3. The audit or review of an
association
3. The audit or review of an association Audit or review of an incorporated association: Overview
Key definitions
Audit or review approach
Acceptance and continuance
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Planning the audit or review
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Business understanding, associated risks and financial statement assertions
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Reporting 3:6
Annual reporting requirements
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Audit and review reports
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Appendices3:8
Appendix 3A – Summary requirements of each Incorporated Associations legislation
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Audit appendices:
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Appendix 3B – Example engagement letter – audit of an association 3:21
Appendix 3C – Example audit programs
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Appendix 3D – Example committee written representation
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Appendix 3E – Example unmodified auditor’s reports 3:39
Appendix 3F – Sample audit qualification or emphasis of matter 3:43
Review appendices:
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Appendix 3G – Review engagement letter
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Appendix 3H – Example review programs
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Appendix 3I – Example review reports
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Appendix 3J – Sample qualification or emphasis of matter for a review report
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3. The audit or review of an association
Audit or review of an incorporated association: Overview
This chapter details the specific auditing and review requirements applicable to associations and should be read in
conjunction with Chapter 1 – Overview of audit and review engagements.
Associations may be incorporated or unincorporated (for example, professional association, sports association,
trade association, association incorporated under the relevant state Incorporated Associations Act).
The Victorian Incorporated Associations Act was amended from 26 November 2012 and now allows certain
associations to elect for a review rather than an audit and therefore this chapter includes information on reviews for
these entities. Assurance providers should confirm the association is eligible for a review prior to using the review
guidance.
Specific guidance on the requirements of each state legislation in relation to Incorporated Association can be
found in Appendix 3A and in the CPA Australia guide Incorporated Associations: Reporting and auditing
obligations (December 2012).
Key definitions
Association
An association, society, club, institution or body formed or carried on for any lawful purpose,
which has no fewer than five members.
Incorporated
association
An association that is incorporated under state and territory associations’ incorporation
legislation, which is not administered by ASIC, but by the various state authorities.
Incorporated associations are separate legal entities, separate from the individual members.
Incorporated Associations are regulated by different authorities under state legislation but
generally they:
• have a committee, responsible for managing the association;
• have a public officer and notify the relevant authority in each state of any changes in that
position;
• have a registered office in their state of incorporation;
• act in accordance with their objects and rules;
• hold an annual general meeting once every calendar year;
• lodge an annual statement every year;
• keep proper accounting records and (in some states) prepare, have audited (or reviewed)
and lodge financial statements;
• keep minutes of all committee and general meetings;
• keep registers of members and all committee members;
• have a common seal;
• are capable of being sued or suing;
• have the power to acquire or hold property.
Appendix 3A to this guide provides more detailed information on the requirements of specific
state legislation.
Unincorporated A number of people grouped together by a common purpose with club-like characteristics,
for example, a sporting club, social club or trade union. They have the following
association
characteristics:
• there are members of the association;
• the members will normally be free to join or leave the association;
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3. The audit or review of an
association
• the association will normally continue in existence independently of any change to the
composition of the association;
• as a matter of history, there will have been a moment in time when a number of persons
combined to form the association;
• there is a contract (which can fall short of a legally enforceable contract) binding the
members among themselves; and
• there is a constitutional arrangement for meetings of members and for appointing officers.
Audit or review approach
The methodology documented in Chapter 1 should be followed for the audit or review of an Association, however
specific information relating to Associations to assist with the engagement has been described below.
Acceptance and continuance
Unincorporated associations
Any requirement for an audit or review of the association’s financial report will be contained in the association’s
constitution or ‘special rules’, the Auditor should review these rules to confirm:
• their eligibility to act as auditor;
• that the scope/reporting requirements are appropriate; and
• that the rules will allow the engagement to be performed in accordance with Auditing Standards.
Incorporated associations
Each state legislation contains specific guidance on who is eligible to act as auditor for an Incorporated
Association. Potential auditors should review the legislation prior to consenting to act as an auditor.
Scope of audit
In some cases, there may be no legal requirement for an audit but an audit may be required by another party such
as a bank or peak industry body. In these cases, auditors should clearly establish the scope of the audit.
Planning the audit or review
Understanding the business
Areas to consider include reliance on donations, turnover of key personnel, and the voluntary nature of
membership. A further key factor could be declining membership.
Regulatory background
An unincorporated association is usually governed by its constitution, although in some cases it may not have one.
It has no separate legal status and consequently the members can be personally liable without limits.
Interface with government bodies
Incorporated associations are likely to have significant interaction and reporting obligations to government
agencies with government bodies.
For example, a kindergarten 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.
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Some areas of high inherent risk where potential control deficiencies should be identified in an incorporated
association 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.
The table below shows areas where the Auditor/Reviewer needs to have an understanding of the Association 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.
Business understanding, associated risks and financial statement
assertions
The table below includes the most common areas financial statement risks faced by Associations, 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 Association
Risks
Financial statement assertions
• What types of bank accounts
does the Association maintain?
• Some bank accounts are not
accounted for.
• Completeness.
• How often are the bank
accounts changed?
• Cash transactions around year
end are not included in the
correct period.
• Accuracy.
• Liquidity problem are being
disguised.
Tested as part of the cash program.
Cash balances
• What is the bank reconciliation
process?
• Who can withdraw funds?
• Cutoff.
• Rights and obligations.
• Cash is being misappropriated.
Revenue, receipts and receivables
• What revenue streams does the
Association receive?
• Revenue is recorded in the
wrong period.
• Completeness.
• What form are the revenue
received in – i.e. cash/direct
deposit/credit cards?
• Cash donations are misplaced
or lost through fraud or theft.
• Accuracy of sales.
• What level of revenue is
comprised of cash donations?
• Valuation of receivables.
• Revenue recognition policy is
not appropriate – significant risk. Tested as part of the revenue,
receivables and cash programs.
• Receivables are recoverable.
• Does the Association 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?
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• Fictitious revenue is recorded.
• Occurrence.
• Cut-off.
3. The audit or review of an
association
Obtaining an understanding of
the Association
Risks
Financial statement assertions
• Funds provided under the terms
of the grant have not been
properly accounted for.
• Existence.
Grant income
• What grants are received by the
Association?
• What are the terms and
conditions of the grant?
• Has there been any breach of
any terms/conditions during the
year?
• Money has not been spent
appropriately and therefore may
need to be returned.
• Accuracy.
• Cut-off.
Tested in the grant funds program.
• Terms or conditions of the grant
have been breached.
• The grant revenue has not been
accounted for in accordance
with Accounting Standards/the
Association’s accounting policy.
Purchases, payments and creditors
• Which goods/services does the
Association purchase?
• Goods have been received but
not invoiced.
• Completeness.
• What is the approval and
payment process for
purchases?
• Payments are made in respect
of fictitious goods or services.
• Cut-off.
• Are there any preferred
suppliers?
• How are creditors normally paid
– cheque, direct deposit?
• Purchases are not recorded or
are duplicated.
• Existence.
• Accuracy.
• Purchases/payments are
recorded in the wrong period.
• Recorded creditors do not
represent all amounts owed
for goods and services by the
Association.
Non-current assets (i.e. property, plant and equipment)
• Have there been any impairment • Existence.
indicators during the year which • Valuation.
may indicate that the assets are
• Have there been any significant
• Rights and obligations.
carried at too high a value?
acquisitions/disposals during the
Tested in the property, plant and
• Fixed assets that have been
year?
equipment program.
mislaid, misappropriated or
• Have any valuations been
discarded are still recorded in
performed during the year?
the accounting records.
• What non-current assets are
held by the Association?
• 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.
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Obtaining an understanding of
the Association
Risks
Financial statement assertions
• Fictitious employees are paid.
• Accuracy.
• Improper or unauthorized
amounts are paid.
• Existence.
Payroll
• How many staff are on the
payroll?
• What is the system for:
+ Adding new employees
+ Removing employees
• On-costs are not appropriately
recorded.
These are tested through the payroll
audit program.
+ Changing details of
employees
+ Processing the payroll
+ Calculating leave
entitlements.
Investments
• Why does the Association 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.
• Valuation.
• Completeness.
• All investments which are owned • Rights and obligations.
by the Association are recorded.
Tested in the investments program.
• Profit/loss on sale have not been
recorded correctly.
• Changes in market value
have not been accounted for
correctly.
Inventory
• What inventory is held by the
Association?
• What is the inventory used for –
i.e. given away or sold?
• How is the inventory valued?
• Inventory is over-valued.
• Valuation.
• There is no provision for slow
moving/unsaleable stock.
• Existence.
• Inventory is sold/given-away and
has not been recorded as such.
• How does the Association
identify inventory that should be
written down?
Reporting
Annual reporting requirements
The reporting requirements of an unincorporated association will be detailed in the association’s individual
constitution and will vary from one association to another. Typically, the following information will be required to be
submitted to the members at the annual general meeting:
• a statement of receipts and payments or a statement of income and expenditure during the financial year;
• a statement of assets and liabilities at the end of the financial year; and
• a president’s report and a treasurer’s report for the financial year.
Examples of the reporting requirements for each state and territory under the respective associations incorporation
Acts are included in Appendix 3A.
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3. The audit or review of an
association
Audit and review reports
Example audit and review reports are provided in the Appendices.
The form and content of the audit report will vary, depending on the legislative requirements of each State or
Territory and whether the entity is a reporting or non-reporting entity. For example, legislation in some States
requires that the financial report give a ‘true and fair view’ while others require the report to ‘present fairly’. These
factors affect the form and content of the audit report. This issue is also addressed in the section ‘Annual reporting
requirements’ above.
Where cash transactions such as donations, fundraising or kiosk takings are material to the activities of the
association, 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
AUASB, covers planning, internal control and reporting considerations in this situation. Refer to Chapter 4 for more
information on the requirements of GS 019.
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Appendices
The appendices for Chapter 3 are:
Appendix 3A – Summary requirements of each Incorporated Associations legislation.
Audit appendices:
• Appendix 3B – Audit engagement letter.
• Appendix 3C – Example audit programs.
• Appendix 3D – Example management representation letter (may also be used for a review).
• Appendix 3E – Example audit reports.
• Appendix 3F – Sample qualification/emphasis of matter.
Review appendices:
• Appendix 3G – Review engagement letter.
• Appendix 3H – Example review programs.
• Appendix 3I – Example review reports.
• Appendix 3J – Sample qualification/emphasis of matter.
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3. The audit or review of an
association
Appendix 3A – Summary requirements of each Incorporated Associations legislation
This appendix summarises the significant financial reporting and auditing requirements from the relevant
Incorporated Association legislation throughout Australia.
The details below are not exhaustive, and audit and assurance providers should ensure a thorough understanding
of the legal framework that they are reporting on and the format of their report.
Whenever reference is made to reports such as ‘income and expenditure statement’ or ‘assets and liabilities
statement’, these are generic terms for the statement of comprehensive income and statement of financial
position, depending on whether the appropriate legislation requires adherence to the standards or specifies these
terms for reporting.
Further, the actual format and content of the audit or review report may be specified in the appropriate legislation.
Note: Audit and assurance providers should confirm that there have been no changes to these requirements.
This information is a summary only and is not a substitute for reading the appropriate legislation.
Australian Capital Territory (ACT)
Relevant legislation
• Associations Incorporation Act 1991.
• Associations Incorporation Regulations 1991.
<www.legislation.act.gov.au>.
Financial report
format and contents
• Financial statements that give a true and fair view of:
+ Income and expenditure
+ Assets and liabilities
• Description of any mortgages, charges and other securities affecting any property
• The information above for any trusts of which the association is a trustee.
Report of the committee including:
• names of committee members throughout the year and reporting date (if different)
• principal activities and significant changes in activities in the year and
• net profit/loss for the year.
Mandatory audit
Audit required if:
• Gross receipts > $150,000 OR
• Gross assets > $150,000 OR
• Prescribed association:
+ number of members > 1,000 OR
+ holding of liquor licence.
Auditor
Audit can be conducted by:
• CPA Australia member
• Chartered Accountant
• Member of the Institute of Public Accountants
• Registered Company Auditor.
Note: If the association is prescribed then it must be audited by a Registered
Company Auditor.
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Audit opinion
An auditor must for a prescribed association, in a report under this section, state:
a) whether the accounts are in the auditor’s opinion properly drawn up:
i. so as to give a true and fair view of matters required by section 72 (2) to be
dealt with in the accounts; and
ii. in accordance with the provisions of this Act; and
iii. in accordance with proper accounting standards.
Timing of AGM
Within 5 months after financial year end.
First AGM must be within 18 months of the date of incorporation.
Annual return
lodgement timing
Within 6 months after financial year end.
Lodge with certificate signed by two committee members certifying that the
provisions of the Act in relation to the annual report and audit have been complied
with.
New South Wales (NSW)
Legislation
• Associations Incorporation Act 2009 No 7.
• Associations Incorporation Regulation 2010.
Information available on:
<http://www.fairtrading.nsw.gov.au/Cooperatives_and_associations/Associations.
html>
<http://www.fairtrading.nsw.gov.au/pdfs/Cooperatives_and_associations/
associations/Regulatory_guide_A1.pdf>.
Tiers of Associations
Tier 1 Association
• Gross annual receipts > $250,000 or
• Current assets (assets other than real property or assets capable of depreciation)
> $500,000.
Tier 2 Association
NSW Incorporated Association which is not a Tier 1 association.
Financial report
format and contents
Tier 1: Financial statements prepared in accordance with Accounting
Standards:
• Income statement
• Statement of comprehensive income
• Statement of financial position
• Statement of changes in equity
• Cash flow statement.
Details of any mortgages, charges and other securities affecting any property owned
by the association.
Accounts disclosing the above for any trusts of which the association is a trustee.
Reduced disclosures for Tier 1 associations with revenue < $2m
Tier 1 associations are only required to disclose the following:
• A statement of income and expenditure and a balance sheet setting out
appropriately classified and detailed sources of income and applications of
expenditure and assets and liabilities
• Statements of movements in equity
• A statement of accounting policies.
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3. The audit or review of an
association
The recognition, measurement and classification of transactions are to be in
accordance with AASB 1048 Interpretation of Standards, while changes in
accounting policies, estimates or errors must be reported in accordance with AASB
108 Accounting Policies, Changes in Accounting Estimates and Errors.
In addition, where the association has a trust, they must:
• Prepare the financial statements for a trust for which it acts as trustee in
accordance with the requirements above
• Prepares a consolidated statement of income and expenditure and balance sheet
which consolidates its investments in subsidiaries (excepts for trusts).
Financial statements for Tier 2 associations
The financial statements prepared by a Tier 2 association include the following:
• an income and expenditure statement and
• a balance sheet
that sets out the appropriately classified individual sources of income and individual
expenses incurred in the operation of the association and the assets and liabilities of
the association,
• details of any mortgages, charges and other securities affecting any property
owned by the association
• a separate income and expenditure statement and balance sheet for each trust
for which the association is the trustee.
Mandatory audit
Contingent on size.
Mandatory audit for ‘Tier 1’ associations, i.e. with:
• gross annual receipts > $250,000
• current assets (assets other than real property and capable of depreciation) >
$500,000.
Auditor
If audited must be by a Registered Company Auditor or public practice certificate
holder of:
• CPA
• CA
• IPA.
For an audit carried out by a non-registered company auditor, the auditor’s report
must record whether the auditor is a member of The ICAA, CPA Australia or the NIA
and holds a public practice certificate issued by one of those bodies.
Unless approved by Director-General, audit may not be carried out by person who,
within the last 2 years, is or has been:
• member of the association
• employee or provider of professional services to association, committee member
or public officer. S52(2).
An auditor of a Tier 1 association is exempt from the independence requirements of
section 52(2) of the Associations Incorporation Act 2009 provided that:
• the audit of the association is carried out in accordance with the code of
conduct relating to independence in APES 110 Code of Ethics for Professional
Accountants issued by the Accounting Professional and Ethics Standards Board,
and
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• the auditor’s report for the financial statements for the association includes an
auditor’s independence declaration as follows:
+ as auditor for the audit of … (name of association) for the financial year ended
… (date), I declare that, to the best of my knowledge and belief, there have
been no contraventions of the code of conduct relating to independence
in APES 110 Code of Ethics for Professional Accountants issued by the
Accounting Professional and Ethical Standards Board.
Audit opinion
For Tier 1 entities: The auditor’s report:
a) must be prepared in accordance with the Australian Auditing Standards, and
b) must state whether the association has kept such financial records as are
necessary to enable financial statements to be prepared in accordance with the
Australian Accounting Standards.
Timing of AGM
Within 6 months after financial year end.
First AGM must be within 18 months of the date of incorporation and within 6 months
after the first financial year end.
Northern Territory (NT)
Legislation
• Northern Territory Incorporated Associations Act 2008.
• Northern Territory Associations Regulations 2010.
<http://www.nt.gov.au/justice/licenreg/baal/club_assoc.shtml>.
Tiers
Tier 1 criteria: not Tier 2 or Tier 3
Tier 2 criteria:
• gross receipts >$25,000 or
• gross assets > $50,000 or
• licence under Gaming Machine Act, or
• prescribed incorporated association or a member of a class of prescribed
incorporated associations.
Tier 3 criteria:
• gross receipts > $250,000 or
• gross assets > $500,000 or
• declaration under section 101 made.
Financial report
format and contents
The statement of accounts must not be misleading and must give a true and fair
account of:
• income and expenditure
• assets and liabilities
• mortgages, charges or other securities of any description affecting property of the
association
• the information above for each trust of which the association was the trustee.
Report of the committee including:
• names of committee members throughout the year and at reporting date, if
different
• principal activities and any significant changes in activities in the year and
• net profit/loss for the year.
Mandatory audit
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Mandatory audit for Tiers 1, 2 and 3.
3. The audit or review of an
association
Auditor
Auditor depends on Tier of incorporated association:
For Tier 1 associations, audit can be conducted by a person who is not:
• a member of the association
• the spouse or de facto partner or a business partner, employer or employee of a
member of the association or
• the spouse or de facto partner or a business partner of an employee of a member
of the association.
For Tier 2 associations, audit can be conducted by person who is a:
• member of one of the professional bodies:
+CPA
+ ICAA
+ IPA
• Holder of qualifications in a prescribed class of qualifications or
• Approved by the Commissioner.
For Tier 3 associations, audit can be conducted by person who:
• Holds a public practice certificate issued by:
+CPA
+ ICAA or
+ IPA
• Is approved by the Commissioner.
For Tier 3 associations which have a section 101 declaration, audit must be
conducted by RCA.
Audit opinion
The form of the opinion depends on the tier of the association:
For Tier 3 associations
a) whether the accounts are in the auditor’s opinion properly drawn up:
i. so as to give a true and fair view of matters required by section 42(2) to be
dealt with in the accounts
ii. in accordance with this Act and
iii. in accordance with applicable Australian accounting standards
b) if, in the auditor’s opinion, the accounts have not been drawn up in accordance
with the applicable accounting standards:
i. whether, in the auditor’s opinion, the accounts would, if drawn up in
accordance with the applicable accounting standards, have given a true
and fair view of the matters required by section 42(2) to be dealt with in the
accounts
ii. if, in the auditor’s opinion, the accounts would not, if so drawn up, have given
a true and fair view of those matters – the auditor’s reasons for being of that
opinion and
iii. if subparagraph (ii) does not apply – particulars of the quantified financial effect
on the accounts of the failure to so draw up the accounts
c) if, in the auditor’s opinion, there are reasonable grounds to believe the association
will be able to pay its debts when they fall due
d) the defects or irregularities in the accounts identified during the audit
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e) the matters that, because they are not set out in the accounts, prevent a true and
fair view of the accounts being obtained and
f) if the auditor is not so satisfied about a matter referred to in paragraphs (a) to (c),
the auditor’s reasons for not being so satisfied.
Timing of AGM
Within 5 months after financial year end.
First AGM must be within 18 months of date of incorporation.
Queensland
Legislation
• Queensland: Associations Incorporation Act 1981.
• Associations Incorporation Regulations 1999.
<http://www.legislation.qld.gov.au/Acts_SLs/Acts_SL.htm>.
Tiers
Level 1 Association:
• Current assets (i.e. total assets less property and other assets capable of
depreciation) > $100,000 or
• Revenue > $100,000.
Level 2 Association:
• Not a level 1 or level 3 association.
Level 3 Association:
• Current assets < $20,000 OR
• Revenue < $20,000.
Financial report
format and contents
A set of financial statements for an incorporated association in Queensland,
means a statement that presents fairly the following particulars:
a) the association’s income and expenditure during the financial year to which the
statement relates
b) the association’s assets and liabilities as at the end date of the financial year to
which the statement relates
c) the mortgages, charges and securities affecting the association’s property as at
the end date of the financial year to which the statement relates.
Mandatory audit
Audits mandatory for all associations, except for Level 3 association’s not covered by
the Collections Act 1966, Gaming Machine Act 1991 or other law.
Auditor
Tier 1 associations and Level 2 or 3 associations who are required to have an audit
under the Collections Act 1966, Gaming Machine Act 1991 or other law are required
to be audited by an Auditor or Accountant, i.e. one of the following:
• CPA Australia member
• Chartered Accountant
• Member of the Institute of Public Accountants
• Registered Company Auditor
• A person who the chief executive considers has appropriate qualifications.
A Tier 2 association not subject to one of the laws covered above can be audited by
an auditor/accountant or an approved person.
A person must not audit a financial statement for an incorporated association if the
person is:
a) the secretary, or a member of the management committee, of the incorporated
association or
b) an employee of the incorporated association or
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3. The audit or review of an
association
c) a partner, employer, or employee of the secretary, or a partner, employer or
employee of a member of the management committee, of the incorporated
association; or
d) a spouse of a person mentioned in paragraph (a), (b) or (c); or wholly or partly
dependent on a person mentioned in paragraph (a), (b) or (c).
Audit opinion
For Level 1 associations and Level 2 or 3 associations required to have an audit
under the Collections Act 1966, Gaming Machine Act 1991 or another law, the
opinion states:
The form of the Auditor’s opinion is not specified.
Other Level 2 associations not covered by one of the acts above
A statement signed by an auditor, an accountant, or an approved person, that:
a) the person has sighted the association’s financial records and
b) the association’s financial records show that the association has bookkeeping
processes in place to adequately record the association’s income and expenditure
and dealings with its assets and liabilities.
Timing of AGM
Within 6 months after financial year end.
First AGM must be within 18 months of the date of incorporation.
South Australia
Legislation
• Associations Incorporation Act 1985.
• Associations Incorporation Regulations 2008.
<http://www.ocba.sa.gov.au/associations/>.
Prescribed
association
An association who has gross receipts > $500,000 (which is the amount prescribed
by the Regulations).
Financial report format and contents
A prescribed association is required to prepare accounts that present fairly:
• Either:
+ Statement of receipts and payments based on the cash method of accounting
and a statement of assets and liabilities
or
+ Statement of income and expenditure based on the accrual method of
accounting and balance sheet
• A statement made in accordance with a resolution of the committee of the
association and signed by two or more members of the committee:
i. stating whether or not:
A. the accounts present fairly the results of the operations of the association
for the financial year and the state of affairs of the association as at the end
of the financial year; and
B. the committee has reasonable grounds to believe that the association will
be able to pay its debts as and when they fall due; and
ii. giving particulars:
A. of any body corporate that is a subsidiary of the association within
the meaning of section 46 of the Corporations Act 2001 of the
Commonwealth; and
B. of any trust of which the association is a trustee.
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2013
• The committee of a prescribed association must cause a report of the committee
to be made in accordance with a resolution of the committee and signed by
two or more members of the committee, stating in relation to each officer of the
association:
a) whether or not, during the financial year to which the accounts relate:
i. the officer; or
ii. a firm of which the officer is a member; or
iii. a body corporate in which the officer has substantial financial interest,
has received or become entitled to receive a benefit as a result of a contract
between the officer, firm or body corporate and the association, and if so the
general nature of the benefit;
b) whether or not, during the financial year to which the accounts relate, the
officer has received directly or indirectly from the association any payment or
other benefit of a pecuniary value, and if so the general nature and extent of
that benefit.
Mandatory audit
Only for prescribed associations.
Auditor
• CPA
• CA
• RCA
• Other person approved by the Commission.
Auditors opinion
In respect of accounts consisting of an account of income and expenditure and a
balance sheet, whether or not the auditor is satisfied that these accounts are drawn
up so as to present fairly:
i. the results of the association’s activities for the association’s financial year and
ii. the financial state of the association at the end of the association’s financial year
or
In respect of accounts consisting of an account of receipts and payments and a
statement of assets and liabilities, whether or not the auditor is satisfied that these
accounts present fairly:
i. the results of the association’s activities for the association’s financial year and
ii. the financial state of the association at the end of the association’s financial year
notwithstanding that the accounts may not have been prepared on the accrual
method of accounting and
Whether the auditor has examined the accounts and auditors’ reports of:
i. each body corporate that is a subsidiary of the association within the meaning of
section 46 of the Corporations Act 2001 of the Commonwealth and
ii. each trust of which the association is a trustee
and the conclusions drawn from the examination, and
Whether the auditor has obtained all of the information and explanations that he or
she required from the association.
Timing of AGM
Within 5 months after financial year end.
First AGM must be within 18 months of the date of incorporation.
3:16
3. The audit or review of an
association
Tasmania
Legislation
• Associations Incorporation Act 1964.
• Associations Incorporation Regulations 2007.
<http://www.consumer.tas.gov.au/business_affairs/incorporated_associations>.
Financial report
format and contents
Preparation of true and fair accounts of the association.
Mandatory audit
Yes, although an association can seek an exemption from the audit requirement if:
• the association has total revenue in any financial year of $40,000 or less
• total assets of $40,000 or less not including real property such as land and real
estate
• a three quarter majority of members have voted in favour of not having the
associations accounts audited
• the association has provision in their rules for a minimum number of members to
requisition a special general meeting. Section 12(2) of the model rules reads: The
committee, on the requisition in writing of at least 10 members of the Association,
is to convene a special general meeting of the Association.
Auditor
• Registered Company Auditor or
• A person, such as the Commissioner, having regard to the complexity of the
financial affairs of the association, may approve.
Audit opinion
A report by the auditor on the accounts of the Association stating:
• whether the association has, in the opinion of the auditor, kept proper accounting
records and other books during the period covered by those accounts
• such statements as in the opinion of the auditor are adequate to explain its
financial transactions for that financial year and its financial position at the end of
that financial year.
Timing of AGM
Within 6 months of the end of the reporting period (or 3 months if not otherwise
stated in the Association’s constitution).
Victoria: Periods ending before 30 June 2013
Legislation
• Associations Incorporation Act 1981.
• Associations Incorporation Regulations 2009.
<http://www.consumer.vic.gov.au/CA256EB5000644CE/page/Incorporated
+associations?OpenDocument&1=85Incorporated+associations~&2=~&3=~>.
Prescribed
association
Prescribed association, an association:
a) that has gross receipts in that association’s previous financial year in excess of
$200 000 or such other amount as is prescribed by regulation or
b) that has gross assets in excess of $500 000 or such other amount as is
prescribed by regulation; or
c) that is prescribed or of a class prescribed by regulation.
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Small entities audit manual
2013
Financial report
format and contents
Financial statements in accordance with relevant accounting standards, including:
• Income and expenditure statement
• Assets and liabilities statement
• Description of any mortgages, charges and other securities affecting the assets
• Accounts disclosing the above for any trusts of which the association is a trustee
• Details of any trust, held on behalf of the association by a third party, in which
funds or assets of the association are placed
• Committee members’ direct or indirect pecuniary interest in a contract.
Mandatory audit
For prescribed associations only.
Auditor
Auditor of a prescribed association must be:
• RCA
• CA
• CPA
• Person approved by the Registrar.
Timing of AGM
Within 5 months after financial year end.
First AGM must be within 18 months of the date of incorporation.
Victoria: Periods ending on or after 30 June 2013
Legislation
Associations Incorporation Reform Act 2012.
Associations Incorporation Reform Regulations 2012.
<http://www.consumer.vic.gov.au/resources-and-education/legislation/legislation-weadminister#a>.
Tiers of Association
Tier 1: revenue < $250k.
Tier 2: revenue between $250k and $1m.
Tier 3: revenue > $1m.
Revenue is calculated based on total income for all activities during the last financial
year, before any expenses are deducted.
Financial reporting
and contents
All associations must prepare financial statements which contain:
• income and expenditure for your association’s financial year
• the balance sheet (assets and liabilities) at the end of its financial year
• any mortgages, charges and securities affecting any property of the association at
the end of its financial year
• for each trust your association was a trustee of during any part of its financial year:
– income and expenditure of the trust during that period
– assets and liabilities of the trust during that period
– any mortgages, charges and securities affecting any property of the trust at
the end of that period
– details of any trust holding association funds or assets, held on its behalf by
another person or body.
Once the committee is satisfied with the financial statements, two committee
members must certify that the financial statements give a ‘true and fair’ view of the
association’s financial position and performance.
3:18
3. The audit or review of an
association
Mandatory audit
Tier 1 associations have a review if at a general meeting, a majority of the members
vote to do so or directed to do so by the Registrar.
Tier 2 associations are required to have a review (unless their rules state an audit
must be performed).
Tier 3 associations are required to have an audit by an independent auditor.
Auditor
Your association’s financial audit must be done by:
• a registered company auditor or firm
• a member of CPA Australia or the Institute of Chartered Accountants in Australia,
or
• someone approved by the Registrar of Incorporated Associations for this
purpose; for example, a member of the Institute of Public Accountants who holds
Professional National Accountant status.
The auditor must not be:
• a member of the association’s committee
• an employer or an employee of a member of the committee
• a member of the same partnership as a member of the committee
• an employee of the association.
Audit opinion
Review/Audit report to:
• be prepared in accordance with Auditing Standards (on Review Engagements);
and
• state whether the financial records kept by the association are such as to enable
financial statements to be prepared in accordance with Australian Accounting
Standards.
Timing of AGM
Within 5 months after the end of the financial year.
Western Australia
Note: The WA Associations Incorporation Act 1987 is under review. A draft Associations Incorporation Bill 2006
had not yet been enacted at the time of publication. Please check for updates prior to using this information.
Legislation
• Associations Incorporation Act 1987.
• Associations Incorporation Regulations 1988.
<http://www.commerce.wa.gov.au/ConsumerProtection/Content/Business/
Associations/>.
Financial report
format and contents
No requirement to lodge accounts and financial statements on a regular basis.
Requirements are to:
• keep true and accurate accounting records that explain the financial transactions
and the financial position of the association in a manner that can be conveniently
and properly audited; and
• submit accounts at each AGM showing either:
• statement of receipts and payments
• statement of the assets and liabilities
or
• statement of income and expenditure
• balance sheet.
Mandatory audit
No – if audit is performed then opinion to be attached.
3:19
Small entities audit manual
2013
Auditor
N/A.
Timing of AGM
Within 4 months after end of financial year.
First AGM within 18 months of becoming incorporated.
3:20
3. The audit or review of an
association
Audit appendices:
Appendix 3B – Example engagement letter – audit of an association
If this is used for an unincorporated association then reference to relevant legislation should be removed, otherwise
the specific state legislation name should be inserted for Incorporated Associations.
[Date]
[Contact name]1
[Position]
[name of Association]
[Address]
Dear [contact name]
ENGAGEMENT AS AUDITORS [UNDER STATE RELEVANT LEGISLATION, IF APPLICABLE]
You have requested that we audit the financial statements of [name of Association] 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 fairly the results of the Association for the reporting
period and the financial position of the Association 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;
1 The contact should be the appropriate representative of management or those charged with governance.
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Small entities audit manual
2013
ii. Additional information that we may request from the directors and management for the purpose of the
audit; and
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 Association.
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 Association] in connection with the audit and that [name of
Association] 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 Association] 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 Association 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.
3:22
3. The audit or review of an
association
Presentation of Auditing Financial Statements on the internet
If [name of Association] 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 Association to maintain the
integrity of the data presented. The examination of the controls over the electronic presentation of audited financial
information on the Association web site is beyond the scope of the audit of the financial statements. Responsibility
for the electronic presentation of the financial statements on the Associations 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 Association]’s financial statements.
Signed for and on behalf of the members by:
_____________________________________
[Signature]
_____________________________________
[Name]
_____________________________________
[Title]
_____________________________________
[Date]
3:23
Small entities audit manual
2013
Appendix 3C – Example audit programs
The sample audit programs below provide guidance to auditors on the audit tests which may be performed on the
audit of an association.
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 small
incorporated associations. 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
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
association’s special rules, 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.
3:24
Performed by
WP reference
3. The audit or review of an
association
Income (excluding grant income) and cash receipts
Performed by
WP reference
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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 association’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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
3:25
Small entities audit manual
2013
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Grant monies
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.
3:26
Performed by
WP reference
3. The audit or review of an
association
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).
8. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Tests completed?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: <<name>>
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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Small entities audit manual
2013
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.
9. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Investments
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.
3:28
Performed by
WP reference
3. The audit or review of an
association
Investments
Performed by
WP reference
6. Confirm the income earned from the investments to supporting
documentation.
7. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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.
9. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
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Small entities audit manual
2013
Inventory
Performed by
WP reference
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Property, plant and equipment
Performed by
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:
i. classification and description of amounts
ii. accounting principles for appropriateness and consistency.
11.Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
3:30
WP reference
3. The audit or review of an
association
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:
i. classification and description of amounts
ii. accounting principles for appropriateness and consistency.
8. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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.
6. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Profit and loss review
Performed by
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.
6. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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WP reference
3. The audit or review of an
association
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.
4. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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.
4. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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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.
3. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Going concern
Performed by
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.
6. Additional procedures needed as determined by the auditor to obtain
sufficient, appropriate audit evidence.
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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WP reference
3. The audit or review of an
association
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.
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 3D – Example committee written representation2
This letter may be used for audits and reviews.
This letter should be tailored to the specific circumstances of the Association and has been prepared using the
following assumption:
• The requirements of ASA 570 and ASA 710 to obtain a written representation is not relevant.
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 Association 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 Association]
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 standards [and the
Incorporated Associations Act in the relevant state, if applicable].
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 is fairly presented 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 Association 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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association
• 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 Association 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 association.
• Allowances for depreciation have been adjusted for all significant items of property, plant and equipment that
have been abandoned or are otherwise unusable.
• The association 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.
Yours sincerely,
_____________________________________
[Committee of Management Representatives – Chair/Treasurer]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.
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3. The audit or review of an
association
Appendix 3E – Example unmodified auditor’s reports
Reporting entity i.e. general purpose financial statements
Reference – ASA 700 – Illustration 1
Independent audit report
To the members of [name of association]
We have audited the accompanying financial report of [name of association], 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 [those charged with governance]4
assertion statement.
[Those charged with governance] responsibility for the financial report
[Those charged with governance] of [name of association] are responsible for the preparation and fair presentation
of the financial report in accordance with Australian Accounting Standards and [Incorporated Associations
legislations, where applicable] and for such internal control as [those charged with governance] determine
is necessary to enable the preparation and fair presentation of a financial report that are 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 assessment,
the auditor considers internal control relevant to the Associations preparation and fair presentation 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. An audit also includes evaluating the
appropriateness of the accounting policies used and the reasonableness of accounting estimates made by [those
charged with governance], 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 Australian professional
accounting bodies.
Electronic publication of the audited financial report5
It is our understanding that the [name of association] 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 association] website is that of [those charged with governance]of the [name of association].
The security and controls over information on the website should be addressed by the [name of association] 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 association] website is beyond the scope of the audit of the financial
report.
4 Insert the relevant persons, e.g. committee, members.
5 This paragraph should be deleted if the audit report is not being included on the entity’s website.
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Opinion
In our opinion, the financial report of [name of association] presents fairly, in all material respects the [name of
association] financial position as at [year end], and of its financial performance and its cash flows for the year then
ended in accordance with Australian Accounting Standards [and Incorporated Association legislation].
_____________________________________
_____________________________________
[Signature]
Certified Practising Accountant
[partner name]
Partner
___________________
[Date]
______________________________________
[Auditor’s address]
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3. The audit or review of an
association
Non-reporting entity i.e. special purpose financial statements
Reference ASA 800 – Illustration 5
Independent audit report
To the members of [name of association]
We have audited the accompanying financial report, being a special purpose financial report, of [name of
association], 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 cash flow statement for the year then ended,
notes comprising a summary of significant accounting policies and other explanatory information and the [those
charged with governance]6 assertion statement7.
[Those charged with governance] responsibility for the financial report
[Those charged with governance] are responsible for the preparation and fair presentation of the financial report
and have determined that the basis of preparation described in Note 1 is appropriate to meet [the requirements
of the [relevant Incorporated Associations Act and]] the needs of the members. The [those charged with
governance]’s responsibility also includes such internal control as [those charged with governance] determine
is necessary to enable the preparation and fair presentation of a financial report that 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 Association’s preparation of the financial report 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 [those charged with
governance], 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.
Independence8
In conducting our audit, we have complied with the independence requirements of the Australian professional
accounting bodies.
Electronic publication of the audited financial report9
It is our understanding that the [name of association] 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 association] website is that of those charged with governance of the [name of association].
The security and controls over information on the website should be addressed by the [name of association] 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 association] website is beyond the scope of the audit of the financial
report.
6 Insert the relevant persons, e.g. Committee, Members.
7 Or other appropriate term.
8 Insert if an independence declaration is to be provided.
9 This paragraph should be deleted if the audit report is not being included on the entity’s website.
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Opinion
In our opinion, the financial report presents fairly, in all material respects, the financial position of [name of
association] as at [year end] and of its financial performance and its cash flows for the year then ended on that
date and complies with Australian Accounting Standards to the extent described in Note 1.
Basis of accounting
Without modifying our opinion, we draw attention to Note 1 to the financial report, which describes the basis of
accounting. The financial report has been prepared for the purpose of fulfilling [those charged with governance]
reporting responsibilities. As a result, the financial report may not be suitable for another purpose.
_____________________________________
_____________________________________
[Signature]
Certified Practising Accountant
[partner name]
Partner
___________________
[Date]
______________________________________
[Auditor’s address]
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3. The audit or review of an
association
Appendix 3F – 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 association]. The [name of association] 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 association] 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 association] presents fairly 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 association] 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
Association] 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 Association’s]
revenue. Our opinion is unmodified in respect of this matter.
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Review appendices:
Appendix 3G – Review engagement letter
[Date]
[Contact name (the chair or treasurer)]
[Position]
[Association name]
[Address]
Dear [contact name]
REVIEW OF [NAME OF ASSOCIATION]
Scope
You have requested that we review the financial report of [name of Association] 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]
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 Association] is not prepared, in all material respects, in accordance with the applicable financial reporting
framework [and name of Incorporated Association state legislation]. 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 Association] 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
• the scale of the business significantly changing
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3. The audit or review of an
association
• 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 Association] financial report.
Signed for and on behalf of the members by:
_____________________________________
[Signature]
_____________________________________
[Name]
_____________________________________
[Title]
______________
[Date]
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Appendix 3H – Example review programs
This sample review engagement program is aimed at providing guidance to assurance practitioners on the steps
involved in the review of an association. 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
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.
3:46
Performed by
WP reference
3. The audit or review of an
association
General
Performed by
WP reference
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 shareholders, those charged
with governance 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 shareholders or those charged with
governance 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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General
Performed by
WP reference
Conclusion
Program completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Revenue and Receivables
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 noncurrent 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.
3:48
Performed by
WP reference
3. The audit or review of an
association
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Investments
Performed by
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
3:50
WP reference
3. The audit or review of an
association
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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.
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Loans payable
Performed by
WP reference
Conclusion
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Trade payables
Performed by
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
3:52
WP reference
3. The audit or review of an
association
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
Subsequent events
Performed by
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
3:54
WP reference
3. The audit or review of an
association
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Audit differences raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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
Audit programs completed?
YES / NO
Matters for the completion memo?
YES / NO
Management letter points raised?
YES / NO
Reviewed by: ___________________________
Date: __________________________________
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Evaluation of misstatements
Performed by
WP reference
Performed by
WP reference
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
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
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.
3:56
3. The audit or review of an
association
Appendix 3I – Example review reports
Independent review report – reporting association
To the members of [name of Association]
Report on the financial report
We have reviewed the accompanying annual financial report of [name of Association], 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 [those charged with governance]10
assertion statement.
[Those charged with governance]11 Responsibility for the financial report
[Those charged with governance] of the Association 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 Associations
Incorporation Act (state), if applicable]. This responsibility 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.
Assurance practitioner’s responsibility
Our responsibility is to express a conclusion on the financial report based on our review. We conducted our
review in accordance with Auditing Standard on Review Engagements ASRE 2400 Review of a Financial Report
Performed by an Assurance Practitioner who is not the Auditor of the Entity, in order to state whether, on the
basis of the procedures described, anything has come to our attention that causes us to believe that the financial
report is not presented fairly, in all material respects, in accordance with the Australian Accounting Standards.
ASRE 2400 requires us to comply with the requirements of the applicable code of professional conduct of an
accounting body.
A review of an annual 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 to obtain assurance that we would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Australian professional
accounting bodies.
Conclusion
Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that
the annual financial report of [name of Association] does not present fairly, in all material respects, the [name of
Association]’s financial position as at [year end date] and of its financial performance and its cash flows for the year
ended on that date in accordance with the Australian Accounting Standards.
______________________________________
______________________________________
[Signature]
Certified Practising Accountant
[Partner name]
Partner
______________________________________
[Date]
______________________________________
[Address]
10 Or identify the individual component of the financial report when appropriate.
11 Insert the relevant persons, e.g. committee, members.
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Independent assurance practitioner’s report – non-reporting association
To the members of [name of Association]
Report on the financial report
We have reviewed the accompanying annual financial report of [name of Association], 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 [those charged with governance]12
assertion statement.
[Those charged with governance]13 Responsibility for the financial report
[Those charged with governance] of the Association are responsible for the preparation of the annual financial
report that gives a true and fair view in accordance with Australian Accounting Standards to the extent noted in
Note [x][and the Associations Incorporation Act (state), if applicable]. This responsibility 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.
Assurance practitioner’s responsibility
Our responsibility is to express a conclusion on the financial report based on our review. We conducted our
review in accordance with Auditing Standard on Review Engagements ASRE 2400 Review of a Financial Report
Performed by an Assurance Practitioner who is not the Auditor of the Entity, in order to state whether, on the basis
of the procedures described, anything has come to our attention that causes us to believe that the financial report
is not presented fairly, in all material respects, in accordance with the Australian Accounting Standards to the
extent noted in Note [1].
ASRE 2400 requires us to comply with the requirements of the applicable code of professional conduct of an
accounting body.
A review of an annual 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 to obtain assurance that we would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Australian professional
accounting bodies.
Conclusion
Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that
the annual financial report of [name of Association] does not present fairly, in all material respects, the [name of
Association]’s financial position as at [year end date] and of its financial performance and its cash flows for the year
ended on that date in accordance with the Australian Accounting Standards as noted in note [x].
12 Or identify the individual component of the financial report when appropriate.
13 Insert the relevant persons, e.g. committee, members.
3:58
3. The audit or review of an
association
Basis of accounting
Without modifying our conclusion, we draw attention to Note 1 to the financial report, which describes the basis
of accounting. The financial report has been prepared for the purpose of fulfilling [those charged with governance]
reporting responsibilities. As a result, the financial report may not be suitable for another purpose.
______________________________________
______________________________________
[Signature]
Certified Practising Accountant
[Partner name]
Partner
______________________________________
[Date]
______________________________________
[Address]
3:59
Appendix 3J – Sample qualification or emphasis of matter for a review report
The 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 association]. The [name of association] 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 association] 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 Association] does not present fairly, the financial position of the [name of Association] 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
Association] 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 Association’s]
revenue. Our opinion is unmodified in respect of this matter.