Communication with Those Charged with Governance..... 74
Conformity with International Standards on Auditing...... 75
Appendix 1: Fair Value Measurements and Disclosures under Different Financial Reporting Frameworks
Preface
Reasons for Issuing Auditing Standard ASA 545 Auditing Fair Value Measurements and Disclosures
The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 545 Auditing Fair Value Measurements and Disclosures due to the requirements of the legislative provisions explained below.
The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (the CLERP 9 Act) established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, as from 1 July 2004. Under section 336 of the Corporations Act 2001, the AUASB may make Auditing Standards for the purposes of the corporations legislation. These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.
Main Features
This Auditing Standard:
(a) establishes mandatory requirements and provides explanatory guidance on auditing fair value measurements and disclosures contained in a financial report, including addressing audit considerations relating to the fair value measurement, presentation and disclosure of material assets, liabilities and specific components of equity;
(b) requires the auditor to understand the entity’s process for determining fair value measurements and disclosures and relevant control activities to identify and assess risk of material misstatement (paragraph 15);
(c) requires the auditor to determine whether there is a need to use an expert (paragraph 35);
(d) requires the auditor to endeavour to perform further audit procedures in response to assessed risks of material misstatement (paragraph 40); and
(e) requires the auditor to obtain management representations about the reasonableness of significant assumptions (paragraph 72).
Operative Date
This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.
Main changes from AUS 526 (September 2002) ) Auditing Fair Value Measurements and Disclosures
The main differences between this Auditing Standard and the Auditing Standard issued by the Auditing & Assurance Standards Board of the Australian Accounting Research Foundation, AUS 526 Auditing Fair Value Measurements and Disclosures (September 2002), are that in this Auditing Standard:
The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 526 by the word ‘should’.
The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 526 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been re-drafted to clarify that the matter forms part of explanatory guidance.
The following implied obligations in AUS 526, have been elevated and re-stated as a specific mandatory requirements:
(a) When disclosure of fair value information under the applicable financial reporting framework is omitted because it is not practicable to determine fair value with sufficient reliability, the auditor shall assess the adequacy of disclosures required in these circumstances (paragraph 68).
(b) If the entity has not appropriately disclosed fair value information required by the applicable financial reporting framework, the auditor shall determine whether the financial report is materially misstated by the departure from the applicable financial reporting framework (paragraph 69).
AUTHORITY STATEMENT
The Auditing and Assurance Standards Board (AUASB) makes Auditing Standard ASA 545 Auditing Fair Value Measurements and Disclosures as set out in paragraphs 1 to 75 and Appendix 1, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001.
This Auditing Standard is to be read in conjunction with the Preamble to AUASB Standards, which sets out the intentions of the AUASB on how the Auditing Standards are to be understood, interpreted and applied.
The mandatory requirements of this Auditing Standard are set out in bold-type paragraphs.