The following paragraph 6 is inserted following existing paragraph 5:
Some of the requirements set out in the ASQMs are applicable only to audits of financial reports of publicly traded entities, reflecting significant public interest in the financial condition of these entities due to the potential impact of their financial well-being on stakeholders. (Ref: Para. A3–A4)
The following paragraph 7 is inserted following the new paragraph 6:
Stakeholders have heightened expectations regarding an audit engagement for a publicly traded entity because of the significance of the public interest in the financial condition of the entity. The purpose of the requirements in the ASQMs that apply to audits of financial reports of publicly traded entities is to meet these expectations, thereby enhancing stakeholders' confidence in the entity's financial reports that can be used when assessing the entity's financial condition. (Ref: Para. A3–A7)
Existing paragraph Aus 10.1 is amended to read as follows:
In applying a risk-based approach, the firm is required to take into account:
(a) …
Accordingly, the design of the firm’s system of quality management, in particular the complexity and formality of the system, will vary. For example, a firm that performs different types of engagements for a wide variety of entities, including audits of financial reports of listedpublicly traded entities, will likely need to have a more complex and formalised system of quality management and supporting documentation, than a firm that performs only reviews of financial reports or agreed-upon procedures engagements.
Existing sub-paragraph 16(j) is deleted:
Listed entity – An entity whose shares, stock or debt are quoted or listed on a recognised stock exchange, or are marketed under the regulations of a recognised stock exchange or other equivalent body.
The following sub-paragraph 16(p) is inserted following existing paragraph Aus 16.7:
Publicly traded entity – An entity that issues financial instruments that are transferrable and traded through a publicly accessible market mechanism. including through listing on a stock exchange. A listed entity as defined by relevant securities law or regulation is an example of a publicly traded entity.
For purposes of the ASQMs:
(i) If law, regulation or professional requirements define more explicitly a publicly traded entity in a specific jurisdiction, the firm applies that more explicit definition. For example, law, regulation or professional requirements may define publicly traded entities for purposes of defining entities that are considered public interest entities, by making reference to specific public markets for trading securities, incorporating exemptions for specific types of entities, or setting size criteria.
(ii) When terms other than publicly traded entity are applied to entities by law, regulation or professional requirements to meet the purpose described in paragraphs 6 and 7, such terms are regarded as equivalent to “publicly traded entity”.
Existing paragraph 34 is amended to read as follows:
In designing and implementing responses in accordance with paragraph 26, the firm shall include the following responses: (Ref: Para. A116)
(a) …
(e) The firm establishes policies or procedures that: (Ref: Para. A124–A126)
(i) Require communication with those charged with governance when performing an audit of a financial report of listedpublicly traded entities about how the system of quality management supports the consistent performance of quality audit engagements; (Ref: Para. A127–A129)
(ii) …
(f) The firm establishes policies or procedures that address engagement quality reviews in accordance with ASQM 2, and require an engagement quality review for:
(i) Audits of financial reports of listedpublicly traded entities;
(ii) …
The following paragraph A3 is inserted following existing paragraph A2:
The firm may determine that there are entities other than publicly traded entities where stakeholders have heightened expectations regarding the audit engagement, reflecting significant public interest in the financial condition of those entities. Therefore, the firm may also apply one or more requirements set out in an ASQM for audits of financial reports of publicly traded entities to the audits of such other entity(ies). Paragraphs A4–A7 may be relevant in this regard.
The following paragraph A4 is inserted following the new paragraph A3:
The extent of public interest in the financial condition of an entity may, for example, be affected by:
The nature of the business or activities, such as taking on financial obligations to the public as part of the entity's primary business.
Whether the entity is subject to regulatory supervision designed to provide confidence that the entity will meet its financial obligations.
Size of the entity.
The importance of the entity to the sector in which it operates including how easily replaceable it is in the event of financial failure.
Number and nature of stakeholders including investors, customers, creditors and employees.
The potential systemic impact on other sectors and the economy as a whole in the event of financial failure of the entity.
The following paragraph A5 is inserted following the new paragraph A4:
[Deleted by the AUASB. Refer Aus A5.1]
Aus A5.1 Law, regulation or professional requirements, including relevant ethical requirements, may define or designate an entity(ies) as a "public interest entity" or may use terms other than "public interest entity" to describe entities in which there is a significant public interest in their financial condition. For example, the APESB Code has identified certain categories of public interest entity, including:
An entity one of whose main functions is to take deposits from the public;
An entity one of whose main functions is to provide insurance to the public; or
An entity specified as such by law, regulation or professional standards to meet the purpose described in paragraph 400.15 of the Code.
The Code provides for the categories to be more explicitly defined or added to as described in paragraphs 400.23 A1 and 400.23 A2 of the Code.
The following paragraph A6 is inserted following the new paragraph A5:
In addition, those responsible for setting law, regulation or professional requirements may also designate categories of "public interest entities". Depending on the facts and circumstances in a specific jurisdiction, such categories may include:
Superannuation funds.
Collective investment vehicles.
Private entities with large numbers of stakeholders (other than investors).
Not-for-profit organisations or governmental entities.
Public utilities.
The following paragraph A7 is inserted following the new paragraph A6:
The firm may also consider the following factors in determining whether it may be appropriate to apply one or more requirements in an ASQM for audits of publicly traded entities to the audit of another entity(ies):
Whether the entity is treated as a public interest entity for purposes of relevant ethical requirements, including those related to independence.
Whether the entity is likely to become a publicly traded entity in the near future.
Whether in similar circumstances, the firm has applied the differential requirements for publicly traded entities to other entities.
Whether the entity has been specified as not being a publicly traded entity by law, regulation or professional requirements.
Whether the entity or other stakeholders requested the firm to apply the differential requirements for publicly traded entities to the entity and, if so, whether there are any reasons for not meeting this request.
The entity's corporate governance arrangements, for example, whether those charged with governance are distinct from the owners or management.
Whether in similar circumstances, a predecessor firm has applied differential requirements for publicly traded entities to the entity.
Existing paragraph A128 is amended to read as follows:
ASA 260 deals with the auditor’s responsibility to communicate with those charged with governance in an audit of a financial report, and addresses the auditor’s determination of the appropriate person(s) within the entity’s governance structure with whom to communicate21 and the communication process.22 In some circumstances, it may be appropriate to communicate with those charged with governance of entities other than listedpublicly traded entities, including those where the firm determines that there is significant public interest in the financial condition of those entities (see paragraph A3) (or when performing other engagements). Examples of such entities may include financial institutions (such as banks, insurance companies and superannuation funds) and other entities such as not-for-profit organisations, for example, entities that may have public interest or public accountability characteristics, such as:
Entities that hold a significant amount of assets in a fiduciary capacity for a large number of stakeholders including financial institutions, such as certain banks, insurance companies, and superannuation funds.
Entities with a high public profile, or whose management or owners have a high public profile.
Entities with a large number and wide range of stakeholders.
Existing paragraph A132 is amended to read as follows:
The firm uses professional judgement in determining, in the circumstances, the appropriate form of communication with the external party, including communication with those charged with governance when performing an audit of a financial report of listedpublicly traded entities, which may be made orally or in writing. Accordingly, the form of communication may vary.
…
Existing paragraph A133 is amended to read as follows:
This ASQM requires an engagement quality review for audits of financial reports of publicly traded entities. Law or regulation may also include explicit requirements to perform an engagement quality review to be performedfor certain entities, for example, for audit engagements for entities that:
Are public interest entities as defined in a particularspecific jurisdiction;
…
Existing paragraph A134 is amended to read as follows:
The firm’s understanding of the conditions, events, circumstances, actions or inactions that may adversely affect the achievement of the quality objectives, as required by paragraph 25(a)(ii), relates to the nature and circumstances of the engagements performed by the firm. In designing and implementing responses to address one or more quality risk(s), the firm may determine that an engagement quality review is an appropriate response based on the reasons for the assessments given to the quality risks.
Examples of conditions, events, circumstances, actions or inactions giving rise to one or more quality risk(s) for which an engagement quality review may be an appropriate response
Those relating to the types of engagements performed by the firm and reports to be issued:
…
Those relating to the types of entities for which engagements are undertaken:
…
Entities other than listed entities that may have public interest or public accountability characteristics, for example:Entities other than publicly traded entities if the firm determines that there is significant public interest in the financial condition of those entities (see paragraph A3) for which an engagement quality review is not otherwise required by law or regulation. Examples of such entities may include financial institutions (such as banks, insurance companies and superannuation funds) and other entities such as not-for-profit organisations.
o Entities that hold a significant amount of assets in a fiduciary capacity for a large number of stakeholders including financial institutions, such as certain banks, insurance companies, and superannuation funds for which an engagement quality review is not otherwise required by law or regulation.
Entities with a high public profile, or whose management or owners have a high public profile.
o Entities with a large number and wide range of stakeholders.
Existing paragraph A151 is amended to read as follows:
Examples of matters in paragraph 37 that may be considered by the firm in selecting completed engagements for inspection
In relation to the conditions, events, circumstances, actions or inactions giving rise to the quality risks:
o The types of engagements performed by the firm, and the extent of the firm’s experience in performing the type of engagement.
o The types of entities for which engagements are undertaken, for example:
Entities that are listedpublicly traded entities.
…
Existing paragraph A166 is amended to read as follows:
The nature, timing and extent of the procedures undertaken to understand the root cause(s) of an identified deficiency may also be affected by the nature and circumstances of the firm, such as:
…
Examples of how the nature of identified deficiencies and their possible severity and the nature and circumstances of the firm may affect the nature, timing and extent of the procedures to understand the root cause(s) of the identified deficiencies
The nature of the identified deficiency: The firm’s procedures to understand the root cause(s) of an identified deficiency may be more rigorous in circumstances when an engagement report related to an audit of a financial report of a listedpublicly traded entity was issued that was inappropriate or the identified deficiency relates to leadership’s actions and behaviours regarding quality.