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Differences between proposed APS 5 and existing APS 4 and 5

By Tracy Kennedy,2014-05-19 22:03
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APES 320: Quality Control for Firms was issued in July 2006, superseding APS 4 and both the revised 2005 and original 1982 versions of APS 5.

Additional requirements of APES 320

APES 320: Quality Control for Firms was issued in July 2006, superseding APS 4 and both

    the revised 2005 and original 1982 versions of APS 5. Firms are required to comply with the

    revised standard as follows:

    ? firms which do not conduct the audit of any disclosing entities or of any APRA-regulated

    or other non-ATO-regulated superannuation entities have until 31 December 2006 to

    apply APES 320. Until this time they are required to comply with APS 4 and APS 5 (May

    1982 versions)

    ? all other firms were required to apply APES 320 from 1 July 2006, and were required to

    apply revised APS 5 from 31 December 2005

APES 320 is substantially similar to revised APS 5, other than additional requirements for

    documentation and the replacement of the word ‘should’ with ‘must’ to correlate to the

    changes in auditing standards.

APES 320: Quality Control for Firms contains more definitions than the previous 1982 quality

    control standards APS 4 and 5. It is also principles rather than rules based. Therefore there

    are changes in wording that could, in certain circumstances, result in a change in

    interpretation. The changes detailed summarise the impact of the application of APES 320.

    Practices may find additional changes to their individual quality control manuals and

    procedures resulting from the changes in wording.

The changes listed in the Tables 1 and 2 are those required by firms changing from the 1982

    versions of APS 4 and 5 to APES 320, being firms which do not conduct the audit of any

    disclosing entities or of any APRA-regulated or other non-ATO-regulated superannuation

    entities. Table 3 summarises the changes from revised APS 5 to APES 320, for firms that

    implemented revised APS 5 from 31 December 2005 and APES 320 from 1 July 2006.

Table 1 Changes applicable to all firms

    Additional requirements in APES Ref- Impact 320 compared to APS 4 and 5 APES

    (1982) 320

    A firm’s system of quality control 3 None envisaged. Firms currently do must be established to provide this to comply with all relevant reasonable assurance that the firm requirements. has complied with regulatory and

    legal requirements (as well as

    professional standards).

    Quality control policies and 8 Significant for firms that do not procedures must be documented currently have a quality control and communicated to the firm’s manual. personnel.

    Documentation required to evidence 94 Most firms use checklists, file notes the operation of each element of the etc, but these may not be integrated

    quality control system. with the procedures in the quality

     control manual. Quality control policies and 9 Although firms take this approach, procedures to promote an internal and policies and procedures may need to

    culture based on quality and throughbe reviewed to explicitly address these adherence to ethical principles. out issues.

    Firm’s policies and procedures to 14 Quality control policies and procedures provide reasonable assurance that may need to be reviewed to explicitly

    the firm and its personnel comply address Code. with relevant ethical requirements,

    including APES 110 Code of Ethics

    for Professional Accountants.

    Previously required to comply with

    F.1 Independence.

Firm required to communicate 18 Inclusion in quality control policies and

    independence requirements to procedures new, but firms should have

    personnel, and to identify threats to been adopting this approach to comply

    independence and related with F.1 action/safeguards.

Documentation required where 28 Not previously required, although

    issues identified in relation to client many firms require this. acceptance/continuation decision.

    Policies and procedures required to 34 Not previously required, although address situation where firm obtains many firms require this. information that would have caused

    it to decline a client during

    engagement.

Policies and procedures required for 42 Although firms take this approach,

    selection of engagement partner and policies and procedures may need to

    communication of their role. be reviewed to explicitly address these

     issues.

Consultations within or outside the 51 Not previously required, although

    firm must be documented. many firms require this.

    Firm must establish policies and 73a Firms may not have a formal procedures for timely completion of procedure in place. engagement files

Firm must establish policies and 73d Firms may not have a formal

    procedures to maintain the procedure in place. confidentiality, safe custody,

    integrity, accessibility and retrievably

    of engagement documentation

Firm must establish policies and 73i Many firms have policy and

    procedures for retention of procedures, but may not be

    engagement documentation for documented. appropriate time

    Policies and procedures must 89 Not previously required, although address complaints and allegations. some firms require this.

Table 2 Additional requirements for assurance practices

As well as the additional requirements listed above, assurance practices will also have to

    adopt the requirements listed in the box below.

    Additional requirements for Ref- Impact assurance practices in APES 320 APES

    compared to APS 4 and 5 (1982) 320

    Detailed policies and procedures 19-23 Firms previously not required to required relating to independence: address this in their policies and

    procedures, although many firms ? Engagement partners to provide require this. information on independence to the practice, including any Note: APES 110 (and previously F.1) independence breaches and CLERP 9 are already operative ? Annual written confirmation of and required detailed consideration of compliance with independence audit independence. F.1 paragraph policies and procedures 1.19 required documentation of all ? Policies and procedures setting threats to independence that are not out criteria for determining clearly insignificant. APES 110 safeguards to reduce familiarity paragraph 290.27 contains similar threat when using the same requirements. The Institute has senior personnel on an prepared an Independence checklist assurance engagement, members may purchase to assist with including rotation for listed implementing the independence clients requirements.

    Policies and procedures must 57-58 Not previously required, although

    address dealing with differences of many firms require this.

    opinion, and the report must not be

    issued until the matter is resolved.

    Policies and procedures must 60-73 Not previously required, although address engagement quality review many firms require this. Mirrors (second partner review) including: requirements at engagement level in

    AUS 206. ? When a review is required

    ? Qualifications of reviewer

    ? Review approach

    ? Documentation

The review must be conducted

    before the report is issued.

    Detailed requirements and 78-85 More detailed requirements than associated guidance on monitoring currently. the quality control system, including:

    Small firms currently unlikely to be ? Three yearly inspection of implementing formal inspection and engagements file for each monitoring process. partner (guidance)

    ? Policies and procedures to

    address deficiencies noted

    during the monitoring process

Table 3 Additional requirements for practices that had applied revised APS 5 and are

    now applying APES 320

APES 320 is substantially the same as revised APS 5. The key differences between the two

    standards are:

    ? the word ‘should’ has been changed to ‘shall’ ? additional requirements relating to documentation.

    Additional requirements for in Ref- Impact APES 320 compared to revised APES

    APS 5 (2005) 320

    Use of word ‘shall’ rather than through Clarifies that the requirements are

    ‘should’ out mandatory.

    Firm must establish policies and 73a Firms may not have a formal procedures for timely completion of procedure in place. engagement files

    Firm must establish policies and 73d Firms may not have a formal procedures to maintain the procedure in place. confidentiality, safe custody,

    integrity, accessibility and retrievably

    of engagement documentation

    Firm must establish policies and 73i Many firms have policy and procedures for retention of procedures, but may not be engagement documentation for documented. appropriate time

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