Advanced Audit and Assurance: Standards, Judgement and Reporting
The Advanced Audit and Assurance domain tests applied judgement across the audit cycle, with emphasis on Australian Auditing Standards (ASAs) issued by the AUASB, APES 110 independence, ASQM 1/ASA 220 quality management, and assurance engagements under ASAE 3000 and ASAE 3402. Scenarios are usually listed entities, groups or estimates-heavy businesses; the exam rewards the answer that identifies the standard, the threat or risk, and the specific response.
Core rules
- Quality and ethics. ASQM 1 governs the firm's system; ASA 220 applies to the engagement. Independence under APES 110 is assessed against threats (self-interest, self-review, advocacy, familiarity, intimidation) and safeguards; a safeguard cannot reduce a threat to an acceptable level if the threat is created by a prohibited non-assurance service for a PIE.
- Risk and response. ASA 315 requires understanding the entity and its IT environment, including general IT controls where relevant; significant risks need substantive procedures and are not addressed by tests of controls alone (ASA 330).
- Estimates and evidence. ASA 540 (revised) requires separate assessment of inherent risk for estimates, challenge of assumptions and data, and evaluation of disclosure; ASA 500/505/620 govern evidence, confirmations and experts.
- Reporting. ASA 700 forms the opinion; ASA 701 requires KAM for listed entities; ASA 705 modifies; ASA 720 deals with other information; ASA 570 requires a material uncertainty paragraph where relevant.
Worked example
A listed group has a 60%-owned overseas subsidiary audited by a local firm. Inventory includes a Level 3 fair value estimate. The group engagement partner proposes to rely on the component auditor without further involvement. Reasoning: ASA 600 makes the group partner responsible for direction, supervision and review. The partner must evaluate the component auditor's competence and independence, including whether the local firm operates under an equivalent quality management system, and must be involved in significant risks. The Level 3 estimate is a significant risk under ASA 540; the group team should evaluate the model, challenge assumptions, consider an auditor's expert under ASA 620, and assess disclosure. If going concern is also uncertain, ASA 570 applies separately.
Traps
- A KAM is not a qualification; it cannot replace a modified opinion under ASA 705.
- Delegating to a component auditor does not transfer responsibility from the group engagement partner.
- Treating management's expert as sufficient evidence without evaluating competence, objectivity and scope (ASA 620).
- Confusing a material uncertainty (ASA 570) with an inappropriate going concern basis (ASA 705).
- Overlooking APES 110 fee dependency and self-review threats when the firm provides valuation services.