A GUIDE TO UNDERSTANDING

AUDITING AND ASSURANCE:

AUSTRALIAN LISTED COMPANIES
NOVEMBER 2019
CPA Australia Ltd (‘CPA Australia’) is one of the world’s largest accounting bodies representing more
than 164,000 members of the financial, accounting and business profession in 150 countries.
ISBN: 978-0-6482918-8-6
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2019 Edition. First published in 2013 by

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 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  3

TABLE OF CONTENTS

FOREWORD 4

THE PURPOSE AND SCOPE OF AUDITS AND REVIEWS 5

WHY ARE AUDITS AND REVIEWS REQUIRED?  5

WHAT DO USERS NEED TO UNDERSTAND ABOUT FINANCIAL REPORTS?  5

WHAT DOES ASSURANCE MEAN?  5

WHAT IS THE IMPACT OF THE LEVEL OF ASSURANCE?  6

WHAT IS AN AUDIT OF A FINANCIAL REPORT?  7

WHAT IS A REVIEW OF A FINANCIAL REPORT?  7

RELATIONSHIPS IN FINANCIAL REPORTING  8

WHAT IS THE ROLE OF THE AUDIT COMMITTEE?  8

WHAT INFORMATION IS AUDITED?  9

WHAT INFORMATION IS REVIEWED?  9

WHAT IS AUDITOR INDEPENDENCE?  10

UNDERSTANDING WHAT EXTERNAL AUDITORS CAN PROVIDE 11

DIFFERENCE BETWEEN INTERNAL AND EXTERNAL AUDIT  11

ASSURANCE ON NON-FINANCIAL INFORMATION  11

WHAT IS AUDIT QUALITY?  11

HOW CAN FINANCIAL REPORT USERS ASSESS AUDIT QUALITY?  12

WHAT ROLE DO LISTED COMPANIES HAVE IN OBTAINING QUALITY AUDITS?  13

THE AUDITOR’S REPORT 14

UNMODIFIED AUDIT OPINIONS AND REVIEW CONCLUSIONS  14

WHAT DOES A “TRUE AND FAIR VIEW” MEAN?   14

BASIS FOR OPINION  14

KEY AUDIT MATTERS  15

EMPHASIS OF MATTER AND OTHER MATTER PARAGRAPHS  15

GOING CONCERN  15

OTHER INFORMATION  16

CONTENTS OF PARAGRAPHS FOR SPECIFIC MATTERS IN THE AUDITOR’S REPORT  17

HOW CAN YOU TELL IF THE AUDITOR’S REPORT IS CLEAN OR NOT?  18

DOES A CLEAN AUDITOR’S REPORT MEAN A CLEAN BILL OF HEALTH FOR THE ENTITY?  18

MODIFIED AUDITOR’S OPINIONS  19

BASIS FOR MODIFIED OPINION  19

THE AUDIT AND REVIEW PROCESS 20

WHAT DO AUDITORS AND REVIEWERS DO?  20

WHAT IS A MATERIAL MISSTATEMENT?  21

WHAT DO AUDITORS DO IF THEY FIND NON-COMPLIANCE WITH LAWS AND REGULATIONS?  21

WHAT DO AUDITORS DO WITH RESPECT TO FRAUD?  21

WHAT DO AUDITORS DO IN REGARD TO THE GOING CONCERN ASSUMPTION?  22

APPENDIX 1 – GLOSSARY 23

APPENDIX 2 – EXAMPLE INDEPENDENT AUDITOR’S REPORT 24

 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  4

FOREWORD

In recent years audit quality and the value of Guide has been updated for all of the current
audit have been a focus of ongoing commentary requirements impacting the auditor’s report.
in the public domain, and this has included In addition, it has been updated for changes to
public inquiries into a broad suite of issues, the auditor’s responsibilities when conducting
such as the basis and sufficiency of auditor an audit engagement, including how the
independence, audit market competition, audit auditor responds to suspected or identified
quality and the scope and purpose of the audit. non-compliance with laws and regulations,
and highlights the directors’ role in supporting
CPA Australia has long held the view that
audit quality.
investors and other stakeholders need to better
understand the existing reporting and auditing This updated Guide has been produced as part
frameworks in order to appreciate the merits of CPA Australia’s ongoing commitment as a
and impact of changes that may be proposed professional accountancy organisation to serve
from time to time. the public interest. It was first developed as an
initiative of the External Reporting Centre of
CPA Australia’s revised publication - A guide
Excellence of CPA Australia.
to understanding auditing and assurance:
Australian listed companies explains in plain
language the value and purpose of auditing and
assurance. This will assist shareholders, investors
and other readers of financial reports who are Merran Kelsall FCPA
not experts in auditing and assurance to better Deputy President
understand the messages from the company’s CPA Australia Ltd
auditor and make use of this information in their
decision making.
Since its inception some years ago, the Guide
has been widely recognised for its contribution
to enhancing financial literacy across both
Australian stakeholders and internationally.
There have been some significant changes
to the auditor’s report since the previous
edition, including the introduction of “Key
Audit Matters” to improve the information
value of the auditor’s report to users. This
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  5

THE PURPOSE AND SCOPE

OF AUDITS AND REVIEWS

WHY ARE AUDITS AND REVIEWS REQUIRED? c) recognise the uncertainties inherent in the
measurement of amounts based on the use of
Shareholders of listed companies are usually quite
estimates, judgement and the consideration of
separate from those managing and governing
future events; and
the companies they own.1 They need a reliable
and independent source of financial information d) make reasonable economic decisions
on which to assess the company, and the on the basis of the information in the
performance of management and those charged financial statements.
with governance. It is the same for other
WHAT DOES ASSURANCE MEAN?
stakeholders of companies, such as creditors,
lenders, employees, analysts, prospective The term assurance refers to the expression of
shareholders, regulators, governments and a conclusion by an assurance practitioner that
communities. Audits and reviews enhance the is intended to increase the confidence that users
credibility of the information contained within the can place in a given subject matter. An audit is a
financial report,2 comprising: form of assurance engagement which provides
an opinion giving reasonable assurance on
• the financial statements; a financial report. An auditor is an assurance
• notes to the financial statements; and practitioner who conducts an audit. Therefore,
an auditor’s report provides a conclusion that
• the directors’ declaration about the financial increases the confidence that users can place in
statements and notes. a company’s financial report. There are differing
levels of assurance, which result in different types
This information enables shareholders and
of conclusions, depending on the type of work
other stakeholders to make assessments and
that the assurance practitioner performs.
decisions, such as investing, divesting, lending or
contracting with the company, with confidence The following diagram illustrates different levels
and on a consistent basis. of assurance, in some of the different activities
performed by accountants:
An audit of a listed company’s financial report is
required annually, as well as a review of a listed
company’s half year financial report in Australia.
Absolute assurance – for example
WHAT DO USERS NEED TO UNDERSTAND MORE a guarantee
ABOUT FINANCIAL REPORTS?
ASSURANCE OBTAINED

Auditors consider the information needs of users Reasonable assurance – for example an audit
of financial reports when determining what is of financial statements
important (material) to those users, which drives
what the auditor will focus on. It is reasonable for
the auditor to assume that users of the financial Limited assurance – for example a review of
financial statements
report:3 4
a) have a reasonable knowledge of business,
No assurance – for example, preparing
economic activities and accounting, as well as LESS
financial statements on behalf of
a willingness to study the information in the management (a compilation engagement)
financial report with reasonable diligence;
b) understand that the financial report is
prepared, presented and audited to levels of
materiality;

1
This guide refers to audits and reviews of listed company financial reports. The concepts of audit and review are also applicable to other types of entities such as private companies,
companies limited by guarantee and public sector entities. 2 As defined under the Corporations Act 2001, sections 295 and 303. 3See CPA Australia’s A Guide to Understanding Annual
Reports: Australian Listed Companies. 4Source: ASA 320 Materiality in Planning and Performing the Audit, paragraph 4.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  6

WHAT IS THE IMPACT OF THE LEVEL OF ASSURANCE?

Type of assurance For example Nature of key Example form of conclusion

work performed
Reasonable assurance An audit of a Gathering of sufficient In our opinion, the financial report is
financial report appropriate audit in accordance with the Corporations
evidence based on an Act 2001, including giving a true and
assessment of risk and fair view of the company’s financial
materiality to support the position at year end and of its financial
auditor’s opinion. performance for the year then ended
and complying with the Australian
Accounting Standards and the
Corporations Regulations 2001.5
This is commonly referred to as
positive assurance.
Limited assurance A review of a half-year Primarily enquiries and Based on our review, which is not an
financial report analytical review, with audit, we have not become aware of
less detailed procedures, any matter that makes us believe that
based on an assessment the half-year financial report of the
of risk and materiality company is not in accordance with the
to support the auditor’s Corporations Act 2001 including: giving
conclusion. a true and fair view of the company’s
financial position as at 31 December
20XX and of its performance for the
half-year ended on that date; and
complying with Accounting Standard
AASB 134 Interim Financial Reporting
and Corporations Regulations 2001.6
This is commonly referred to as
negative assurance
No assurance • Preparing financial • Preparation of the • No conclusion provided
statements (compilation financial statements
engagement;
• Agreed-upon • Performing an agreed • Factual findings from performing the
procedures set of procedures procedures reported but no opinion
(either positive or negative) is provided
to the users on the work that has been
undertaken.

5
Auditing Standard ASA 700 Forming an Opinion and Reporting on a Financial Report provides the requirements for the auditor’s report. 6Auditing Standard on Review Engagements
ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity as Amended provides the requirements for the review report.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  7

WHAT IS AN AUDIT OF A WHAT IS A REVIEW OF A

FINANCIAL REPORT? FINANCIAL REPORT?
An audit of a listed company’s financial report is A review of a half-year financial report, referred
a reasonable assurance engagement where the to as an interim financial report in the accounting
auditor provides an opinion about whether the standards,7 is a limited assurance engagement
financial report is prepared in accordance with where the auditor provides a conclusion to the
the Corporations Act 2001. This includes giving users of the financial report as to whether the
a true and fair view of the financial position auditor has become aware of any matter that
of the company at year end, and of its financial makes them believe that the financial report is
performance for the period ended on that date, not in accordance with the Corporations Act
and complying with Australian Accounting 2001, including giving a true and fair view and
Standards7 and Corporations Regulations 2001. complying with Accounting Standard AASB 134
Full-year financial reports of Australian listed Interim Financial Reporting and Corporations
companies are required by law to be audited. Regulations 2001.
Many other types of entities are also required to
Australian listed company half-year financial
have their financial report audited, including non-
reports are required by law to be audited or
listed companies over a certain size threshold and
reviewed by the same auditor that conducts the
large charities.
audit of the financial report at year end.
While the reasonable assurance obtained in an
audit is a high level of assurance, it is not absolute
assurance (that is, it is not a certification that the
financial report is completely correct).
Obtaining absolute assurance is not possible in
financial report audits for a number of reasons,
including:
•It would be impractical for the auditor to test
and audit every transaction or balance.
• Preparation of the financial report involves
judgements and estimates by management
and may be contingent on future events, which
means that valuation of assets or liabilities in
the financial report often cannot be determined
precisely.

AASB 134 Interim Financial Reports.

7
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  8

RELATIONSHIPS IN FINANCIAL REPORTING WHAT IS THE ROLE OF THE AUDIT

COMMITTEE?
The following diagram illustrates the relationship
between shareholders and other stakeholders, The Australian Securities Exchange (ASX)
management, those charged with governance requires8 listed companies included in the S&P
and the auditor. Those charged with governance All Ordinaries Index to have an audit committee
are those responsible for overseeing the strategic and recommends9 all other listed entities have an
direction and accountability obligations of audit committee, which is a sub-committee of the
the company, including the financial reporting board of directors. The audit committee oversees
process. In a listed company this includes the the appointment or removal of the external
board of directors, which may include some auditor, the fees payable for both audit and non-
executive members, and the audit committee. audit work, rotation of the audit engagement
partner, the scope and adequacy of the external
In Australia, auditors attend a listed company’s
audit, the independence and performance
Annual General Meeting (AGM) and are available
of the external auditor and the impact of any
to answer questions from interested parties that
proposed non-audit services on the auditor’s
are entitled to participate in the meeting, such
independence.10
as shareholders. This is a useful opportunity
for shareholders to clarify specific aspects of Consequently, the audit committee usually
the audit. arranges the appointment of the auditor, which
is then confirmed by the members at the AGM.
Directors prepare
The audit committee typically meets with the
Those the Directors’ Shareholders auditor during the year to discuss details such
Charged with Report & Directors’ and as scheduling, risks, financial reporting issues,
Governance declaration on the other users
financial report the auditor’s findings, matters to be included as
“Key Audit Matters” in the auditor’s report and
Management The auditor provides an other matters relevant to the audit of the financial
prepares the opinion or conclusion on
financial report the financial report and report. At the end of the audit, the auditor often
remuneration report provides a more detailed, in-depth confidential
report to the audit committee.
Audit committees also oversee the corporate
The auditor is
External reporting processes, internal control framework,
Management independent
from the company Auditor the preparation of the financial report, including
the appropriateness of the accounting
judgements or choices exercised by management
in preparing that financial report, and the internal
audit function.

8
ASX listing rules. 9ASX Corporate Governance Council Corporate Governance Principles and Recommendations 4th Edition 2019, recommendation 4.1 10 Corporations Act 2001 section
299A(1) requires a listed entity’s directors’ report to contain information that shareholders would reasonably require to make an informed assessment of the entity’s operations (section 299A(1)
(a)); financial position (section 299A(1)(b)); and business strategies, and prospects for future financial years (section 299A(1)(c) – the operating and financial review.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  9

WHAT INFORMATION IS AUDITED? WHAT INFORMATION IS REVIEWED?

Only certain sections of a company’s annual An interim financial report14 for the half-year is required to be
report are audited. The auditor’s report issued by listed companies and that interim financial report
|provides an opinion on the financial report, is required to be either audited or reviewed by the auditor
which comprises the financial statements, of the company. The work conducted in a review is primarily
the notes to the financial statements and the comprised of making enquiries of persons responsible for
directors’ declaration. The auditor’s report also financial and accounting matters and performing analytical
provides an opinion on the remuneration report procedures, and so the scope of a review is substantially less
in the directors’ report but not on the Operating than the scope of an audit.
and Financial Review (OFR)10 or other information.
This is important to remember as the directors
provide their assessment of the company’s
Annual Report
operations, financial position, and business Financial Report Director’s Report
strategies and prospects for future financial
years in the OFR. Financial Statements

As the directors’ report is intended to complement Notes to the Remuneration

Audited
and support the financial report, it may appear Financial Statements report
to be part of the audited financial information Directors’ Declaration
and may also include non-GAAP (Generally
Accepted Accounting Principles) measures, Operating &
which are financial information not prepared in NOT Financial Review
accordance with the accounting standards. Audited*
Other Information
Although the information provided in the
*Material inconsistencies with financial report and auditor’s understanding of the company
directors’ report is not audited, with the exception identified only.
of the remuneration report, the auditor still needs
to consider and report on whether it contains
material inconsistencies with the financial report,
or knowledge gained through the audit, or
appears to be materially misstated. This provides
some comfort to shareholders. See section on
“The Auditor’s Report - Other Information”.11
The financial report may be published as part
of an integrated report,12 which addresses
how an organization’s strategy, governance,
performance and prospects, in the context
of its external environment, lead to the creation
of value in the short, medium and long term,
by reporting on inputs, outputs and outcomes
in relation to six capitals, of which financial capital
is just one. The financial report may also be
presented with other information in the annual
report or with other reports which are prepared
voluntarily by the company, such as
a sustainability report.13

10
Corporations Act 2001 section 299A(1) requires a listed entity’s directors’ report to contain information that shareholders would reasonably require to make an informed assessment of the
entity’s operations (section 299A(1)(a)); financial position (section 299A(1)(b)); and business strategies, and prospects for future financial years (section 299A(1)(c) – the operating and financial
review. 11ASA 720 The Auditor’s Responsibilities Relating to Other Information requires the auditor to obtain the final version of the annual report, if possible before signing their report, and
consider if there is any material inconsistency with the financial report or the knowledge they obtained on the audit. 12 Integrated reports are prepared using the International Integrated
Reporting (<IR>) Framework issued by the International Integrated Reporting Council (IIRC). 13 Sustainability Reports may be prepared using, for example, the Global Reporting Initiative (GRI)
framework. 14 The half-year financial report is defined under section 303 of the Corporations Act 2001.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  10

WHAT IS AUDITOR INDEPENDENCE? •p

 rohibitions on the provision of certain services
to listed company audit clients, such as:
Independence is the cornerstone of the auditing
profession. An independent auditor is free from oa
 ssuming management responsibility;
external influence or bias and is therefore able to
o serving as General Counsel;
maintain integrity, make objective judgements
and exercise appropriate professional scepticism o accounting and bookkeeping services,
during the audit. Auditors must comply with including preparing accounting records
the Code of Ethics for Professional Accountants and preparing financial statements;
(the Code of Ethics) or equivalent, including
op
 romoting, dealing in, or underwriting
maintaining independence of mind and
client shares
appearance, meaning that auditors must not
only act independently, but also be seen to be o recruiting services for a director, officer or
independent. These requirements are more senior management who will have significant
onerous for public interest entities, including influence over accounting records
listed companies.
o if material to the financial statements,
Many of the laws, regulations and professional valuation services, preparing tax calculations,
standards applicable to audits, such as those internal audit services and designing or
in the Corporations Act 2001, and the Code of implementing IT systems.
Ethics set out independence requirements that
• limitation of fees from the company and related
auditors of relevant companies need to meet. For
entities to no more than 15% of total fees
listed companies in Australia, there are additional
received by the firm over two consecutive years.
requirements to other entities, including:
The Corporations Act 2001 requires a declaration
• rotation of lead and review auditors every
of independence to be provided by the auditor to
five years, which can be extended up to
the board of directors, which is published in the
seven years;15
annual report.
• three year cooling off period (where the
auditor does not participate in the audit in
any way or directly influence the outcome of
the engagement) for lead and review auditors
from 1 January 2019, increasing to five years
cooling off period for lead auditors after 31
December 2023;
• restrictions on auditors holding board positions
or employment at companies they have audited;
• prohibitions on contingent fees, financial
interests in the client or related entity, loans to
or from the client, deposits with the client, close
business relationships and offering or accepting
inducements, gifts or hospitality;

15
See s324DAA of the Corporations Act 2001 which provides for directors to extend the audit partner time-on period for the audit of a listed entity.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  11

UNDERSTANDING WHAT EXTERNAL

AUDITORS CAN PROVIDE

DIFFERENCE BETWEEN INTERNAL AND ASSURANCE ON NON-FINANCIAL

EXTERNAL AUDIT INFORMATION
Internal audit is an appraisal activity which may Audit is a form of assurance providing
be established within the company and functions reasonable assurance on financial information.
usually under the oversight of the company’s Assurance may provide either reasonable or
audit committee. It is a management tool and limited assurance on a wide and expanding
forms part of the company’s internal control range of subject matters. Assurance reports can
structure. In general, the focus of an internal audit provide stakeholders with confidence in subject
is to evaluate the adequacy and effectiveness of matters ranging from:
the company’s internal control.
• compliance with legislation and regulations
By contrast, under the Corporations Act 2001,
• integrated reports under the <IR> Framework
an external audit is required to be undertaken
by a registered company auditor, who is • sustainability reports under the GRI Framework
independent of the company, to express an
• information reported under the National
opinion on the annual financial report and an
Greenhouse and Energy Reporting Scheme,
opinion (audit) or conclusion (review) on the
Emission Reduction Fund or related schemes
interim financial report. The Corporations Act
2001 requires the audit of listed companies’ • prospectuses
annual financial reports in accordance with
•d
 esign, implementation and operating
Australian Auditing Standards and sets the
effectiveness of controls.
requirements for appointment, removal,
registration, independence and rotation of WHAT IS AUDIT QUALITY?
the auditor and publication of
annual transparency reports. Audit quality is challenging to define, measure
and observe as most of the valuable work auditors
do happens before a company’s financial report is
released to the public (see also “What do auditors
do?”). The International Auditing and Assurance
Standards Board (IAASB) has issued a Framework
for Audit Quality which says:
“Audit quality encompasses the key elements
that create an environment which maximises the
likelihood that quality audits are performed on a
consistent basis.”
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  12

HOW CAN FINANCIAL REPORT USERS

ASSESS AUDIT QUALITY?
As audit quality is difficult to measure and
evaluate, shareholders and other stakeholders
largely rely on the Board and audit committee
to satisfy themselves that the auditor provides
sufficient audit quality to give confidence in the
auditor’s report. Sources of information which
may be useful in assessing the audit include:
• Transparency reports,16 which cover information
on the audit firm published on their website
annually, including the audit firm’s:
o internal quality control system
and its effectiveness;
o independence practices and internal
independence reviews;
o total revenue and revenue relating to audits
o legal and governance structures;
o continuing professional development; and
o voluntary reporting of actions to improve and
maintain audit quality, audit quality indicators
(such as: partner to staff ratio, staff turnover,
technical resources support), internal review
or external inspection findings and other
relevant matters
• ASIC Inspection findings, published annually
including findings for each of the four largest
audit firms from 2019, and audit firms’ own
disclosures of findings.
• ASIC’s report on Audit quality measures,
indicators and other information.
• Answers to questions at the AGM17 about:
o reasoning for the key audit matters identified
and outcomes of the procedures conducted;
o whether the company’s audit was reviewed
by ASIC in their audit inspections and, if so,
what the outcomes were;
o any modification to the auditor’s report; and
o any Emphasis of Matter, Other Matter or
Material Uncertainty relating to Going
Concern paragraphs.
• Information included in the key audit matters,
including whether they are relevant to the
company rather than being boiler plate.

16
Transparency reports are required under section 322 of the Corporations Act 2001 for auditors of 10 or more listed companies and other specified entities. ASIC INFO 184 summarises
the requirements for audit transparency reports. 17The Corporations Act 2001 section 250PA provides for written questions prior to the AGM and section 250T provides for questions at the
AGM by members to the auditor on matters relevant to the conduct of the audit.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  13

WHAT ROLE DO LISTED COMPANIES HAVE IN Directors need to read and understand the
OBTAINING QUALITY AUDITS? financial report, in order to ensure that the
information it contains is consistent with the
Audit firms are ultimately responsible for
directors’ knowledge of the company’s financial
performing quality audits, however the IAASB’s
position and affairs, and ensure that material
Framework for Audit Quality recognises the
matters known to the directors, or that should
importance of the contribution and support
be known to them, are not omitted.
of regulators, audited companies and other
stakeholders in achieving quality audits that In relation to the audit, directors and audit
support reliable financial reports in the capital committees need to:
markets. The quality of financial reporting by
• provide the auditor with all explanations and
the company can have a significant impact on
information that they require for the audit;
the effectiveness of the audit. Directors and
audit committees have an important role in • bring to the auditor’s attention transactions,
ensuring the company provides a sound basis risks and difficult accounting judgements that
for a quality audit, including having appropriate may affect the financial report;
governance arrangements, processes and
• ensure that the independence of the auditor
controls, and providing sufficient challenge to
is not compromised in fact or appearance,
management and the auditor. The directors are
including a review by the audit committee of
responsible for the financial report and need
non-audit services and whether they affect
to be cognisant of their own responsibilities
auditor independence18 and inclusion of the
when assessing the information in the financial
auditor’s independence declaration in the
report so that they challenge the accounting
directors’ report; and
treatments, seek explanations and professional
advice appropriately, rather than relying on the •e
 nsure that the audit fees are adequate to
external auditor. enable conduct of a quality audit.
The directors must take reasonable steps to ASIC provides guidance explaining the influence
comply with, or secure compliance with, the others have over audit quality:
financial reporting and audit requirements
• INFO 183 Directors and financial reporting.
of the Corporations Act 2001, including the
requirement to keep proper books and records. • INFO 196 Audit quality: The role of directors
This includes ensuring that the company’s and audit committees.
records are complete and accurate by adopting
appropriate accounting policies and designing • INFO 223 Audit quality - The role of others.
and implementing appropriate controls and
processes. The directors’ declaration for listed
companies states whether:
• in the directors’ opinion, there are reasonable
grounds to believe that the company will
be able to pay its debts as and when they
become due;
• the financial statements and notes comply with
accounting standards, and give a true and fair
view of the financial position and performance
of the company and any consolidated
entity; and
• the directors have been given the declarations
required by the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO).

18
Required for listed companies under the Corporations Act 2001.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  14

THE AUDITOR’S REPORT

UNMODIFIED AUDIT OPINIONS AND WHAT DOES A “TRUE AND FAIR VIEW”
REVIEW CONCLUSIONS MEAN?
The auditor’s report contains the auditor’s A financial report which gives a “true and fair
opinion on the financial report, in addition to a view” is one which presents an accurate and
range of other information to explain the context unbiased picture of the company’s financial
in which that opinion has been reached. A review performance and position. This type of
report contains the auditor’s conclusion on the opinion is provided under a fair presentation
interim financial report, which provides a lower framework, in which simply complying with
level of assurance than an opinion, and also the requirements of the financial reporting
explains the context in which that conclusion framework is not enough. A fair presentation
was reached. framework also requires management to provide
disclosures beyond those specifically required
An unmodified auditor’s opinion for listed
by the reporting framework, being the Australian
companies states that in the auditor’s opinion
Accounting Standards or, in rare circumstances,
the financial report is in accordance with the
depart from a requirement of that framework.
Corporations Act 2001 including that it gives
a “true and fair view” and complies with the BASIS FOR OPINION
Australian Accounting Standards and the
The auditor’s report includes a basis for opinion
Corporations Regulations 2001. This is often
paragraph, which provides important context
referred to as a “clean” audit opinion.
about the auditor’s opinion that:
Auditor’s reports containing an unmodified
• s tates that the audit was conducted in
auditor’s opinion are the most common type of
accordance with Australian Auditing Standards;
report a user is likely to come across. This is in
part because management usually addresses • r efers to the section of the auditor’s report that
most of the matters which the auditor has raised describes the auditor’s responsibilities under
by adjusting the financial information or including the Australian Auditing Standards;
further disclosures when finalising the content of
• includes a statement that the auditor is
the financial report before it is issued.
independent of the company in accordance
Likewise, an unmodified review conclusion with the relevant ethical requirements
for a listed company’s interim financial report and has fulfilled the auditor’s other ethical
effectively states that the auditor has not become responsibilities;
aware of any matter that makes them believe
• confirms the continued applicability of the
that the half-year financial report does not give
independence declaration provided to the
a “true and fair view” in accordance with the
directors and included in the annual report; and
Corporations Act 2001, including Accounting
Standard AASB 134 Interim Financial Reporting • s tates whether the auditor believes that the
and the Corporations Regulations 2001. audit evidence they obtained is sufficient
and appropriate to provide a basis for the
Illustrative Auditor’s Report auditor’s opinion.
Appendix 2 contains an illustrative example of an
auditor’s report, providing an unmodified opinion, When the auditor modifies the opinion on the
with an explanation of each section
financial report, the heading ‘Basis for Opinion’
is amended in accordance with the type of
modified opinion (see Modified auditor’s opinions
below) and within this section, the auditor
includes a description of the matter giving rise
to the modification.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  15

KEY AUDIT MATTERS EMPHASIS OF MATTER AND OTHER

MATTER PARAGRAPHS
Auditors of listed companies are required under
the Australian Auditing Standards19 to report “key In some circumstances, the auditor will include
audit matters” (KAM). These are matters which additional wording in the auditor’s report
are, in the auditor’s professional judgement, of directing users to information that is not included
most significance in the audit. in KAM, but in their view is fundamental to
understanding the financial report. This may
KAM are selected from matters communicated
be either:
with the directors or audit committee that
required significant auditor attention in •a
 n “Emphasis of Matter” paragraph drawing
performing the audit. KAM may include areas of the readers’ attention to matters included in the
higher assessed risk of material misstatement financial report, such as a note disclosure; or
or significant risks and significant auditor
•a
 n “Other Matter paragraph” which draws
judgements relating to areas of significant
the readers’ attention to matters that are not
management judgement.
included in the financial report.
It is important to note that an Emphasis of Matter
Matters Communicated with Those
Charged with Governance or Other Matter paragraph is not a modification
to the auditor’s opinion (see Modified auditor’s
opinions below).
Matters that required significant
auditor attention GOING CONCERN
If a material uncertainty exists relating to events
Matters of or conditions that may cast significant doubt
most significance on a company’s ability to continue as a going
concern, either:

KAM
• t he auditor’s report includes a section ‘Material
Uncertainty Related to Going Concern’ if the
uncertainty is adequately disclosed in the
financial report; or
The KAM section includes, at a minimum: • t he auditor issues a qualified or adverse opinion
(see Modified auditors’ opinions below) if the
• why the matter was considered to be a KAM
financial report does not adequately disclose
• reference to the related disclosure the matter.
• how the matter was addressed in the audit. The auditor is required to challenge the adequacy
of disclosures for ‘close calls’ when an event
Standardised wording, which is used in the rest
or condition casts a significant doubt on the
of the auditor’s report, is not used in the KAM
company’s ability to continue as a going concern,
and the auditor needs to present the KAM in their
but due to mitigating circumstances the company
own style and format.
concluded that no material uncertainty exists, so
Some auditors include additional information in the financial report can be prepared on a going
their report, such as: concern basis. The going concern basis is used
when the company is expected to continue in
• the materiality benchmark, value or
business without the threat of liquidation for
percentage applied
the foreseeable future, which management is
• the scope of the audit, which may include how required to assess for at least the next 12 months,
materiality and KAMs influenced the scope after the end of the reporting period.20
• the outcomes of the audit procedures in
response to KAMs.
The provision of this additional information
is voluntary in order to assist users in better
understanding the auditor’s work. It may be
provided because of their firm’s policy to ensure
consistency in their auditor’s reports across
jurisdictions.

ASA 700 Forming an Opinion and Reporting on a Financial Report requires key audit matters to be communicated and ASA 701 Communicating Key Audit Matters in the Independent
19

Auditor’s Report specifies what to communicate in the auditor’s report and the form and content of such communication.20AASB 101 Presentation of Financial Statements, paragraph 26.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  16

OTHER INFORMATION
Although the auditor is not responsible for
auditing other information in the annual report,
which is not in the financial report, they are
required to read the other information and
consider whether there is a material inconsistency
between that other information and either the
financial report or the auditor’s knowledge
obtained in the audit.21
If the company refuses to correct a material
inconsistency, the auditor describes the
inconsistency in an ‘Other Information’ section
of the auditor’s report. If the auditor’s report has
already been issued, then the auditor must bring
the inconsistency identified to the users’ attention
by other means.

ASA 720 The Auditor’s Responsibilities Relating to Other Information.

21
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  17

CONTENTS OF PARAGRAPHS FOR SPECIFIC MATTERS IN THE AUDITOR’S REPORT

Type of assurance Matters included

Key Audit Matters Matters which required significant auditor attention, selected from matters communicated with those charged
with governance, which may include:22
• areas of higher assessed risk of material misstatement, or significant risks, such as areas of significant
management judgement or significant unusual transactions
• significant auditor judgements relating to areas in the financial report that involved significant management
judgement, including accounting estimates that have been identified as having high estimation uncertainty
and accounting policies inconsistent with the industry that have a significant effect on the financial report
• the effect on the audit of significant events or transactions with related parties or that are outside the
normal course of business for the company or that otherwise appear to be unusual, that may have required
management to make difficult or complex judgements in relation to recognition, measurement, presentation
or disclosure.
Emphasis of Matter Matters which have been appropriately disclosed in the financial report and are not included in KAM, which
represent:
• an uncertainty relating to the future outcome of exceptional litigation or regulatory action
• a significant subsequent event that occurs before the auditor’s report is signed
• early application of a new accounting standard that has a material effect on the financial report
• a major catastrophe that has had, or continues to have, a significant effect on the company’s financial position.
Other Matter Matters which are not, and are not required to be, reported in the financial report and are not included in KAM,
which law or regulation requires to be reported or the auditor considers it necessary to communicate, such as:
• the planned scope of the audit
• the application of materiality in the context of the audit
• an explanation in the rare circumstances where it is not possible for the auditor to withdraw from the
engagement despite a pervasive limitation of scope imposed by management
• that another financial report has been prepared by the same company in accordance with another general
purpose framework and that the auditor has issued a report on that financial report
• that the auditor’s report is intended solely for the intended users, and should not be distributed to or used by
other parties, if the auditor’s report is intended to meet the information needs of specific users
• if management amends the financial report and a new auditor’s report is issued, reference to the note in
the financial report that more extensively discusses the reason for the amendment of the previously issued
financial report and to the earlier report provided by the auditor
• if the financial report of the prior period was audited by a predecessor auditor, details of that auditor’s report,
or if it was unaudited, the fact that the comparative figures are unaudited.
Material Uncertainty A section in an auditor’s report, containing an unmodified opinion, about a material uncertainty relating to
relating to Going going concern which the company has adequately disclosed in the financial report. This section:
Concern • draws attention to the note in the financial report that discloses the relevant events or conditions that give rise
to the uncertainty and management’s plans to deal with those events or conditions
• states that these events or conditions indicate that a material uncertainty exists that may cast significant
doubt on the company’s ability to continue as a going concern but that the auditor’s opinion is not modified.
Other information A section which:
• identifies other information contained in the annual report which is not audited, such as the directors’ report
(except the remuneration report which is required by law to be audited), the corporate governance report and
any voluntary reporting, such as an integrated report or sustainability report
• identifies whether that other information was obtained prior to the date of the auditor’s report or is expected
to be received afterwards
• describes any uncorrected material misstatement in the other information if information included in an annual
report is inconsistent with the audited financial report (for example, if the figures in the OFR23 within the
directors’ report are inconsistent with those disclosed in the financial statements).

22
For examples of key audit matters see IAASB website.23 For listed entities, s299A(1) of the Corporations Act 2001 requires directors’ report to contain information that shareholders would
reasonably require to make an informed assessment of the entity’s operations, financial position and business strategies and prospects for future financial years (the OFR).
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  18

HOW CAN YOU TELL IF THE AUDITOR’S DOES A CLEAN AUDITOR’S REPORT MEAN A
REPORT IS CLEAN OR NOT? CLEAN BILL OF HEALTH FOR THE COMPANY?
To determine if an auditor’s report is “clean” or Auditor’s reports are intended to increase
whether it has been modified, you need to look the degree of confidence users have in the
at the opinion section at the top of the auditor’s information in the financial report. It is not about
report. An unqualified or clean auditor’s report the soundness of the business strategies, its
will state that in the auditor’s opinion the financial future viability or whether it is a safe investment.
report is in accordance with the Corporations Act
An unmodified auditor’s opinion means
2001, including giving a true and fair view, and
investors or other stakeholders can assess the
complying with accounting standards and the
company based on its financial report, with more
Corporations Regulations 2001.
confidence that the information is materially
If the audit opinion is modified it can be either: correct and unbiased, than if the report was
modified or if there were no auditor’s report.
• Qualified opinion: a clean opinion is provided
“except for” the matter identified. The directors are required to include a formal
statement on the solvency of the company in
• Disclaimer: the auditor cannot provide an
the financial report upon which the auditor’s
opinion because the auditor has not been able
opinion is expressed.24 Auditors assess
to obtain sufficient appropriate audit evidence
the appropriateness of the going concern
to provide a basis for that opinion.
assumption underpinning this solvency statement
• Adverse opinion: because of the significance and the preparation of the financial report, but
of the matter, the report is not in accordance this cannot be taken as a conclusion on the future
with the Corporations Act 2001 in that either it prospects of the company nor does it reflect the
does not present a true and fair view or does business risks which could impact the company’s
not comply with accounting standards and financial performance and outcomes (see “What
the Corporations Regulations 2001 (see also do auditors do in regard to going concern?”).
“Modified auditor’s opinions”).
The directors’ report addresses these matters in
Even where there is a clean opinion, it is the OFR, which is required to contain information
important to look for and pay attention to the Key that shareholders would reasonably require to
Audit Matters raised and any Emphasis of Matter, make an informed assessment of the company’s:
Other Matter or Material Uncertainty relating
(a) operations
to Going Concern paragraphs, which can each
highlight matters of significance contained in the (b) financial position
financial report.
(c) business strategies, and prospects for future
financial years.
However, the OFR, which is required for listed
companies, is not required to be audited.25
See ASIC Regulatory Guide RG 247 Effective
disclosure in an operating and financial review

Section 295(4) of the Corporations Act 2001.25 Section 299A(1) of the Corporations Act 2001.
24
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  19

MODIFIED AUDITOR’S OPINIONS BASIS FOR MODIFIED OPINION

Modified auditor’s opinions are issued when the The basis for modified opinion section provides
auditor believes the financial report contains a greater clarification to the reader of the auditor’s
material misstatement, or when the auditor report about why the auditor expressed a
is unable to obtain enough evidence to form modified opinion. The basis for a qualified opinion
an opinion. Such an opinion should be a red due to a misstatement or an adverse opinion
flag for readers, as it indicates that part or all of describes the misstatement by either quantifying
the financial report cannot be relied upon. The the financial effects of the misstatement,
following table sets out the different types of explaining how qualitative disclosures are
modified auditor’s opinions that may be issued in misstated or by describing the nature of any
these situations. omitted information and including the omitted
disclosures. The basis for a qualified opinion due
to insufficient evidence, or a disclaimer provides
the reasons for the auditor’s inability to obtain
sufficient appropriate audit evidence.

Type of modified Description for FMC Situations where this type of report Examples
audit opinion Reporting Entity entities may be issued
Qualified or The opinion states the A qualified opinion is issued when a The auditor has a different view on the
“except for” financial report is in specific part of the financial report valuation of a material asset than that
opinion accordance with the contains a material misstatement or applied by management in the financial
Corporations Act 2001, in adequate evidence cannot be obtained report, but the rest of the financial
that it gives a true and fair in a specific, material area, but the rest report was found to be free of material
view and complies with of the financial report is found to give a misstatements.
the Australian Accounting true and fair view.
Standards and the
Corporations Regulations
2001, except for the effect
of a specific matter or
matters.
Disclaimer of The auditor does not A disclaimer of opinion is very rarely The company’s financial reporting
opinion express an opinion on issued as it indicates that either: information system was corrupted and
the financial statements • the auditor cannot obtain sufficient key data was lost, so that sufficient
because of the significance appropriate evidence on which to appropriate evidence is not available to
of the matters described. base an opinion on the financial support all of material disclosures in the
They are unable to obtain report overall and the possible effects financial report.
sufficient appropriate audit on the financial report could be both
evidence to provide a basis material and pervasive; or
for an opinion. • the auditor cannot form an opinion
due to the cumulative effect on
the financial report of potential
interaction of multiple uncertainties.
Adverse opinion The opinion states that An adverse opinion is issued when the The auditor believes that due to a
the auditor believes the auditor identifies misstatements which significant economic downturn, a
financial report is not are both material and pervasive to the credit provider’s management has
in accordance with the financial report. inadequately provided for impairment
Corporations Act 2001, of the company’s loan portfolio which
including giving a true and represents a very significant proportion
fair view and complying of their assets. The auditor believes
with the Australian that the financial assets are overstated,
Accounting Standards so the financial report is materially
or the Corporations misstated.
Regulations 2001.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  20

THE AUDIT AND REVIEW PROCESS

WHAT DO AUDITORS AND REVIEWERS DO? standards so that what auditors are required to do
is consistent across jurisdictions.
The audit or review of a full or half-year financial
report, respectively, is a systematic process The following diagram illustrates at a very high
designed to identify instances of material level what is involved in financial report audits and
misstatement in that report. The Corporations reviews, and the order in which activities usually
Act 200126 requires audits and reviews to be take place during the year:
conducted in accordance with the auditing
standards, which are issued by the Australian
Auditing and Assurance Standards Board
(AUASB) and comprise a suite of standards for
audits of financial reports and a single standard
for reviews of half-year financial reports. These
standards closely follow the international auditing

Primarily performed
prior to period end A key part of the initial assessment is
Initial assessment and agreement on terms of whether the auditor/reviewer will be able
the engagement to meet independence and other ethical
requirements.

Understanding the entity involves an analysis

Understanding the entity, including internal of internal and external factors – in greater
control relevant to the audit, and assessing depth for an audit than a review. The assessed
risks of material misstatement in the risks of material misstatement form a basis for
financial report design of the audit/review procedures to be
performed.

In order to obtain sufficient appropriate audit

Performing interim procedures to test the
evidence and meet the reporting deadlines,
operating effectiveness of controls on which
the auditor conducts procedures during the
the auditor plans to rely and substantive
period which is supplemented after year end
procedures on transactions and balances.
to support the opinion or conclusion.

Period end,
e.g. 30 June
The types of procedures applied involve
judgement and will vary significantly
Performing procedures to address the risk of
depending on the risks of material
material misstatement in the financial report
misstatement, nature of the entity and
whether the engagement is an audit or review.

Finalisation and auditor’s report signed

(Australian listed companies: within 3 months For more on auditor’s reporting, see the
of period end date) example independent auditor’s report in
appendix 2.
Primarily performed
after period end

Corporations Act 2001, section 307A Audit to be conducted in accordance with auditing standards.
26
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  21

WHAT IS A MATERIAL MISSTATEMENT? If the company’s response is inadequate,

management is involved or there will be actual
Auditors’ work is concerned with identifying
or potential substantial harm to stakeholders or
material misstatements, rather than any
the general public, the auditor must take further
misstatement in the financial report. Material
action. This may warrant disclosing the matter to
misstatements are those that are significant
an appropriate authority, even if not required by
enough to affect the decisions made by the
law, and/or withdrawing from the engagement, in
users of the financial report. This can be in terms
which case they must apply to ASIC for consent
of the quantitative or qualitative significance of
to resign. The auditor continues to hold office
misstatements.
until consent has been granted and, if consent
Quantitative The quantities or dollar amounts is given, informs any incoming auditor of the
in the financial report. For circumstances of their resignation. Disclosure
example, quantitatively material to an appropriate authority is not considered a
misstatements could include: breach of the duty of confidentiality if the auditor
• Impairment of assets is acting in good faith.
• Overstating revenue
• Missing/not recorded liabilities WHAT DO AUDITORS DO WITH
• Understating expenses RESPECT TO FRAUD?
Qualitative The nature of items in the financial Auditors consider the possibility that fraudulent
report. For example, qualitatively activities can result in material misstatement in
material misstatements could the financial report and take this into account in
include: planning and performing their work.
• Not disclosing certain related
party transactions Fraud as defined in the auditing and assurance
• Not disclosing management’s standards is an intentional act by one or more
remuneration individuals among management, those charged
These disclosures are important with governance, employees or third parties,
in evaluating how the company involving the use of deception to obtain unjust or
has been managed, although illegal advantage.
they may be small quantitatively
in comparison to the scale of the An audit is not an investigation intended to
company’s overall operations. uncover all instances of fraud. However, an auditor
is required to treat fraud risks as significant
risks and must obtain an understanding of the
WHAT DO AUDITORS DO IF THEY FIND company’s related controls. Therefore, an audit is
NON-COMPLIANCE WITH LAWS AND only likely to detect instances of fraud that result
REGULATIONS? in material misstatement, although there is no
guarantee that an audit will detect any material
If an auditor suspects or discovers non-
frauds perpetrated against the company due to
compliance with laws or regulations, other
the nature of fraud.
than those which are inconsequential, they
must take action and cannot turn a blind eye. As fraud is usually coupled with some form
Whether the non-compliance is by company of concealment or deception, the risk of not
staff, management or external parties, auditors detecting a material misstatement resulting from
must respond in a timely way so that the adverse fraud is higher than the risk of not detecting
consequences to stakeholders and the general one resulting from error. Fraudsters may employ
public are rectified, remediated or mitigated. forgery, deliberately fail to record transactions,
or make misrepresentations to the auditor,
The auditor needs to be satisfied that the
which may be even more difficult to detect when
company has taken appropriate and timely action
accompanied by collusion. The auditor’s ability
to address the consequences and deter further
to detect a fraud depends on factors such as
non-compliance, or the company has disclosed
the skill of the perpetrator, the frequency and
the matter to an appropriate authority where
extent of manipulation, the degree of collusion
required by law or regulation or where necessary
involved, the relative size of individual amounts
in the public interest. If not, auditors are required
manipulated and the seniority of those individuals
to follow an escalation process, initially through an
involved. In addition, frauds which are not material
appropriate level of management.
to the financial audit are unlikely to be detected
by the external auditor.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  22

WHAT DO AUDITORS DO IN REGARD TO THE The auditor:

GOING CONCERN ASSUMPTION?
•e
 valuates management’s assessment of the
The going concern assumption is that a company company’s ability to continue as a going
will continue in business for the foreseeable concern, including whether it reflects all relevant
future. The going concern assumption has a information of which the auditor is aware as a
significant impact on how a company’s financial result of the audit;
report is presented (see “If going concern
• c oncludes on the appropriateness of
doesn’t apply“).
management’s use of the going concern basis
In preparing the financial report, management of accounting;
assesses whether the company will be able to
• c oncludes on whether a material uncertainty
continue in business for the foreseeable future,
exists, related to events or conditions that may
which is at least twelve months from the end of
cast significant doubt on the company’s ability
the reporting period. The directors’ declaration
to continue as a going concern; and
in the financial report includes the directors’
opinion about whether there are reasonable •d
 etermines whether the financial report
grounds to believe that the company will be able adequately discloses any material uncertainty.
to pay its debts as and when they become due
The going concern assumption involves
and payable.
judgements about events taking place in the
The auditor performs work to evaluate the future, which are inherently uncertain. Where
appropriateness of management’s use of the there is significant uncertainty in the company’s
going concern basis of accounting as part of ability to continue as a going concern and this
the audit. The auditor considers a period of has been disclosed by management in the notes
approximately twelve months from the date of to the financial statements, the auditor includes
the auditor’s current report to the expected date wording in the auditor’s report to direct users
of the next auditor’s report on the corresponding to the applicable note disclosure, in a “material
half-year or annual financial report. As the uncertainty related to going concern” paragraph.
directors’ declaration is only required to cover
If the auditor ultimately does not agree with
twelve months from the end of the reporting
management’s assumptions regarding going
period, the auditor must request management to
concern, the result would be a modified opinion
extend its assessment period to correspond to
(see “The auditor’s report).
the relevant period used by the auditor.27

If the going concern basis doesn’t apply

Companies that are not a going concern,

when management intends to liquidate the
company or to cease trading, or has no realistic
alternative but to do so, need to report on a
different basis from companies that are a going
concern – for example, assets and liabilities would
be recognised at their immediate sale value/
liquidation value rather their value in future use.

ASA 570 Going Concern, paragraph Aus 13.1 requires the auditor to request management to extend its assessment period to correspond to the relevant period used by the auditor,
27

being twelve months from the date of the auditor’s report, if management’s assessment covers a shorter period.
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  23

APPENDIX 1 – GLOSSARY

Accounting standards: Mandatory standards Limited assurance: A level of assurance that is

applied in preparing financial statements. In meaningful, but lower than reasonable assurance
Australia, these standards are issued by the (see also “What does assurance mean?”).
Australian Accounting Standards Board and are
Material misstatement: An inaccuracy or omission
formally referred to as “Australian Accounting
in the financial report that is significant enough to
Standards”. Internationally accounting standards
affect the decisions made by users.
are issued by the International Accounting
Standards Board. Reasonable assurance: A high but not absolute
level of assurance (see also “What does
Assurance: The expression of a conclusion that
assurance mean?”).
is intended to increase the confidence of users in
subject matter against criteria (see also “What does Review report: The final report that sets out the
assurance mean?”). review conclusion (see also “The auditor’s report”).
Assurance practitioner: A professional assurance Those charged with governance: the person(s) or
services provider. organisation(s) (for example, a corporate trustee)
with responsibility for overseeing the strategic
Auditor’s report: The final report that sets out the
direction of the entity and obligations related to the
auditor’s opinion (see also “The auditor’s report”,
accountability of the entity. This includes overseeing
and an example of an auditor’s report in Appendix 2).
the financial reporting process. In a listed company
Auditing and assurance standards: Mandatory this includes the board of directors, which may
standards applied by assurance practitioners in include some executive members, and the audit
audits, reviews and other assurance engagements. committee.
In Australia these standards are issued by the
True and fair view: Presenting an accurate
Australian Auditing and Assurance Standards Board,
and unbiased picture of a company’s financial
and internationally by the International Auditing and
performance and position in the financial report.
Assurance Standards Board.
Fair presentation framework: Fair presentation
requires the faithful representation of the effects
of transactions, other events and conditions in
accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set
out in the Framework. The application of Australian
Accounting Standards, with additional disclosure
when necessary, is presumed to result in financial
statements that achieve a fair presentation.
Financial statements: Four primary financial
statements for the current and comparative financial
period (statement of profit and loss and other
comprehensive income, statement of financial
position, statement of changes in equity, and cash
flow statement), plus the notes to the financial
statements. See also, “A guide to understanding
annual reports: Listed companies” available on
CPA Australia’s website.
Going concern: An entity that is expected to
continue in operation for the foreseeable future,
taken to be a 12-month period from the date of the
auditor’s report for the purpose of auditor going
concern assessments. (see also “What do auditors
do in regard to going concern?”).
 A GUIDE TO UNDERSTANDING AUDITING AND ASSURANCE: AUSTRALIAN LISTED COMPANIES  |  24

APPENDIX 2 – EXAMPLE INDEPENDENT

AUDITOR’S REPORT

INDEPENDENT AUDITOR’S REPORT

Who is the report for?

The report is addressed to the members

To the Members of ABC Company Ltd.
or shareholders of the company

What does the report cover?

Opinion

This section sets out the basic details of the We have audited the accompanying financial report of ABC Company Ltd., which
engagement – the applicable reporting period, comprises the statement of financial position as at 30 June 20XX the statement of
name of the company, and what was audited comprehensive income, statement of changes in equity and statement of cash flows
for the year then ended, and notes to the financial statements, including a summary of
significant accounting policies, and the directors’ declaration.

What was the audit outcome?

In our opinion:
The auditor sets out their overall finding in the
(a) t he accompanying financial report of ABC Company Ltd. is in accordance with the
opinion. This is an example of an unmodified or
Corporations Act 2001, including:
‘clean’ audit opinion.
(i) g
 iving a true and fair view of the company’s financial position as at 30 June 20XX and
See also “The auditor’s report” for information of its performance for the year then ended; and
on modified opinions.
(ii) complying with Australian Accounting Standards and the Corporations
Regulations 2001.

How did the auditor form their opinion?

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our
The auditor provides important context responsibilities under those standards are further described in the Auditor’s
about the auditor’s opinion. Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Company in accordance with the auditor independence requirements
of the Corporations Act 2001 and the ethical requirements of the Accounting Professional
and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of the Company, would be in the same terms if
given to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.

Which matters were significant in the audit?

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most
The auditor outlines the matters most significant
significance in our audit of the financial report of the current period. These matters were
in the audit of the financial report of the
addressed in the contexts of our audit of the financial report as a whole, and in forming our
current period.
opinion thereon, and we do not provide a separate opinion on these matters.
[Description of each key audit matter. Example:
Valuation of Financial Instruments
The Company’s investments in structured financial instruments represent [x%] of the total
amount of its financial instruments. Due to their unique structure and terms, the valuation
of these instruments is based on entity-developed internal models and not on quoted
prices in active markets. Therefore, there is significant measurement uncertainty involved
in this valuation. As a result, the valuation of these instruments was significant to our audit.]
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What is done on sections of the annual report which are not audited?

Other Information
The directors are responsible for the other information. The other information comprises
The auditor explains the procedures they have
the information included in the Company’s annual report for the year ended 30 June
conducted with respect to the other information
20XX, but does not include the financial report and our auditor’s report thereon.
in the annual report.
Our opinion on the financial report does not cover the other information and accordingly
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially
inconsistent with the financial report or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.

What is the Directors’ role?

Responsibilities of the Directors for the Financial Report

This describes the Directors’ responsibilities
The directors of the Company are responsible for the preparation of the financial report
for the preparation of the financial report,
that gives a true and fair view in accordance with Australian Accounting Standards and
the internal controls in the company and
the Corporations Act 2001 and for such internal control as the directors determine is
assessing the company’s ability to continue as
necessary to enable the preparation of the financial report that gives a true and fair view
going concern.
and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.

What is the Auditor’s role?

Auditor’s Responsibilities for the Audit of the Financial Report

The auditor sets out their responsibility for Our objectives are to obtain reasonable assurance about whether the financial report
auditing the financial report and provides a brief as a whole is free from material misstatement, whether due to fraud or error, and to
description of what this means (see also “What issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
do auditors and reviews do?”) of assurance but is not a guarantee that an audit conducted in accordance with the
Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located
at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/
Home.aspx. This description forms part of our auditor’s report.

What is the remuneration report audit outcome?

Report on Remuneration Report

Opinion on the Remuneration Report
This section is to report on other reporting We have audited the Remuneration Report included in [page x to y] of the directors’
responsibilities addressed by the auditor. report for the year ended 30 June 20XX.
In our opinion, the Remuneration Report of ABC Company Ltd, for the year [period]
ended 30 June 20XX, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.

Who is the Auditor?

[Auditor’s name and signature]

[Name of Firm]
The auditor provides their name and firm.
[Date of the auditor’s report]
[Auditor’s address]
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