A brief overview of ASIC's (#ASIC) top 10 focus issues for audit. Training delivered to junior staff by our qualified managers.

1. Audit Top 10 Focus Areas

2. Disclaimer
This document contains information in summary form and is therefore intended
for general guidance only. It is not intended to be a substitute for detailed
research or the exercise of professional judgement. It does not purport to be
comprehensive or to render professional advice. The reader should not act on
the basis of any matter contained in this publication without first obtaining
specific professional advice.
We believe that the statements made by us in this document are accurate but no
warranty of accuracy or reliability is given. Our conclusions are based on
interpretations of accounting standards and other relevant professional
pronouncements and legislation current as at the date of this document. Should
the interpretations, accounting standards, other relevant professional
pronouncements or legislation change, our conclusions may not be valid. We are
under no obligation to update the matters considered in this document after its
publication.
© Hanrick Curran, March 2013
All rights reserved
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professional Standards Legislation

3. About Hanrick Curran
•Our client base is mainly located in South East
Queensland, but also extends to Northern New
South Wales, Western Queensland, Sydney,
Melbourne, Darwin, Townsville and Mackay as
well as other regional areas.
•We have a strong position with clients in Papua
New Guinea and we also serve a growing Asian
business sector. While these international
connections may not be of immediate interest but
we believe they are important in enabling us to
effectively serve our clients.
Hanrick Curran’s Client Base

4. Your Presenters
– Bhavi Kumar CA
– Matthew Green CA
•Contact details: matthew.green@hanrickcurran.com.au
• 0447 724 595
• (07) 3218 3900
• Twitter: @matthewjgreenca
• LinkedIn: http://au.linkedin.com/in/matthewjgreenca
• www.hanrickcurran.com.au

5. What to achieve at end of this
presentation:
• Top 10 Areas that ASIC found audit firms need to improve in
• ASIC’s top 10 focus areas for 2013

6. Audit Top 10 Focus Areas
ASIC found three board areas requiring improvements by audit
firms:
1. The sufficiency and appropriateness of audit evidence
obtained by the auditor;
2. The level of professional scepticism
3. The extent of reliance that can be placed on the work of
other auditors and experts

7. Audit Top 10 Focus Areas
Some areas where ASIC found the above three matters were:
1. Impairment testing and fair value measurement
2. Going concern assessment
3. Substantive analytical procedures
4. Journal entry testing
5. Related party transactions
6. Subsequent event review
7. External confirmations
8. Consideration of the risk of fraud
9. Professional scepticism
10. Using the work of other auditors and experts

8. 1. Impairment Testing and Fair Value Measurement
 ASIC found that many auditors had not obtained sufficient appropriate audit
evidence to support the values of assets and liabilities in the financial report.
 In many instances the auditors did not adequately test discount rates, forecast
cash flows, growth rates and the number of cash generating units (CGUs) and
items such as working capital and tax losses

9. 2. Going Concern Assessment
 ASIC found that auditors had not made the correct going concern assumption or
whether an emphasis of matter paragraph was required.

10. 3. Substantive Analytical Procedures
 Auditors relied only on substantive analytical procedures for material balance and
other procedures such as test of controls or substantive tests of details were not
undertaken.
 Auditors did not investigate the difference between the expectation set and the
variances recorded on the balance
 Used simplistic analytical comparisons which did not satisfy the requirement of
auditing standards for designing and performing substantive analytical procedures.

11. 4. Journal Entry Testing
 This was a major concern as most files checked identified that no test of journal
entries was performed either throughout the year or at year end.

12. 5. Related Party Transactions
 As part of the audit, auditors are required to perform adequate audit procedures
to gain sufficient and appropriate audit evidence about all related party
transactions and ensure they are appropriately disclosed in the financial
statements.
 ASIC found that auditors did not adequately discuss and document related party
transactions with management at planning stage.
 In most cases auditors relied on related party transactions provided to them by
management without undertaking any additional work to determine if all related
party transactions have been identified.

13. 6. Subsequent Event Review
 ASIC noted many files did not indicate if any subsequent event review was
performed. An example of a subsequent review would be to look at financial
report post year end or monthly management accounts right before when
accounts are signed off and document if there appears to be any events post audit
that would cause concerns for the entity.

14. 7. External Confirmations
 ASIC found many instances where bank confirmations were not obtained for
material bank balances and no documentation was available on file as to why this
was the case.
 Therefore we recommend where no bank confirmation is obtained a file note is
placed on file disclosing the reasons behind why one was not obtained.

15. 8. Consideration of the Risk of Fraud
 Fraud risk is one of the most crucial items that need to be discussed with
management during the audit.
 ASIC in many instances found that auditors had not discussed with management
fraud risk and especially did not consider the risk of fraud for revenue recognition.
 Revenue recognition in the current environment is considered a very high risk
fraud area.

16. 9. Professional Scepticism
 Auditors need to maintain professional scepticism at all times during the audit.
This means that as auditors we need to make critical assessment with a
questioning mind about the validity of audit evidence obtained and management’s
judgement on accounting treatments and estimates.
 As per ASIC they identified insufficient professional scepticism was applied in
relation to fair value measurement, impairment testing and going concern
assessments.
 ASIC found many instances where auditor’s appeared:
 To have over relied on or readily acceptable to management explanation and representation without
challenging the underlying assumptions
 Not explored evidence in other parts of audit file which was inconsistent or contradictory and;
 Not considered the historical outcomes in assessing reasonableness of forecasts and assumptions
underlying management’s decision.

17. 10. Using the Work of Other Auditors and Experts
 When relying on the work of other auditors, we as auditors need to assess the
other auditor’s competence and objectivity and evaluate the appropriateness of
work performed by them.

18. What next???

19. ASIC’s Top 10 Focus Areas for 2013
1. Audit Evidence
2. Professional Scepticism
3. Reliance on Other Auditors and Use of Experts
4. Financial Reports
5. Fee Reductions
6. Audit Efficiency Measures
7. Business Models and Risk Assessments
8. Supervision and Review
9. Auditor Independence
10.Reporting Matters to ASIC

20. Case 1: Former Centro Auditor Suspended
 Mr Stephen John Cougle (Melbourne audit partner of Pricewaterhouse Coopers)
 Mr Cougle was the lead auditor for Centro Properties Group (CNP) and Centro
Retail Group (CER) for 2006-07 audit financial years
 Based on ASIC’s investigation ASIC formed a view that:
 There was not sufficient appropriate audit evidence in relation to the classification of interest
bearing liabilities in the financial reports and that it was not disclosed in accordance with paragraph
5 of Auditing Standards ASA 500 Audit Evidence.
 Financial report failed to properly classify as current approximately A$1.514 billion of interest bearing liabilities.
(Para 60 of AASB 101 Presentation of Financial Statements)
 Financial report failed to disclose A$600 million interest bearing liabilities correctly as current, instead classified
as non-current.
 The effect of subsequent events namely the After Balance Date Guarantees on the auditor’s report
was not adequately considered in accordance with paragraph 5 of Auditing Standards ASA 560
Subsequent Events.
 The financial report failed to disclose material events after reporting date, namely that CNP had given
substantial guarantees to lenders totalling in excess of US$2.8 billion
 The JP Morgan adjustment was not communicated to those charged with governance of CNP, or if
was communicated, Mr Cougle failed to ensure that appropriate audit evidence was documented
around the communication (Para. 5,15,22 and 26 of ASA 260 Communication of Audit Matter with
those charged with Governance.)

21. Case 1: Former Centro Auditor Suspended
Due to the above Mr Cougle has been suspended from practising as a registered
auditor until 30 June 2015. At the end of the conclusion of the audit he is required to
submit his first three audits for review by a registered company auditor approved by
ASIC.

22. Case 2: Former ABC Learning Centre Auditor
Suspended
 Mr Simon Andrew Peter Green (former partner Brisbane Pitcher Partners)
 Mr Green has been prevented from auditing companies for five years following an
investigation from ASIC into the collapse of ABC.
 ASIC formed the view that Mr Green failed to carry out or perform adequately and
properly the duties of an auditor for the following reasons:
i. Not sufficient appropriate audit evidence was obtained in relation to the correct accounting
treatment for various fees which resulted in a significantly material overstatement of ABC’s
revenue
ii. Support the classification of income items – there were various items not from the provision of
childcare services which were incorrectly classified as revenue which resulted in overstatement of
ABC’s revenue
iii. Enable a reasonably competent auditor to conclude that ABC was a going concern.
iv. Support his conclusions with regard to related party transactions, property plant and equipment,
wages and salaries
v. To support his opinion that ABC’s 2007 financial report was free of material misstatement.
vi. Adequately document the testing undertaken in respect to the risk of fraud.
vii. Develop audit procedures to deal with assessed risks.
viii. Perform sufficient and appropriate subsequent events procedures.
ix. Use professional judgement and scepticism when auditing ABC’s 2007 financial report.

23. Case 2: Former ABC Learning Centre Auditor
Suspended
Due to the above assessment Mr Green was suspended for 5 years.
Following conclusion of the period of suspension, he is required to submit his first five
audits for review by a registered company auditor approved by ASIC.

24. Case 3: North Parramatta Auditor Registration
Cancelled
 Mr Stuart Hamilton Cameron of KS Black & Co in North Parramatta had his
registration as an auditor cancelled after concerns that he was not a fit and
proper person to remain as an registered auditor.
 The enforceable undertaking also follows an investigation of Mr Cameron’s
audit of Citigold Corporation Limited (Citigold) for the financial year ended 30
June 2009.
 Citigold is a gold mining company in Charters Towers in Queensland.
 ASIC was concerned that Mr Cameron failed to ensure that a modified
auditor’s report should have been issued, as in ASIC’s view:
 The valuation of development property in the Citigold financial report was not in accordance
with the relevant accounting standards; and
 The Citigold financial report was materially misstated as Citigold subsequently reduced the
value of its development properties by $80,043,376 in its financial report for the half-year
ended 31 December 2009. Citigold described the change in accounting policy on moving into
commercial production, such that Mr Cameron should have issued an adverse opinion for
material non-compliance with an accounting standards.

25. Case 3: North Parramatta Auditor Registration
Cancelled
 ASIC was concerned that Mr Cameron failed to ensure that there was adequate
planning and risk assessment procedures performed for the Citigold audit and that
there was sufficient appropriate audit evidence regarding the $82 million
Exploration, Evaluation and Development expenditure included in the Citigold
financial report.

26. Thank you

27. Hanrick Curran
t. (07) 3218 3900
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