or other suitable form) helps to avoid misunderstandings with respect to the engagement and confirms both the life company’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.

To ensure that there is a clear understanding regarding the terms of the engagement, the following are examples of matters to be agreed:

• APRA is to identify the scope of the life company’s operations, risk management or financial affairs to be the subject of the engagement.
• The auditor, APRA and the life company are to agree on the objectives of the engagement, key features and criteria of the area(s) to be examined, and the period to be covered by the engagement.
• APRA is to identify clearly the level of assurance required, that is, limited or reasonable assurance.
• The format of reports required (for example, long and/or short form reports) and other communication of results of the engagement.
• Responsibility of those charged with governance for the subject matter of the engagement.
• Understanding of the inherent limitations of an assurance engagement.

The format of the special purpose assurance report may vary depending on the type of engagement: that is, an audit (reasonable assurance) or a review (limited assurance), as well as the subject matter and the findings. The auditor has regard to the requirements, guidance and illustrative examples of reports provided in relevant AUASB Standards - ASAs, ASREs and ASAEs, as applicable, when preparing the special purpose assurance report.

AUASB Standards do not require a standardised format for special purpose reporting under LPS 310. Instead, these Standards identify the basic elements to be included in the auditor’s report. Ordinarily, the auditor adopts a long form style of reporting and the report may include a description of the terms of the engagement, materiality considerations applied, the assurance approach and an other matter paragraph which may include - findings relating to particular aspects of the engagement and, in some cases, recommendations.

The auditor’s assurance report is to be restricted to the parties that have agreed to the terms of the special purpose engagement, namely the life company and APRA, as well as other parties with whom APRA is lawfully entitled to share the information, by means of an emphasis of matter paragraph required by ASA 706 (refer example at Appendix 1).