4. Audit or review of a company limited by guarantee entities audit manual 2013 4:2 4. Audit or...

4. Audit or review of a company limited by guarantee4. Audit or review of a company limited by guarantee 4:2

Audit or review of a company limited by guarantee: Overview 4:2

Audit or review approach 4:2

Acceptance and continuance 4:2

Planning the audit or review 4:3

Reporting 4:6

Annual reporting requirements 4:6

Audit and review reports 4:6

Appendices 4:8

Audit appendices: 4:9

Appendix 4A – Example engagement letter – audit of a non-small Company Limited by Guarantee 4:9

Appendix 4B – Example audit programs 4:12

Appendix 4C – Example management representation letter 4:24

Appendix 4D – Example unmodified auditor’s reports 4:27

Appendix 4E – Sample audit qualification or emphasis of matter 4:31

Review appendices: 4:32

Appendix 4F – Review engagement letter 4:32

Appendix 4G – Example review programs 4:34

Appendix 4H – Example review reports 4:45

Appendix 4I – Sample qualification or emphasis of matter for a review report 4:48

Small entities audit manual 2013

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4. Audit or review of a company limited by guarantee

Audit or review of a company limited by guarantee: OverviewThis chapter details the specific auditing and review requirements applicable to companies limited by guarantee should be read in conjunction with Chapter 1 – Overview of audit and review engagements.

The audit/review requirements for Companies Limited by Guarantee are included within section 285A of the Corporations Act 2001 and can be summarized below:

Financial reporting and auditing requirements for companies limited by guarantee

Annual financial reporting for companies limited by guarantee

Nature of company Obligations Relevant Corporations Act sections

Small company limited by guarantee, i.e. revenue < $250k and not a tax deductible gift recipient.

No obligation to do any of the following unless required to do so under a member direction or ASIC direction:

• prepare a financial report;

• prepare a directors’ report;

• have financial report audited;

• notify members of reports.

Sections 292, 301 and 316A.

Company limited by guarantee with annual revenue or, if part of a consolidated entity, annual consolidated revenue of less than $1 million.

Must prepare a financial report.

Must prepare a directors’ report, although less detailed than that required of other companies.

Need not have financial report audited unless a Commonwealth company, or a subsidiary of a Commonwealth company or Commonwealth authority.

If the company does not have financial report audited, it must have financial report reviewed.

Must give reports to any member who elects to receive them.

Sections 292, 298, 300B, 301, 316A.

Company limited by guarantee with annual revenue or, if part of a consolidated entity, annual consolidated revenue of $1 million or more.

Must prepare a financial report.

Must prepare a directors’ report, although less detailed than that required of other companies.

Must have financial report audited.

Must give reports to any member who elects to receive them.

Sections 292, 298, 300B, 301, 316A.

Audit or review approachThe methodology documented in Chapter 1 should be followed for the audit or review of a Company Limited by Guarantee, however specific information to assist with the engagement has been described below.

Acceptance and continuanceThe type of engagement being performed for the company will determine who is able to undertake the work.

Review engagement

A review engagement can be performed by a practitioner who is a member of and hold a practising certificate issued by one of:

• the Institute of Chartered Accountants in Australia

• CPA Australia Limited, or

• Institute of Public Accountants.


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There is no requirement to be a Registered Company Auditor in order to perform a review of a company limited by guarantee.

Audit engagement

An audit of a Company Limited by Guarantee must be conducted by a Registered Company Auditor.

Scope of audit

In some cases, there may be reporting requirements to a peak entity or government body who has provided grant or other funds to the company. The auditor/reviewer should clarify whether these requirements exist and the extent of reliance by these parties on the review/audit report.

Planning the audit or reviewUnderstanding the business

Areas to consider include reliance on grants, donations, turnover of key personnel, and the voluntary nature of membership. A further key factor could be declining membership.

Interface with government bodies

Companies limited by guarantee are likely to have significant interaction and reporting obligations to government agencies with government bodies.

For example, a sporting club or school may receive funds from local, state or federal governments. The grants may be recurrent or one-off. The auditor or other assurance practitioner should determine:

• whether any such funds are received

• any conditions attached to the expenditure of the funds

• whether the conditions have been met and

• reporting obligations to the provider of the funds.

Risk factors

The existence of any of the following risk factors and control weaknesses should be considered and the implication for the audit documented. Where any of the control weaknesses are deemed to be significant then they should be communicated to those charged with governance.

Some areas of high inherent risk where potential control deficiencies should be identified in company limited by guarantee include:

• adequate documents to support payments are not maintained

• invoices etc, where maintained, are not cancelled when paid

• payments are tabled at meetings but little or no enquiry is made by others

• no receipts are issued and no control over donations is maintained

• there is lack of segregation of duties

• registers of members not maintained or updated and

• there is little or no control over stock used in fundraising and takings

• lack of understanding of statutory directors responsibilities.

The table below shows some areas of focus for a Company Limited by Guarantee where the Auditor/Reviewer needs to have an understanding of the entity and the related risks and financial statement assertions.

The Auditor/Reviewer may use this table to tailor their questions to the client and based on the responses, determine the relevant risks and financial statements assertions to tailor the audit/review programs.


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Business understanding, associated risks and financial statement assertions

The table below includes the most common areas financial statement risks faced by Companies Limited by Guarantee, it is not a complete list of all risks or balances relevant to these entities and Auditors should ensure that they have considered all transactions/balances relevant to their client.

Obtaining an understanding of the Company

Risks Financial statement assertions

Cash balances

• What types of bank accounts does the Company maintain?

• How often are the bank accounts changed?

• What is the bank reconciliation process?

• Who can withdraw funds?

• Some bank accounts are not accounted for

• Cash transactions around year end are not included in the correct period

• Liquidity problem are being disguised

• Cash is being misappropriated.

• Completeness

• Cutoff

• Accuracy

• Rights and obligations.

Tested as part of the cash program.

Revenue, receipts and receivables

• What revenue streams does the Company receive?

• What form are the revenue received in – i.e. cash/direct deposit/credit cards?

• Who has the ability to collect cash, e.g. sporting club registration days/school payment days?

• What level of revenue is comprised of cash donations?

• Does the Company have to provide services over a specified period of time in return for the revenue?

• What is the ageing profile of the debtors?

• What is the collection process for receivables?

• Revenue is recorded in the wrong period

• Cash donations are misplaced or lost through fraud or theft

• Fictitious revenue is recorded

• Revenue recognition policy is not appropriate – significant risk

• Receivables are recoverable.

• Completeness

• Occurrence

• Accuracy of sales

• Cut-off

• Valuation of receivables.

Tested as part of the revenue, receivables and cash programs.

Grant income

• What grants are received by the Company?

• What are the terms and conditions of the grant?

• Has there been any breach of any terms/conditions during the year?

• Funds provided under the terms of the grant have not been properly accounted for

• Money has not been spent appropriately and therefore may need to be returned

• Terms or conditions of the grant have been breached

• The grant revenue has not been accounted for in accordance with Accounting Standards/the Company’s accounting policy.

• Existence

• Accuracy

• Cut-off.

Tested in the grant funds program.


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Purchases, payments and creditors

• Which goods/services does the Company purchase?

• What is the approval and payment process for purchases?

• Are there any preferred suppliers?

• How are creditors normally paid – cheque, direct deposit?

• Goods have been received but not invoiced

• Payments are made in respect of fictitious goods or services

• Purchases are not recorded or are duplicated

• Purchases/payments are recorded in the wrong period

• Recorded creditors do not represent all amounts owed for goods and services by the Company.

• Completeness

• Existence

• Cut-off

• Accuracy.

Non-current assets (i.e. property, plant and equipment)

• What non-current assets are held by the Company?

• Have there been any significant acquisitions/disposals during the year?

• Have any valuations been performed during the year?

• Have there been any impairment indicators during the year which may indicate that the assets are carried at too high a value?

• What are the security measures in place over Company assets?

• Fixed assets that have been mislaid, misappropriated or discarded are still recorded in the accounting records.

• Valuation of non-current assets is mis-stated

• Depreciation policies are unreasonable and depreciation charges are mis-stated

• Expenses have been incorrectly capitalized

• Impairment losses have not been identified.

• Existence

• Valuation


Tested in the property, plant and equipment program.

Payroll and other expenses

• How many staff are on the payroll?

• What is the system for:

– Adding new employees?

– Removing employees?

– Changing details of employees?

– Processing the payroll?

– Calculating leave entitlements?

• What is the process for purchasing items/paying reimbursements to volunteers?

• Fictitious employees are paid

• Improper or unauthorized amounts are paid

• On-costs are not appropriately recorded.

• Accuracy

• Existence.

These are tested through the payroll and income and expenses audit program.


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Investments

• Why does the Company hold its investments:

– Annual income?

– Long term capital growth?

– Invest short-term funds?

• What investments are held?

• Who manages the investments?

• Has there been any sales/purchases of investments during the reporting period?

• Valuation of the investments is not up to date

• All investments which are owned by the Company are recorded

• Profit/loss on sale have not been recorded correctly

• Changes in market value have not been accounted for correctly.

• Valuation

• Completeness


Tested in the investments program.

Inventory

• What inventory is held by the Company?

• What is the inventory used for – i.e. given away or sold?

• How is the inventory valued?

• How does the Company identify inventory that should be written down?

• Inventory is over-valued

• There is no provision for slow moving/unsaleable stock

• Inventory is sold/given-away and has not been recorded as such.

• Valuation

• Existence.

Reporting

Annual reporting requirementsA company limited by guarantee, which is not a small company, is required to lodge a copy of the financial reports, Directors report and Auditors report to both the Members (who elect to receive a copy) and to ASIC in accordance with the timeframes below.

Reporting to … Timeframe

Members Members can elect to receive either a hard copy or electronic copy of the financial reports, Directors report and Audit report.

The company must send the reports to members by the earlier of:

• 21 days before the Annual General Meeting or

• 4 months after the end of the financial year.

ASIC Audited financial reports to be lodged with ASIC within 4 months after the end of the financial year.

Audit and review reportsExample audit and review reports are provided in the Appendices to this Chapter.

Where cash transactions such as donations, fundraising or kiosk takings are material to the activities of the Company, a lack of controls may mean the auditor cannot gain sufficient evidence of completeness. The auditor or other assurance provider should issue an appropriate audit opinion or review conclusion (qualified) and management letter, if applicable. Where the auditor is able to obtain sufficient appropriate audit evidence, but it is considered fundamental to the users’ understanding of the financial report, an emphasis of matter paragraph should be used to draw the reader’s attention to the applicable note on revenue recognition in the financial statements. Guidance Statement GS 019 Auditing Fundraising Revenue of Not-for-Profit Entities, issued by the


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AUASB, covers planning, internal control and reporting considerations in this situation. Refer to Chapter 1 for more information on the requirements of GS 019 and refer to Appendix 4E for an example of an audit modification and Appendix 4I for a review modification in accordance with GS 019.


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AppendicesThe appendices for Chapter 4 are:

• Audit appendices:

– Appendix 4A – Audit engagement letter.

– Appendix 4B – Example audit programs.

– Appendix 4C – Example management representation letter (may also be used for a review).

– Appendix 4D – Example audit reports.

– Appendix 4E – Example qualification/emphasis of matter – GS019.

• Review appendices:

– Appendix 4F – Review engagement letter.

– Appendix 4G – Example review programs.

– Appendix 4H – Example review reports.

– Appendix 4I – Example qualification/emphasis of matter.


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Audit appendices:

Appendix 4A – Example engagement letter – audit of a non-small Company Limited by Guarantee

[Date]

[Contact name]1

[Position]

[name of Company]

[Address]

Dear [contact name]

ENGAGEMENT AS AUDITORS

You have requested that we audit the financial statements of [name of Company] for the year ended [date] which comprises the [insert name of primary statements and any notes presented which are subject to audit – for example statement of financial position as at [year end date] statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration.] We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter.

Our audit will be conducted with the objective of expressing an opinion on the financial statements.

The responsibilities of the auditor

We will conduct our audit in accordance with Australian Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

Because of the inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with Australian Auditing Standards.

In making our risk assessments, we consider internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. However, we will communicate to you in writing concerning any significant deficiencies in internal control relevant to the audit of the financial statements that we have identified during the audit.

Our audit is not designed to be a complete examination of all aspects of your accounting system. Accordingly any matters that are reported to you verbally or in writing should not be regarded as all-inclusive.

Responsibilities of those charged with governance

Our audit will be conducted on the basis that [management and, where appropriate, those charged with governance] acknowledge and understand that they have responsibility:

a) For the preparation of the financial statements that present a true and fair view of the results of the Company for the reporting period and the financial position of the Company as at the end of the reporting period.

b) To provide us with:

i. Access to all information of which the directors and management are aware that is relevant to the preparation of the financial report such as records, documentation and other matters;

ii. Additional information that we may request from the directors and management for the purpose of the audit; and

1 The contact should be the appropriate representative of management or those charged with governance.


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iii. Unrestricted access to persons within the entity from whom we determine it necessary to obtain audit evidence.

c) To advise us of any material and/or contentious issues relating to the preparation of the financial statements and any known or suspected frauds which have occurred within the Company.

d) To maintain adequate accounting records, to ensure that proper internal controls are in place, to ensure the accuracy of all financial records, and to maintain and safeguard the entity’s assets to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

Such internal controls reduce but do not eliminate the risk of misstatements in the financial statements from fraud or error. Those charged with governance assume responsibility for such risk. While the conduct of an audit may act as a deterrent against fraud or error we cannot be held responsible for preventing them.

Those charged with governance are responsible for adjusting the financial statements to correct identified material misstatements. At the conclusion of each financial reporting engagement we provide those charged with governance with a summary of any uncorrected misstatements we identify and request to confirm in writing that the effects of any uncorrected misstatements are immaterial, both individually and in aggregate, to the financial statements taken as a whole.

Representations from those charged with governance

As part of our audit process, we will request from those charged with governance written confirmation concerning oral representations made to us by [name of Company] in connection with the audit and that [name of Company] acknowledges that such representations would be relied upon by us during the audit.

Reporting

We anticipate the issues of an unqualified audit report in accordance with Australian Auditing Standards, however the form and content of our report may need to be amended in the light of our audit findings.

Independence

We have established policies and procedures designed to ensure our independence, including policies on the provision of non-audit work.

Fees

Our fee for the audit of the financial report of [name of Company] for the year ending [year end], is $xxx, exclusive of GST and out-of-pocket expenses, as agreed.

This fee assumes that all accounting transactions will have been processed and we will be presented with a final trial balance/set of financial statements at commencement of the audit.

If we incur additional costs as a result of factors such as:

• information not being provided to us within agreed time limits

• significant errors in the information that is provided

• the scale of the business significantly changing

• a material issue arising which was not reasonably contemplated at the time of the fee quote

then this additional time will also be billed.

Our fees will be billed as the work progresses.

Health and safety

We are required to comply with Occupational Health and Safety legislation by taking all practical steps to ensure the health and safety of our people. Our firm’s policy expects mutual responsibility for our people to ensure their own safety and that no harm is caused to others in the workplace, but the Act places responsibility for their safety on your Company when they are visitors to your site.

Other services

We are pleased to provide any additional services that may be required from time to time, provided such services do not impair our independence. We note that this engagement letter applies only to the work described in this letter. Should further work be required over and above such work, separate terms of engagement will need to be agreed. In particular, this letter does not deal with accounting advice or assistance with accounts preparation.


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Presentation of Auditing Financial Statements on the internet

If [name of Company] presents the audited financial statements and auditors’ report electronically on a web site, the security and controls over information on the web site should be addressed by the Company to maintain the integrity of the data presented. The examination of the controls over the electronic presentation of audited financial information on the Company web site is beyond the scope of the audit of the financial statements. Responsibility for the electronic presentation of the financial statements on the Company web site is that of the governing body of the entity.

Other financial information in reports

We read the financial information contained in the documents or statements that are issued with any of the financial statements, including the Committee reports, to identify material inconsistencies with the financial reports. However, we will not verify such other information.

General matters

The terms of this letter apply to all work carried out by us in connection with this engagement prior to the date of signing this letter.

This letter will be effective for future years unless we advise you of its amendment or replacement or the engagement is terminated.

Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement with, the arrangements for our audit of the financial statements, including our respective responsibilities.

Yours sincerely

_____________________________________

[Audit firm]

_____________________________________

[partner name] Partner

Acknowledgement

We hereby acknowledge that the engagement letter dated [date of engagement letter] is in accordance with our understanding of the arrangements for the audit of [name of Company]’s financial statements.

Signed for and on behalf of the members by:

_____________________________________

[Signature]

_____________________________________

[Name]

_____________________________________

[Title]

_____________________________________

[Date]


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Appendix 4B – Example audit programsThe sample audit programs below provide guidance to auditors on the audit tests which may be performed to obtain sufficient, appropriate audit evidence during the audit of a Company Limited by Guarantee.

It is intended that this sample audit program be adapted as required for the circumstances of each engagement, taking into account factors such as the following:

• internal controls as a whole and whether these are adequate to ensure that all transactions are properly recorded

• complexity of the accounting system and associated records

• volume of transactions and scale of operations

• risk associated with the entity

• auditor’s knowledge of the business.

Please note that the following procedures will ordinarily be required to be performed. If internal controls are assessed as reliable, then the extent of substantive testing including the sample sizes selected for testing may be reduced, as considered appropriate by the auditor.

Note that these are minimum procedures based on the most common account balances and risks for Companies Limited by Guarantee. Additional procedures will be required where there are additional risks or account balances.

Refer to ASA 330 The auditor’s responses to assessed risks for guidance on designing audit procedures to reduce audit risk to an acceptably low level and ASA 500 Audit evidence for guidance on the quantity and quality of audit evidence that an auditor is required to obtain.

Choose the tests to best cover the financial statements assertions identified during the risk assessment phase.

Income (excluding grant income) and cash receipts Performed by WP reference

1. Document the Auditors understanding of the process involved in recording revenue and receiving payment for all significant revenue streams.

Perform a walkthrough of the system.

Note any weaknesses and report to client, together with recommendations. Consider audit implications.

2. Select a sample of receipts from the cash receipts book and test as follows:

i. agree details to supporting documentation

ii. ensure the receipt is classified correctly and is in accordance with the Company’s special rules and constitution, i.e. it is for bona fide purposes only

iii. agree amounts to stamped bank deposit slips and trace through to bank statements.

3. Agree other income, e.g. donations, interest received to supporting documentation.

4. Assess reasonableness of subscription income by reference to membership numbers and annual subscriptions.

5. Review all minutes of meetings in respect of financial matters and document matters of audit significance in relation to donations and pledges, whether in cash or kind, and ensure they are appropriately recognised in the financial report.

6. Additional procedures deemed necessary to obtain sufficient, appropriate audit evidence.


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Income (excluding grant income) and cash receipts Performed by WP reference

Conclusion

Audit programs completed?

Matters for the completion memo?

Management letter points raised?

Audit differences raised?

Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Purchases and cash payments Performed by WP reference

1. Document the system for:

• Initiating purchases

• Confirming receipts of goods/services

• Paying creditors.

Note any weaknesses and report to client, together with recommendations. Consider audit implications.

2. Select a sample of payments made from the cash payments book and test as follows:

i. agree to supporting documentation, i.e. invoice, supplier statement etc.

ii. trace evidence of delivery/receipts of goods

iii. ensure the payment is authorised by the committee and is in accordance with the Company’s constitution, i.e. it is for bona fide purposes only

iv. trace amounts through to bank statements

v. consider appropriateness of account classification

vi. trace cash payments book to financial records.

3. Review the cash payments book for any large and unusual items and assess overall reasonableness of the payment.

Inspect supporting documentation.

4. Additional procedures deemed necessary to obtain sufficient, appropriate audit evidence.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


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Cash/bank/deposits Performed by WP reference

1. Review the bank reconciliation at reporting date as follows:

i. check the additions

ii. ensure there are no large and unusual reconciling items

iii. obtain a listing of unpresented cheques and trace to cash book prior to reporting date and to bank statements subsequent to year end to ensure they are presented in a timely manner

iv. review subsequent bank statements for unusual payments or receipts and inspect supporting documentation

v. ensure reconciliations are signed by a senior officer as being authorised.

2. Where the Auditor will place reliance on an internal control procedures such as the bank reconcilation, perform tests of controls to ensure that key controls identified in the system documentation are operating effectively and as recorded (i.e. test an interim bank reconciliation).

3. Agree balances on the bank confirmation/other confirmation to the bank reconciliation or other supporting documentation.

Ensure any encumbrances over assets detailed in the bank audit certificate are reflected in the financial statements.

4. If reliance has not been placed on any internal controls over cash, then a selection of cash transactions during the period should be traced to supporting documentation.

5. Where petty cash balances are material, verify the balance at the end of the reporting period.

6. Additional procedures needed as determined by the auditor to obtain sufficient, appropriate audit evidence.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Grant monies Performed by WP reference

1. Discuss with management, details of funds received from government and obtain and review a copy of the funding agreements.

2. Discuss with management and review appropriate supporting documentation to determine whether conditions associated with the grant have been met.

3. Review the accounting policy for grant accounting:

• Confirm this is in accordance with the appropriate accounting standard

• Confirm that the policy is being followed.


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Grant monies Performed by WP reference

4. For a selection of receipts:

i. agree to official receipt or third party advice

ii. trace amounts to bank statements and financial records.

5. For a sample of expenses:

i. ensure expenditure falls within conditions set by funding authority

ii. agree to supporting documentation

iii. trace amounts to bank statements and financial records.

6. Agree any grant receivable/payable to supporting documentation.

7. Determine whether there are any audit requirements in relation to any reporting obligations in the grant agreement (i.e. an auditor sign-off on an acquittal statement).


Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Additional procedures needed as determined by the auditor to obtain sufficient, appropriate audit evidence.

Conclusion

Tests completed?



Reviewed by: <<name>>

YES / NO

YES / NO

YES / NO

Receivables/prepayments Performed by WP reference

1. Obtain a list of receivables and prepayments at year end and agree balances to general ledger.

2. Select a sample of receivables at year end and vouch to subsequent receipts as follows:

Trace amounts received to:

i. cash receipts book

ii. bank statements

iii. remittance advice or external correspondence.

If monies are not received subsequent to year end, obtain direct confirmation or prove existence of amount owing to proof of service being performed.


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Receivables/prepayments Performed by WP reference

3. Select a sample of prepayments and perform the following:

i. check calculations

ii. agree to supporting documentation, i.e. invoices, contracts, agreements, insurance policies etc

iii. agree amount paid to bank statement/other supporting documentation.

4. Ensure receivables/prepayments have been recorded in the correct period.

5. Review credit notes raised after year end and make any adjustments where necessary if the credit relates to transactions prior to reporting date.

6. Review receivable balances for any long-outstanding items and discuss recoverability with the client, i.e. sight evidence to ensure receivables are bona fide and confirm outstanding memberships.

7. Review the adequacy of the provision for doubtful debts in light of the testing performed in step 6 above.

8. Review:

i. classification and description of amounts

ii. accounting principles for appropriateness and consistency.


Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Investments Performed by WP reference

1. Confirm whether the investments have been classified appropriately as either fair value through profit or loss or available for sale.

Confirm that the accounting treatment reflects the classification.

2. Determine whether investments are being carried at costs or fair value.

If cost, then confirm this is in accordance with Accounting Standards.

If fair value, then ensure the recorded value reflects fair value at the end of the reporting period.

3. Obtain a list of investments and agree balances to the general ledger.

4. Obtain confirmation of the investments held from third parties.

5. Ensure any profit/loss on disposal of investments has been correctly treated and any cumulative amounts recorded in equity have been recycled into the profit and loss account.

6. Confirm the income earned from the investments to supporting documentation.


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Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Inventory Performed by WP reference

1. Document the system for:

• Purchasing inventory

• Receiving inventory

• Counting inventory

• Valuing inventory

• Using/selling inventory.

Note any weakness and report to client, together with recommendations.

2. If inventory is material:

• Attend the stocktake

• Perform test counts and agree with client counts

• Inspect stock for slow-moving and obsolete items.

3. Obtain final stock listing and check additions and extensions and tie in to test counts performed during the stocktake.

Agree balances to the general ledger.

4. Review stock level for reasonableness and consistency (compared to prior year) and knowledge of the business.

5. Select a sample of stock lines from the final inventory listing and agree back to original invoices vouching prices and quantities (for reasonableness).

6. Enquire of management as to the existence of obsolete and/or slow moving stock items.

7. Select the first five delivery notes/goods received notes for the new financial year and the last five delivery notes from the previous financial year to ensure items have been recorded in the correct period.

8. Select a sample of stock items and compare unit cost, per year end stock listing, to selling price achieved post year end to ensure stock is valued at the lower of cost or net realisable value.



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Inventory Performed by WP reference

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Property, plant and equipment Performed by WP reference

1. Obtain supporting schedules from the fixed asset register (summarised by fixed asset classification including cost, additions, disposals, accumulated depreciation and depreciation expense) and agree balances to general ledger and trial balance.

2. Vouch additions and disposals for significant items to original invoice and bank statements and title deeds, if applicable.

Ensure additions have been appropriately authorized and relate to capital items.

3. Ensure profits and losses on disposal of assets have been calculated correctly.

4. Ensure depreciation rates used are appropriate and, on a test basis, check that the depreciation calculation is correct and consistent with previous financial years.

5. Perform a proof in total analytical review over depreciation.

6. Physically inspect a sample of fixed assets as follows:

i. trace back to accounting records

ii. select assets from records and inspect.

7. Review adequacy of insurance coverage and confirm maintenance of insurance register.

8. Discuss the existence of impairment indicators with management and review any recoverable amount calculations.

9. Review appropriateness of asset valuations (e.g. land and buildings) and ensure they comply with the applicable accounting standards.

10. Review:




Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


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Payables Performed by WP reference

1. Obtain a list of trade creditors and agree balance to general ledger and trial balance.

2. Select a sample of outstanding trade creditors at year end and vouch to supporting documentation, i.e. supplier statements, invoices etc., ensuring that any reconciling items are appropriate.

3. Investigate large, irregular, old, disputed and debit balances.

4. Vouch significant other creditor balances to supporting documentation.

5. Check and review the calculations of significant year end accruals.

6. Perform an unrecorded liabilities testing as follows:

i. review payments subsequent to year end

ii. review unpaid invoices on hand.

7. Review:




Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Payroll Performed by WP reference

1. Document the system for processing payroll-related payments and salaries.

Note any weaknesses and report them to the client, together with recommendations. Consider audit implications.

2. Perform substantive analytical procedures on:

• Superannuation

• Payroll tax

• Workcover

• Other on-costs

by calculating the expected value with reference to the wages and salaries expenses.

3. Ensure that appropriate provisions exist for employee entitlements such as annual leave and long service leave and that on-costs have been included.

Agree the total expense to the income statement.


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Payroll Performed by WP reference

4. Obtain the calculations for leave entitlements, i.e. annual leave and long service leave.

For a selection of employees:

• Test check the calculation

• Agree leave taken to supporting documentation

• Review the assumptions used for reasonableness.

5. Calculate average salary per employee and compare to our expectations.


Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Profit and loss review Performed by WP reference

1. Perform analytical review procedures, as appropriate, based on our expectations for any balances not yet tested.

Corroborate management’s explanations where applicable.

2. Vouch to supporting documentation a sample of expense and revenue items as considered necessary.

3. Review items included in the repairs and maintenance expenses, ensuring that no items of a capital nature have been expensed.

4. Ensure that there are no amounts in the clearing/suspense accounts at reporting date. If there are, ask the client to reconcile the account and transfer the items to the correct accounts.

5. Cross-reference profit and loss items where applicable to other audit work areas, e.g. payroll and depreciation.


Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


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Commitments and contingencies Performed by WP reference

1. Minutes of meetings

Review all minutes of meetings in respect of financial matters and document matters of audit significance in relation to commitments and contingencies.

2. Capital and lease commitments

i. Discuss with client the existence of any capital commitments or lease commitments existing at reporting date.

ii. Agree commitments to appropriate documentation.

iii. Agree disclosure of commitments to financial report, if applicable.

iv. Ensure finance leases have been appropriately capitalized.

3. Contingent liabilities

i. Send a standard letter to client’s solicitor(s) and review to identify any contingencies.

ii. If applicable, agree the disclosure to the financial report.

iii. From the review of minutes after reporting date, discussion with client and solicitor’s reply, ascertain whether any contingent liabilities existed at reporting date.

iv. Document findings and consider related evidence obtained from bank confirmations, analysis of legal fees and review of minutes.


Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Reserves Performed by WP reference

1. Document the nature and purpose of each reserve and confirm it is reasonable and appropriate.

2. Obtain and check for the year the schedules of movements in retained profits and each reserve account, and agree significant movements to supporting documentation.

3. Agree opening balances with prior year’s audited financial statements.


Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


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Subsequent events Performed by WP reference

1. Discuss with client and review minutes for the period from reporting date to auditor’s report date to determine whether any material events have occurred which would require an adjustment to the accounts or disclosure by way of a note to the accounts.

2. Review the cash payments, cash receipts book and general journals after year end for significant and unusual items which could require an adjustment to the accounts.


Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Going concern Performed by WP reference

1. Review latest management accounts or other financial information available relating to post year end that may indicate the existence of a going concern issue.

2. Review budgets available for the following year to identify any potential issues.

3. Review current (to date of signing audit report) banking arrangements to ensure there are no breaches of available facilities or existing covenants that may indicate the existence of a going concern issue and confirm whether there were breaches during the year.

4. Enquire of management as to any issues that may give rise to doubts that the entity will be able to meet all financial obligations when they become due.

5. Discuss with committee of management their rationale for using the going concern basis.


Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


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Audit conclusions and reporting Performed by WP reference

1. Prepare a summary of the findings of the audit and conclude on overall results in light of the materiality of the matters found.

2. Obtain written representation from those charged with governance.

3. Prepare an audit report in accordance with the findings.

4. Complete completion memo.

5. Confirm that the fraud workpaper has been completed.

6. Prepare and issue relevant communication to those charged with governance.

7. Review the Directors report to confirm it is in compliance with the Corporations Act and is not inconsistent with the financial statements.

Conclusion

In respect of the objectives of the audit procedures:

i. the audit procedures were applied in accordance with professional requirements

ii. subject to any audit differences documented in the working papers, the recorded amounts are materially correct

iii. the accounting principles are appropriate and have been consistently applied.

Reviewed by: <<name>>


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Appendix 4C – Example management representation letter2

This letter may be used for audits and reviews.

This letter should be tailored to the specific circumstances of the Company and has been prepared using the following assumption:

• The representation required by ASA 570 and ASA 710 are not applicable.

Additional paragraphs should be included where the audit team cannot reasonably be expected to obtain sufficient audit evidence (for example, representation regarding provision balances/assumptions).

Where paragraphs refer to balances/transactions which are not applicable for the Company then they should be deleted.

[Date]

[Audit Partner name]

Certified Practising Accountant

[Address]

Dear [Audit Partner name]

This representation letter is provided in connection with your audit of the financial report of [name of Company] for the year ended [year end], for the purpose of expressing an opinion as to whether the financial report is presented fairly, in all material respects, in accordance with the relevant Australian accounting and the Corporations Act 2001.

We confirm, to the best of our knowledge and belief, having made such enquiries as we considered necessary for the purpose of appropriately informing ourselves, the following representations made to you during your audit:

Financial report

• We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated [date of engagement letter], for the preparation of the financial report in accordance with Australian Accounting Standards as per note [xx]; in particular the financial report presents a true and fair view in accordance therewith.

• We have disclosed to you the results of our assessment of the risk that the financial report may be materially misstated as a result of fraud.

• Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable.

• We have disclosed to you the identity of the entity’s related parties and all the related party relationships and transactions of which we are aware.

• Any related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of Australian Accounting Standards.

• All events subsequent to the date of the financial report and for which Australian Accounting Standards require adjustment or disclosure have been adjusted or disclosed.

• The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial report as a whole. A list of the uncorrected misstatements is attached to the representation letter.

Information provided

• We have provided you with:

a) access to all information of which we are aware that is relevant to the preparation of the financial report such as records, documentation and other matters.

b) all requested information, explanations and assistance for the purposes of the audit.

c) unrestricted access to persons within the Company from whom you determined it necessary to obtain audit evidence.

2 The letter should be emailed to the client to enable it to be printed on client letterhead.


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• All transactions have been recorded in the accounting records and are reflected in the financial report.

• We have disclosed to you all known actual or possible litigation and claims whose effects should be considered when preparing the financial report; and accounted for and disclosed in accordance with the applicable financial reporting framework.

General

• We have no plans or intentions that may materially affect the carrying values or classification of assets and liabilities.

• The Company has satisfactory title to all assets, and there are no liens or encumbrances on such assets nor have any assets been pledged as collateral that have not been disclosed in the financial report.

• There have been no known instances of non-compliance or suspected non-compliance with laws and regulations or contractual agreements whose effects should be considered in preparing the financial report.

Fraud

• We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud and confirm we have disclosed to you:

a) the results of our assessment of the risk that the financial report may be materially misstated as a result of fraud

b) all information in relation to fraud or suspected fraud that we are aware of and that affects the entity and involves:

i. management

ii. employees who have significant roles in internal controls or

iii. others where the fraud could have a material effect in the financial report and

c) all information in relation to allegations of fraud, or suspected fraud, affecting the entity’s financial report communicated to us by employees, former employees, analysts, regulators or others.

Commitments

• There were no material commitments for goods or services at year end, other than those disclosed in the financial report.

Impairment of assets

• We have considered the requirements of AASB 136 Impairment of assets when assessing the carrying values of assets and in ensuring that no assets within the scope of AASB 136 are stated in excess of their recoverable amount.

Liabilities

• There are no financial guarantee contracts in place to third parties which could be called upon in the event of a default, other than those disclosed in the financial report.

Inventory

• We have no plans to abandon lines of product or other plans or intentions that will result in any excess or obsolete inventory, and no inventory is stated at an amount in excess of net realisable value.

• Provision has been made for material losses arising from the fulfilment of, or an inability to fulfil, any sale commitments or as a result of purchase commitments for inventory quantities in excess of normal requirements or at prices in excess of prevailing market prices.

Property, plant and equipment

• Rates of depreciation, applied to reduce book values of individual assets to their estimated residual values, reflect the probable useful lives of those assets to the Company.

• Allowances for depreciation have been adjusted for all significant items of property, plant and equipment that have been abandoned or are otherwise unusable.

• The Company has no ‘make good’ obligations in respect of its property, plant and equipment for which it would be required to make a restorative provision under AASB 137 Provisions, contingent liabilities and contingent assets which have not been included in the financial report.


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Taxation

• Adequate amounts have been accrued for all local and foreign taxes on income including amounts applicable to prior years not finally settled and paid.

• Deferred tax assets in relation to tax losses [have/have not] been brought to account as it [is/is not] probable that they will be realised.

Electronic presentation of financial report

• With respect to presentation of the financial report on our website, we acknowledge that:

a) we are responsible for the electronic presentation of the financial report

b) we will ensure that the electronic version of the audited financial report and the auditor’s report on the website will be identical to the final signed hard copy version

c) we will clearly differentiate between audited and unaudited information in the construction of the entity’s website as we understand the risk of potential misrepresentation

d) we have assessed the controls over the security and integrity of the data on the website and confirmed that adequate procedures are in place to ensure the integrity of the information presented and

e) we will not present the auditor’s report on the full financial report with extracts only of the full financial report.

_____________________________________

[Director]3

3 The sign-offs included in this letter are examples only. The audit manager/partner should consider the most appropriate personnel to sign the representation letter.


4:27

Appendix 4D – Example unmodified auditor’s reports

Reporting entity i.e. general purpose financial statements

Reference – ASA 700 – Illustration 1A

Independent audit report

To the members of [name of Company]

Report on the Financial Report

We have audited the accompanying financial report of [name of Company], which comprises the statement of financial position as at [year end], and the statement of comprehensive income for the year then ended, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration.

Directors’ responsibility for the financial report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of [name of Company], would be in the same terms if given to the directors as at the time of this auditor’s report.

Electronic publication of the audited financial report4

It is our understanding that the [name of Company] intends to electronically present the audited financial report and auditor’s report on its internet website. Responsibility for the electronic presentation of the financial report on the [name of Company] website is that of [those charged with governance] of the [name of Company]. The security and controls over information on the website should be addressed by the [name of Company] to maintain the integrity of the data presented. The examination of the controls over the electronic presentation of audited financial report(s) on the [name of Company] website is beyond the scope of the audit of the financial report.

4 This paragraph should be deleted if the audit report is not being included on the entity’s website.


4:28

Opinion

In our opinion, the financial report of [name of Company] is in accordance with the Corporations Act 2001, including:

a) giving a true and fair view of the company’s financial position as at [year end date] and of its performance for the year ended on that date; and

b) complying with Australian Accounting Standards and the Corporations Regulations 2001.

_____________________________________ _____________________________________

[Signature] [Partner name] Certified Practising Accountant Partner

___________________

[Date]

______________________________________

[Auditor’s address]


4:29

Non-reporting entity i.e. special purpose financial statements

Reference ASA 800 – Illustration 4

Independent audit report to the members of [name of Company]

We have audited the accompanying financial report, being a special purpose financial report, of [name of Company], which comprises the statement of financial position as at [year end], the statement of comprehensive income for the year then ended, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration.


The directors of the company are responsible for the preparation of the financial report that gives a true and fair view and have determined that the basis of preparation described in Note X to the financial report is appropriate to meet the requirements of the Corporations Act 2001 and is appropriate to meet the needs of the members. The directors’ responsibility also includes such internal control as the directors determine is necessary to enable the preparation of a financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We have conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of [name of Company], would be in the same terms if given to the directors as at the time of the auditor’s report.

Electronic publication of the audited financial report5

It is our understanding that the [name of Company] intends to electronically present the audited financial report and auditor’s report on its internet website. Responsibility for the electronic presentation of the financial report on the [name of Company] website is that of those charged with governance of the [name of Company]. The security and controls over information on the website should be addressed by the [name of Company] to maintain the integrity of the data presented. The examination of the controls over the electronic presentation of audited financial report on the [name of Company] website is beyond the scope of the audit of the financial report.

5 This paragraph should be deleted if the audit report is not being included on the entity’s website.


4:30

Opinion

In our opinion the financial report of [name of Company] is in accordance with the Corporations Act 2001, including:


b) complying with Australian Accounting Standards to the extent described in Note X, and the Corporations Regulations 2001.

Basis of accounting

Without modifying our opinion, we draw attention to Note X to the financial report, which describes the basis of accounting. The financial report has been prepared for the purpose of fulfilling the directors’ financial reporting responsibilities under the Corporations Act 2001. As a result, the financial report may not be suitable for another purpose.

_____________________________________ _____________________________________


___________________

[Date]

______________________________________

[Auditor’s address]


4:31

Appendix 4E – Sample audit qualification or emphasis of matter The most common amendments to Audit Reports relate to controls over cash donations.

This appendix illustrates some example workings in relation to the matter.

Refer to GS019 for guidance in determining whether a modification or emphasis of matter is appropriate.

Audit Report qualification

Basis for qualified opinion

Receipts from cash donations and other cash fundraising activities are a significant source of revenue for the [name of Company]. The [name of Company] has determined that it is impracticable to establish control over the collection of donations and other fundraising activity revenue prior to entry in its financial records. Accordingly, as the evidence available to us about revenue from these sources was limited, our audit procedures for donations and other fundraising activity revenue had to be restricted to the amounts recorded in the financial records. We therefore are unable to express an opinion on whether cash donations and other cash fundraising activity revenue obtained by the [name of Company] are complete.

Qualified opinion

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial report [name of Company] provides a true and fair view in all material respects in accordance with the accounting policies described in Note 1 to the financial statements, the financial position of the [name of Company] at [year end date] and its financial performance and its cash flows for the year then ended.

Emphasis of matter

We draw attention to Note [X] to the financial report which describes the revenue recognition policy of [name of Company] including the limitations that exist in relation to the recording of cash receipts from [name of source of fundraising revenue]. Revenue from this source represents a significant proportion of [name of Company’s] revenue. Our opinion is unmodified in respect of this matter.


4:32

Review appendices:

Appendix 4F – Review engagement letter

[Date]

[Contact name (the chair or treasurer)]

[Position]

[Company name]

[Address]

Dear [contact name]

REVIEW OF [NAME OF COMPANY]

Scope

You have requested that we review the financial report of [name of Company] for the year ended [year end], which comprises [insert statements and any notes thereto subject to audit]. We are pleased to confirm our acceptance and our understanding of the terms and objectives of our engagement by means of this letter.

Our review will be conducted in accordance with Standard on Review Engagements ASRE 2400 Reviews of Financial Reports Performed by an Assurance Practitioner Who is Not the Auditor of the Entity [or ASRE 2410 Reviews of Financial Reports Performed by an Assurance Practitioner Who is the Auditor of the Entity] and ASRE 2415 Review of a Financial Report – Company Limited by Guarantee issued by the Auditing and Assurance Standards Board, with the objective of providing us with a basis for reporting whether anything has come to our attention that causes us to believe that the financial report of [name of Company] is not prepared, in all material respects, in accordance with the applicable financial reporting framework and the Corporations Act 2001. Such a review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures and does not, ordinarily, require corroboration of the information obtained. The scope of a review of a financial report is substantially less than the scope of an audit conducted in accordance with auditing standards the objective of which is the expression of an opinion regarding the financial report and accordingly, we shall express no such opinion. ASRE 2400 [ASRE 2410] requires us to also comply with ethical requirements.

We expect to provide an unmodified review report on the financial report as per ASRE 2400 [ASRE 2410], however, our report may be modified based on work performed.

Responsibility for the financial report, including adequate disclosure, is that of those charged with governance. This includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. As part of our review, we shall request written representations from management concerning assertions made in connection with the review. We shall also request that where any document containing the financial report indicates that the financial report has been reviewed, our report will also be included in the document.

A review of the financial report does not provide assurance that we shall become aware of all significant matters that might be identified in an audit. Further, our engagement cannot be relied upon to identify whether fraud or errors, or illegal acts exist. However, we shall inform you of any material matters that come to our attention.

Fees

Our fee for the review of the financial report of [name of Company] for the year ending [year end date] is $xxx, exclusive of GST and out-of-pocket expenses, as agreed. This fee assumes that all accounting transactions will have been processed and we will be presented with a final trial balance/set of financial statements at commencement of the review.

If we incur additional costs as a result of factors such as:

• information not being provided to us within agreed time limits

• significant errors in the information that is provided


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• the scale of the business significantly changing

• a material issue arising which was not reasonably contemplated at the time of the fee quote

then this additional time will also be billed.

Our fees will be billed as the work progresses.

We look forward to full co-operation with your staff and we trust that they will make available to us whatever records, documentation and other information are requested in connection with our review.

This letter will be effective for future years unless it is terminated, amended or superseded.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our review of the financial report.

Yours sincerely

_____________________________________

[Auditor name]

Partner

Certified Practising Accountant

ABN XX XXX XXX XX

We hereby acknowledge that this letter is in accordance with our understanding of the arrangements for the review of [name of Company] financial report.

Signed for and on behalf of the members by:

_____________________________________

[Signature]

_____________________________________

[Name]

_____________________________________

[Title]

______________

[Date]


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Appendix 4G – Example review programsThis sample review engagement program is aimed at providing guidance to assurance practitioners on the steps involved in the review of a Company Limited by Guarantee, where permitted by the Corporations Act 2001. The review should be performed by persons who have adequate training, experience and competence in assurance provision.

It is intended that this sample review program be adapted as required for the circumstances of each engagement, taking into account factors such as the following:

• internal controls as a whole and whether these are adequate to ensure that all transactions are properly recorded

• complexity of the accounting system and associated records

• volume of transactions and scale of operations

• risk associated with the entity

• assurance practitioner’s knowledge of the business.

The enquiry, analytical and other procedures carried out in a review of a financial report are determined by the auditor exercising professional judgement in light of the auditor’s assessment of the risk of material misstatement.

The procedures listed below are for illustrative purposes only. It is not intended that all the procedures suggested apply to every review engagement.

General Performed by WP reference

Confirm that the engagement team complies with relevant independence and ethical requirements.

Prepare and send an engagement letter to the entity.

Discuss the terms and scope of the engagement with the engagement team.

Obtain or update knowledge and understanding of the business, the key internal and external changes (including laws and regulations), and their effect on the scope of the review, materiality and risk assessment. This can be performed through the following:

• Ascertaining whether there have been any significant changes to the nature and scope of operations.

• Considering the results and effects of previous audits and review engagements.

• Enquiring of persons responsible for financial reporting in respect of matters that impact on the reliability of the underlying accounting records. For example, considering fraud risk, material weaknesses in internal controls and any significant changes to internal control policies and procedures.

Considering whether additional procedures will be required on any significant accounts where internal controls relating to significant processes have been historically unreliable in detecting and preventing errors in the financial report.

Assess the relevance and impact of the results of the above procedures on the current period.

Determine materiality, exercising professional judgement, considering both qualitative and quantitative factors.


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Enquire of persons responsible for financial reporting about the following:

• Accounting policies adopted and consider whether:

+ they comply with the applicable financial reporting framework;

+ they have been applied appropriately; and

+ they have been applied consistently and, if not, consider whether disclosure has been made of any changes in the accounting policies.

• Policies and procedures used to assess asset impairment and any consequential estimation of recoverable amount.

• The policies and procedures to determine the fair value of financial assets and financial liabilities.

• New, unusual or complex situations that may have affected the financial report such as a business combination or disposal of a segment of the business. Consider adequacy of additional note disclosures in the financial report.

• Plans to dispose of major assets or business segments.

• Material off-balance sheet transactions, special purpose entities and other equity investments and related accounting treatment and disclosure.

• Knowledge of any allegations of fraud, or suspected fraud.

• Knowledge of any actual or possible significant non-compliance with laws and regulations.

• Compliance with debt covenants.

• Material or unusual related party transactions.

• New or significant changes in commitments, contractual obligations.

Enquire whether all financial information is recorded:

• Completely;

• Promptly; and

• After the necessary authorisation.

Obtain and read the minutes of meetings of Directors and other appropriate committees to identify matters that may affect the financial report, and enquire about matters dealt with at meetings for which minutes are not yet available that may affect the financial report.

Enquire if actions taken at meetings of Directors that affect the financial report have been appropriately reflected therein.

Ensure the financial report is agreed to the trial balance and is fairly presented including additional disclosure notes. If applicable, enquire as to whether all intercompany balances have been eliminated.

Review other information included in the financial report and document findings. Discuss any material misstatements of fact with the entity’s management.


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Conclusion

Program completed?




Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Cash Performed by WP reference

Obtain the bank reconciliations. Enquire about any old or unusual reconciling items with client personnel to assess reasonableness.

Enquire about transfers between cash accounts for the period before and after the review date.

Enquire whether there are any restrictions on cash accounts.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Revenue and Receivables Performed by WP reference

Enquire about the accounting policies for recognising sales revenue and trade receivables and determine whether they have been consistently and appropriately applied.

Obtain a schedule of receivables and determine whether the total agrees with the trial balance.

Obtain and consider explanations of significant variations in account balances from previous periods or from those anticipated.

Obtain an aged analysis of the trade receivables. Enquire about the reason for unusually large accounts, credit balances on accounts or any other unusual balances and enquire about the collectibility of receivables.

Consider, with management, the classification of receivables, including non-current balances, net credit balances and amounts due from shareholders, those charged with governance and other related parties in the financial report.

Enquire about the method for identifying ‘slow payment’ accounts and setting allowances for doubtful accounts and consider it for reasonableness.

Enquire whether receivables have been pledged, factored or discounted and determine whether they have been properly accounted for.

Enquire about procedures applied to ensure that a proper cut-off of sales transactions and sales returns has been achieved.


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Revenue and Receivables Performed by WP reference

Enquire whether accounts represent goods shipped on consignment and, if so, whether adjustments have been made to reverse these transactions and include the goods in inventory.

Enquire whether any large credits relating to recorded income have been issued after the balance sheet reporting date and whether provision has been made for such amounts. Consider the reasonableness of any provisions.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Inventories Performed by WP reference

Obtain the inventory list and determine whether:

• the total agrees with the balance in the trial balance; and

• the list is based on a physical count of inventory.

Enquire about the method for counting inventory.

Where a physical count was not carried out at the end of the reporting period, enquire whether:

• a perpetual inventory system is used and whether periodic comparisons are made with actual quantities on hand; and

• an integrated cost system is used and whether it has produced reliable information in the past.

Consider adjustments made resulting from the last physical inventory count.

Enquire about procedures applied to control cut-off and any inventory movements.

Enquire about the basis used in valuing each inventory classification and, in particular, regarding the elimination of inter-branch profits. Enquire whether inventory is valued at the lower of cost and net realisable value (or lower of cost and replacement cost for not-for-profit organisations).

Consider the consistency with which inventory valuation methods have been applied, including factors such as material, labour and overhead.

Compare amounts of major inventory categories with those of prior periods and with those anticipated for the current period. Enquire about major fluctuations and differences.

Compare inventory turnover with that in previous periods.

Enquire about the method used for identifying slow moving and obsolete inventory and whether such inventory has been accounted for at net realisable value.

Enquire whether any inventory has been consigned to the entity and, if so, whether adjustments have been made to exclude such goods from inventory.


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Inventories Performed by WP reference

Enquire whether any inventory is pledged, stored at other locations or on consignment to others and consider whether such transactions have been accounted for appropriately.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


Obtain a schedule of the investments at the reporting date and determine whether it agrees with the trial balance.

Enquire whether the accounting policy applied to investments is consistent with prior periods.

Enquire from management about the carrying values of investments. Consider whether there are any realisation problems.

Enquire whether there are any new investments, including business combinations. Consider classification, measurement and disclosure in respect of material or significant acquisitions.

Consider whether gains and losses and investment income have been properly accounted for.

Enquire about the classification of long-term and short-term investments.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


4:39

Property, plant and equipment and depreciation Performed by WP reference

Obtain a schedule of the property, plant and equipment indicating the cost and accumulated depreciation and determine whether it agrees with the trial balance.

Enquire about the accounting policy applied regarding residual values, provisions to allocate the cost of property, plant and equipment over their estimated useful lives using the expected pattern of consumption of the future economic benefits and distinguishing between capital and maintenance items. Consider whether there are any indicators of impairment and whether the property, plant and equipment have suffered a material, permanent impairment in value.

Discuss with management the additions and disposals to property, plant and equipment accounts and accounting for gains and losses on disposals or de-recognition. Enquire whether all such transactions have been properly accounted for.

Enquire about the consistency with which the depreciation method and rates have been applied and compare depreciation provisions with prior years.

Enquire whether there are any restrictions on the property, plant and equipment.

Enquire whether lease agreements have been properly reflected in the financial report in conformity with current accounting pronouncements.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Prepaid expenses and other assets Performed by WP reference

Obtain schedules identifying the nature of these accounts and determine whether they agree with the trial balance. Discuss recoverability thereof with management.

Compare balances of related expense accounts with those of prior periods and obtain explanations for significant variations with management.

Discuss the classification between current and non-current accounts with management.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


4:40

Loans payable Performed by WP reference

Obtain from management a schedule of loans payable and determine whether the total agrees with the trial balance.

Enquire whether there are any loans where there has been a change to the terms and conditions or management has not complied with the provisions of the loan agreement, including any debt covenants. Assess whether loans have been appropriately classified as current or non-current in the financial report.

Where material, consider the reasonableness of interest expense in relation to loan balances.

Enquire whether loans payable are secured. Review loan and working capital facilities. Enquire if options to extend terms have been exercised or if any debt requires refinancing.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Trade payables Performed by WP reference

Enquire about the accounting policies for initially recording trade payables and whether the entity is entitled to any allowances given on such transactions.

Obtain and consider explanations of significant variations in account balances from previous periods or from those anticipated.

Obtain a schedule of trade payables and determine whether the total agrees with the trial balance.

Enquire whether balances are reconciled with the creditors’ statements and compare with prior period balances. Compare turnover with prior periods.

Consider whether there could be material unrecorded liabilities.

Enquire whether payables to shareholders, those charged with governance and other related parties are separately disclosed.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


4:41

Other liabilities and contingent liabilities Performed by WP reference

Obtain a schedule of other liabilities and determine whether the total agrees with the trial balance.

Compare major balances of related expense accounts with similar accounts for prior periods.

Enquire about approvals for such other liabilities, terms of payment, compliance with terms, collateral and classification.

Enquire about other liabilities to assess whether the methodology and assumptions adopted are consistent with prior periods. Enquire whether there are any unusual trends and developments affecting accounting estimates.

Enquire as to the nature of amounts included in contingent liabilities and commitments.

Enquire whether any actual or contingent liabilities exist which have not been recognised in the accounts. If so, enquire with management and/or those charged with governance whether provisions need to be made in the accounts or whether disclosure should be made in the notes to the financial report.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Operations Performed by WP reference

Compare results with those of prior periods and those expected for the current period.

Discuss significant movements/variations with management.

Discuss whether the recognition of major revenue and expense items have taken place in the appropriate periods.

Enquire about the policies and procedures related to accrued revenue and/or expenses.

Consider and discuss with management the relationship between related items in the revenue accounts and assess the reasonableness thereof in the context of similar relationships for prior periods and other available information.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


4:42

Income and other taxes Performed by WP reference

Enquire from management as to the tax status of the entity. If there were any events, including disputes with taxation authorities, which could have a significant effect on the taxes payable by the entity. Examine correspondence in relation to any significant matters arising and assess whether events have been reflected appropriately in the financial report.

If the entity is not tax exempt, consider the tax expense in relation to the entity’s income for the period.

Enquire from management as to the adequacy of the recognised deferred and current tax assets and/or liabilities including provisions in respect of prior periods, if applicable.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Subsequent events Performed by WP reference

Obtain from management the latest financial report and compare it with the financial report being reviewed or with those for comparable periods from the preceding year.

Enquire about events after the end of the reporting period that would have a material effect on the financial report under review and, in particular, enquire whether:

• any substantial commitments or uncertainties have arisen subsequent to the end of the reporting period;

• any significant changes in the share capital, long-term debt or working capital have occurred up to the date of enquiry; and

• any unusual adjustments have been made during the period between the balance sheet reporting date and the date of enquiry.

Consider the need for adjustments or disclosure in the financial report.

Obtain and read the minutes of meetings of shareholders, those charged with governance and appropriate committees subsequent to the balance sheet date and consider any impact of the financial report and disclosures.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO


4:43

Litigation Performed by WP reference

Enquire from persons responsible for financial reporting, and where appropriate in-house litigation specialists, whether the entity is the subject of any legal actions – threatened, pending or in process. Consider the effect thereof on the financial report and any provision for loss.

Conclusion





Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO

YES / NO

Going concern assessment Performed by WP reference

Consider the going concern assumption. When events or conditions come to attention which cast significant doubt on the entity’s ability to continue as a going concern, perform additional procedures to assess the impact on the financial report and review report. Additional procedures may include:

• Discussion with those charged with governance to understand the events and circumstances that have contributed to the current situation to determine whether the risk arising can be mitigated.

• Plans for future actions, such as plans or intentions to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital.

• Feasibility of the plans and whether those charged with governance believe that the outcome of these plans will improve the situation.

Consider the adequacy of disclosure about such matters in the financial report.

Conclusion




Reviewed by: ___________________________

Date: __________________________________

YES / NO

YES / NO

YES / NO


4:44

Evaluation of misstatements Performed by WP reference

Ensure significant unadjusted differences have been summarised and their effect evaluated.

Ensure material adjustments identified are notified to management/those charged with governance (as appropriate).

Conclusion

Reviewed by: ___________________________

Written representations Performed by WP reference

Obtain written representation from the directors/management/those charged with governance (as appropriate) to confirm matters arising during the course of the review engagement.

Documentation Performed by WP reference

Ensure that review documentation is sufficient and appropriate to provide a basis for the conclusion and to provide evidence of compliance with ASRE 2410 or ASRE 2400.


4:45

Appendix 4H – Example review reportsIndependent review report – reporting Company


Report on the financial report

We have reviewed the accompanying annual financial report of [name of Company], which comprises the statement of financial position as at [year end date], the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration.


The directors of the company are responsible for the preparation of the annual financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of a financial report that is free from material misstatement, whether due to fraud or error.

Assurance practitioner’s responsibility

Our [my] responsibility is to express a conclusion on the financial report based on our [my] review. We [I] conducted our [my] review in accordance with Auditing Standard on Review Engagements ASRE 2415 Review of a Financial Report – Company Limited by Guarantee, in order to state whether, on the basis of the procedures described, we [I] have become aware of any matter that makes us [me] believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the company’s financial position as at [year end date] and its performance for the year ended on that date; and complying with the Australian Accounting Standards and Corporations Regulations 2001.

ASRE 2415 requires that we [I] comply with the ethical requirements relevant to the review of the financial report.

A review of a financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us [me] to obtain assurance that we [I] would become aware of all significant matters that might be identified in an audit. Accordingly, we [I] do not express an audit opinion.

Independence

In conducting our [my] review, we [I] have complied with the independence requirements of the Corporations Act 2001. We [I] confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of [name of company], would be in the same terms if given to the directors as at the time of this auditor’s report.

Conclusion

Based on our [my] review, which is not an audit, we [I] have not become aware of any matter that makes us [me] believe that the financial report of [name of company] is not in accordance with the Corporations Act 2001 including:


b) complying with Australian Accounting Standards and Corporations Regulations 2001.

______________________________________ ______________________________________


______________________________________

[Date]

______________________________________

[Address]


4:46

Independent assurance practitioner’s report – non-reporting company


Report on the financial report

We have reviewed the accompanying annual financial report of [name of Company], which comprises the statement of financial position as at [year end date], the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration.


The directors of the company are responsible for the preparation of the annual financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 to the extent noted in Note [X] and for such internal control as the directors determine is necessary to enable the preparation of a financial report that is free from material misstatement, whether due to fraud or error.

Assurance practitioner’s responsibility

Our [my] responsibility is to express a conclusion on the financial report based on our [my] review. We [I] conducted our [my] review in accordance with Auditing Standard on Review Engagements ASRE 2415 Review of a Financial Report – Company Limited by Guarantee, in order to state whether, on the basis of the procedures described, we [I] have become aware of any matter that makes us [me] believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the company’s financial position as at [year end date] and its performance for the year ended on that date; and complying with the Australian Accounting Standards and Corporations Regulations 2001.

ASRE 2415 requires that we [I] comply with the ethical requirements relevant to the review of the financial report.

A review of a financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us [me] to obtain assurance that we [I] would become aware of all significant matters that might be identified in an audit. Accordingly, we [I] do not express an audit opinion.

Independence

In conducting our [my] review, we [I] have complied with the independence requirements of the Corporations Act 2001. We [I] confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of [name of company], would be in the same terms if given to the directors as at the time of this auditor’s report.

Conclusion

Based on our [my] review, which is not an audit, we [I] have not become aware of any matter that makes us [me] believe that the financial report of [name of company] is not in accordance with the Corporations Act 2001 including:


b) complying with Australian Accounting Standards to the extent noted in note [x] and Corporations Regulations 2001.

Basis of accounting

Without modifying our conclusion, we draw attention to Note [x] to the financial report, which describes the basis of accounting. The financial report has been prepared for the purpose of fulfilling the directors’ reporting responsibilities. As a result, the financial report may not be suitable for another purpose.


4:47

______________________________________ ______________________________________


______________________________________

[Date]

______________________________________

[Address]

Appendix 4I – Sample qualification or emphasis of matter for a review reportThe most common amendments to Review Reports relate to controls over cash donations.

This appendix illustrates some example workings in relation to the matter.

Refer to GS019 for guidance in determining whether a modification or emphasis of matter is appropriate.

Review Report qualification

Basis for qualified conclusion

Receipts from cash donations and other cash fundraising activities are a significant source of revenue for the [name of Company]. The [name of Company] has determined that it is impracticable to establish control over the collection of donations and other fundraising activity revenue prior to entry in its financial records. Accordingly, as the evidence available to us about revenue from these sources was limited, our review procedures for donations and other fundraising activity revenue had to be restricted to the amounts recorded in the financial records. We therefore are unable to express an opinion on whether cash donations and other cash fundraising activity revenue obtained by the [name of Company] are complete.

Qualified conclusion

Except for the possible effects of the matter described in the Basis for Qualified Conclusion paragraph, based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the financial report of [name of Company] does not present fairly, the financial position of the [name of Company] at [year end date] and its financial performance and its cash flows for the year then ended in all material respects in accordance with the accounting policies described in Note 1 to the financial statements.

Emphasis of matter

We draw attention to Note [X] to the financial report which describes the revenue recognition policy of [name of Company] including the limitations that exist in relation to the recording of cash receipts from [name of source of fundraising revenue]. Revenue from this source represents a significant proportion of [name of Company’s] revenue. Our opinion is unmodified in respect of this matter.

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