House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 6 Reporting and record keeping

Outline of chapter

6.1 This Chapter outlines a new 'report-once, use-often' general reporting framework for registered entities.

6.2 This Chapter explains:

•

the record keeping obligations of registered entities; and

•

the reporting requirements that apply to registered entities.

Summary of new law

6.3 ACNC will be responsible for regulating charities from 1 October 2012. One element of this is a new general reporting framework.

6.4 All registered entities will be required to provide an annual information statement. The first annual information statement will be in respect of the 2012-13 financial year, and will need to be lodged with the ACNC by 31 December 2013, unless a substituted accounting period applies.

6.5 Only medium and large entities will be required to provide annual financial reports to the ACNC. Large entities will be required to have their financial reports audited, while medium entities can choose to either have a review or an audit.

6.6 The proposed framework will strike a balance between minimising the compliance burden placed on registered entities, while ensuring appropriate accountability and transparency.

6.7 The Government will consult further on the content requirements of financial reports and implement these through regulations. Registered entities will be required to prepare their first financial reports for the 2013-14 financial year, with the first financial reports due by 31 December 2014, unless a substituted accounting period applies.

Detailed explanation of new law

Reporting requirements for registered entities

Record-keeping

6.8 Registered entities are required to keep records that correctly record and explain its transactions, and the financial position and performance of the entity. [Subsection 55-5(1)]

6.9 These records must be thorough enough to enable true and fair financial statements to be prepared and audited. [Paragraph 55-5(1)(b)]

6.10 Registered entities must also keep records that correctly record its operations. [Subsection 55-5(2)]

6.11 These records must enable a proper assessment of the entity's:

•

entitlement to be, and to remain, registered as a type or sub-type. This assessment is undertaken by the Australian ACNC Commissioner;

•

the entity's compliance with the Bill and regulations. This assessment is undertaken by the ACNC Commissioner; and

•

compliance with any taxation law. This assessment is undertaken by the Commissioner of Taxation.

6.12 This assessment is known as a recognised assessment activity. The requirements in the Bill that entities keep records, and report on the basis of these records, are to enable such assessments to be conducted. [Section 55-10]

6.13 In undertaking such an assessment, the ACNC Commissioner will assess the adequacy of records maintained to enable an assessment of compliance with any taxation law. However, the ACNC Commissioner is not required to assess compliance with any taxation law, as this function will continue to be performed by the Commissioner of Taxation.

6.14 The records must be in English, or readily accessible and easily convertible into English. That is, if the records are not in written form (for example, if they are in an electronic medium such as a computer disc or USB), they must be in a form which is readily accessible and convertible into English by way of a computer program. [Subsection 55-5(3)]

6.15 This allows registered entities to store their records electronically.

6.16 Entities should ensure the conversion of electronic records to a compatible format when upgrading or changing data-processing capabilities.

6.17 These records must be retained by the entity for seven years after the transactions, operations or acts covered by the records are completed (unless the ACNC Commissioner notifies the entity that they do not need to retain their records). [Subsections 55-5(4) and (5)]

6.18 Failure of the entity to maintain and keep adequate records constitutes an offence by the registered entity, and carries a penalty of 20 penalty units. [Subsection 55-5(6)]

6.19 The offence is one of strict liability. Strict liability is the legal responsibility for damages, or injury, even if the person found strictly liable was not at fault or negligent. [Subsection 55-5(7)]

6.20 The use of strict liability for penalties is consistent with the Commonwealth guide for framing offences. Strict liability penalties provide a strong incentive to adopt measures to comply with the requirements. In this case, imposing strict liability is an effective way of ensuring compliance with an obligation to keep financial records.

6.21 The penalty of 20 penalty units is comparatively low when compared to penalties imposed on for-profit entities for similar offences.

6.22 Twenty penalty units currently equates to $2,200.

Proportional reporting requirements - revenue thresholds

6.23 In order to minimise the compliance burden placed on registered entities, reporting requirements under the Bill are proportional to the size of registered entities, based on a revenue threshold. There are three tiers for small, medium and large entities.

6.24 A small registered entity is an entity with annual revenue of less than $250,000. [Subsection 205-25(1)]

6.25 A medium registered entity is an entity with annual revenue of less than $1 million that is not a small registered entity. [Subsection 205-25(2)]

6.26 A large registered entity is an entity with annual revenue of $1 million or more. [Subsection 205-25(3)]

6.27 Revenue is calculated in accordance with the relevant accounting standards issued by the Australian Accounting Standards Board [subsection 205-25(4)] . More information on the accounting standards can be found at www.aasb.gov.au.

6.28 The ACNC Commissioner has the discretion to treat an entity as either small, medium or large for a financial year. [Subsection 205-25(5)]

6.29 To exercise this discretion the ACNC Commissioner must be of the opinion that the entity, while not that size for one financial year, has been that size in the past, and is likely to return to that size in following financial years.

6.30 This allows the ACNC Commissioner to take a flexible approach, where, for example, a one-off financial event would require an entity to meet the reporting requirements of a higher tier for a single year. This ensures that an unnecessary compliance burden is not placed on registered entities.

Example 6.21

For the past ten years the Food Fabulous Foundation has had annual revenue of between $400,000 and $500,000 per year, and as such has reported as a medium entity every year.

The Foundation receives a bequest of $900,000 in one financial year, meaning that it would fall under the definition of a large entity for that year.

Under these rules, the ACNC Commissioner may exercise his or her discretion and allow Food Fabulous to report in line with the requirements for a medium entity for that year, including having its report reviewed rather than audited.

In the following financial year the Foundation has annual revenue of $415,000 and reports as a medium entity.

Information statements

6.31 NFP entities generally operate for a broad public benefit, and are relied on by many Australians, often by those individuals who are the most vulnerable in our community.

6.32 NFPs play a unique role in Australia, and as a result are funded by governments, both directly and indirectly, and by donations from members of the public. This unique role means that governments often afford them special treatment by way of exemptions, concessions and benefits from a range of laws and fees.

6.33 It is therefore appropriate that registered entities have some level of accountability to the public and meet community expectations about the behaviour of entities in receipt of public monies and support.

6.34 All registered entities will be required to provide the ACNC Commissioner with an information statement for each financial year [Subsection 60-5(1)] . The first annual information statement will be in respect of the 2012-13 financial year, and will need to be lodged with the ACNC by 31 December 2013, unless a substituted accounting period applies (further information on substituted accounting periods is provided below).

6.35 The information will be used to carry out recognised assessment activities, including whether entities remain entitled to be registered by the ACNC, and can continue to access exemptions, concessions and other benefits for which registration is a necessary pre-condition (for example, tax concessions).

6.36 Information statements must be submitted in the approved form. This means that the ACNC Commissioner can decide what information needs to be provided and the way it needs to be provided. [Section 60-5]

6.37 The ACNC can be expected to require information relating to such things as governance, finances, activities, purposes, objects and beneficiaries of the registered entity.

6.38 The information statement may be proportional, with the ACNC Commissioner able to approve different forms for small, medium and large registered entities. [Subsection 60-5(1)(note)]

6.39 The information statement must be prepared and lodged with the ACNC Commissioner no later than six months after the registered entity's reporting year. This requirement aligns with the maximum times for lodgement of such reports under existing NFP regulation, to facilitate a smooth transition for charities to the ACNC. The ACNC Commissioner may defer the lodgement date if the circumstances require it. [Subsection 60-5(2) and section 190-15]

6.40 Failure to provide an information statement to the ACNC Commissioner by the due date may result in administrative penalties being applied to the entity. Administrative penalties are explained in detail in Chapter 13 - Miscellaneous.

6.41 Information statements submitted by registered entities will be available to the public, except for those parts that are classified as 'not for publication' in the approved form [paragraph 40-5(1)(d)] . The publication of the information statements will assist in increasing transparency of the sector's operations and activities.

6.42 To ensure the ACNC is able to fulfil its role to act as a 'one-stop shop' regulator and to support transparency and accountability for the NFP sector, disclosure of information held by the ACNC is permitted in certain circumstances where authorised under the secrecy framework in Part 7-1 of the Bill.

6.43 Under the secrecy framework, an ACNC officer is prohibited from disclosing any personal information except where consent is given by the responsible entity to which the information relates or where the disclosure is for the purpose of including it on the ACN Register and it is necessary to achieve the objects of the Bill.

6.44 The Bill provides a comprehensive secrecy regime to ensure that the ACNC appropriately manages the information provided to it. For further information on protected information, secrecy and disclosure of information, see Chapter 11.

6.45 If a large or medium registered entity identifies a material error in its information statement, it must give the ACNC Commissioner a corrected statement within 28 days of the error being identified. [Subsections 60-65(1) and (2)]

6.46 If a small registered entity identifies a material error in its information statement, it must give the ACNC Commissioner a corrected statement within 60 days of the error being identified. [Subsections 60-65(1) and (2)]

6.47 Failure to re-lodge an information statement within the required time period may result in administrative penalties being applied to the entity.

6.48 This ensures that the public and the ACNC have access to the latest and most accurate information and ensures the protection and enhancement of public confidence and trust.

Annual financial reports

6.49 In addition to the annual information statement, medium and large registered entities must prepare and submit an annual financial report. [Section 60-10]

6.50 This is not a mandatory requirement for a basic religious charity (see Chapter 13 for the definition of basic religious charity). However, if a basic religious charity chooses to lodge a financial report, it must comply with Subdivision 60-C and any associated regulations. [Section 60-60]

6.51 The financial report must comply with the content requirements in the regulations. [Subsection 60-15(1)]

6.52 The regulations will be the subject of further consultation. The regulations may provide that, in most cases, the financial report will be based on accounting standards issued by the Australian Accounting Standards Board (AASB), although as noted above, these requirements will be finalised following further consultation.

6.53 Financial reports must be prepared and lodged with the ACNC Commissioner no later than six months following the end of the entity's reporting year. [Subsection 60-10(2)]

6.54 The ACNC Commissioner has the discretion to extend this period. [Subsection 60-10(2)]

Substituted accounting periods

6.55 The ACNC Commissioner may approve a substituted accounting period, in lieu of a financial year ending 30 June, for a registered entity. [Section 60-85]

6.56 Entities that want to seek approval from the ACNC Commissioner to report using a substituted accounting period must apply in the approved form. [Subsection 60-85(3)]

6.57 Entities that notify the ACNC Commissioner, within six months of the commencement date, that they currently report under an Australian law for a period other than a financial year ending 30 June, will be taken to have been approved by the ACNC Commissioner (on an ongoing basis) to lodge their financial report to the ACNC on the basis of that other period. That is, existing substituted accounting periods will be grandfathered for such entities, and the ACNC Commissioner's approval to adopt the alternate accounting period will not be required in these cases. For further information, see Chapter 14 - Transitional provisions.

6.58 Registered entities which report using a substituted accounting period will still report annually. Instead of 31 December, these entities will be required to provide their financial reports to the ACNC Commissioner six months after the last day of their accounting period. [Subsection 60-85(2)]

6.59 To ensure a smooth transition from one accounting period to another, the ACNC Commissioner has the power to impose any conditions that are necessary for this transition. [Subsection 60-90]

Mistakes and errors in information statements and financial reports

6.60 If a registered entity identifies a material error in their financial report, the registered entity must supply the ACNC Commissioner with a corrected report within 28 days of the error being identified. [Section 60-65]

6.61 This ensures that the information within the public domain is up-to-date and accurate, and reflects the true position of the entity. This will help promote public confidence and trust in sector.

6.62 Failure to re-lodge a corrected financial report within the required time period may result in administrative penalties being applied to the entity. Administrative penalties are explained in Chapter 13 - Miscellaneous provisions.

6.63 This ensures that the public and the ACNC have access to the latest and most accurate information.

Additional reporting requirements where ACNC Commissioner requires

6.64 The ACNC Commissioner has the authority to require a registered entity, or a class of registered entities, to provide additional information in the financial report or information statement, and to lodge additional reports, by making a written determination. [Subdivision 60-E]

6.65 Any such reports would be used by the ACNC to meet any information requirements that extend beyond the information contained in the financial report or the annual information statement. This type of additional reporting will only be used where necessary, for example, where there is reason to believe that a registered entity has contravened the Bill.

6.66 The ACNC Commissioner must set out the additional information or requirements. [Sections 60-75and 60-80]

6.67 The information requested may be in relation to past or future periods, but may not relate to a period more than six years ago. [Subsections 60-75(6) and 60-80(6)]

6.68 Depending on the circumstances, the additional report or information sought by the ACNC Commissioner may diverge from particular accounting standards. In such cases, the regulations may require registered entities to apply all relevant accounting standards, except for any that are inconsistent with the ACNC Commissioner's determination. However, as noted above, this will be subject to further consultation.

6.69 The ACNC Commissioner's power to require additional information applies to basic religious charities, consistent with existing obligations under the tax law to provide the Commissioner of Taxation with additional information.

Collective and joint reporting

6.70 The Bill provides the ACNC Commissioner with discretion to allow entities to provide collective or joint reports, in certain circumstances. [Section 60-95]

6.71 Two or more entities which provide either joint or collective reports are known as a reporting group . [Section 60-95]

6.72 A reporting group may lodge a single information statement, and if required, a single financial report for a financial year. This is referred to as joint reporting . [Subsection 60-95(1)]

6.73 A reporting group may also prepare one or more information statements, and if required, financial reports for a financial year, on a basis other than an entity-by-entity basis. This is referred to as collective reporting . [Subsection 60-95(2)]

6.74 This will allow, for example, reporting along certain lines of activity, rather than on an entity-by-entity basis, where the ACNC Commissioner approves such reporting.

6.75 For instance, the ACNC Commissioner could authorise a group of related entities which are engaged in two distinct types of charitable work to report based on the type of activities that they undertake. [Section 60-95(2)]

6.76 Entities can seek the ACNC Commissioner's approval, in the approved form, to prepare collective or joint reports. [Subsection 60-95(3)]

6.77 Before making a decision to allow registered entities to report as a reporting group the ACNC Commissioner must consider a list of factors in order to ensure that the reporting group will represent the most appropriate form of report and will meet the needs of all users, including the public, the entities and regulators. [Subsection 60-95(4)]

6.78 In deciding whether to allow two or more registered entities to form a reporting group, the ACNC Commissioner must consider:

•

how the public interest in the transparency and accountability of the registered entities is best served, including the possible effect on:

-

the public's understanding of the activities of the registered entities and the information provided in the information statement or financial report; and

-

the public's ability to rely upon the information provided in the information statement or financial report;

•

how the altered reporting arrangements would affect the ACNC Commissioner's ability to conduct recognised assessment activities;

•

whether members of the reporting group have access to the same or different taxation concessions;

•

how the altered reporting arrangements may affect the Commissioner of Taxation's ability to assess the registered entity's compliance with taxation laws;

•

the possible effect on the compliance and administrative costs of registered entities proposed to be included in the reporting group;

•

the degree of the affiliation, control and proximity of registered entities proposed to be included in the reporting group;

•

the objects of the Bill; and

•

any other matter that the ACNC Commissioner considers relevant.

[Subsection 60-95(4)]

6.79 In making a decision to allow registered entities to form a reporting group the ACNC Commissioner must consider all of these factors.

6.80 This assessment could involve weighing competing considerations. For instance, the ACNC Commissioner may believe that allowing closely related entities with similar purposes to form a reporting group would best serve the public interest in accountability and transparency and would allow recognised assessment activities to be undertaken. On the other hand, the entities may access different taxation concessions and allowing the entities to form a reporting group may reduce transparency and increase compliance costs for the entities.

6.81 Furthermore, in a case where a group of closely related, centrally controlled entities which all access the same tax concessions wish to form a reporting group, and this consolidation would be expected to reduce compliance costs, the ACNC Commissioner may refuse to grant this request if allowing the entities to form a reporting group might allow the registered entities to reduce transparency and accountability, particularly in relation to public understanding of the activities of the entities.

6.82 In considering the degree of affiliation, control and proximity of registered entities proposed to be included in a reporting group the ACNC Commissioner would consider such factors as the extent to which the group acts like a group, how they interact together and how close each of their activities are to one another. [Paragraph 60-95(4)(f)]

Example 6.22 An entity that is unlikely to be approved

Youth Help is a youth development organisation that operates in NSW and Victoria. Its purpose is to advance the education of disadvantaged youth and to reduce youth unemployment and crime. The organisation operates in 20 branches in locations with high numbers of disadvantaged youths across NSW and Victoria.

The central branch of Youth Help is located in Melbourne and has a high level of affiliation with each of the other branches. There is one common binding set of governing rules.

However, each branch is able to make decisions about its own day to day activities, structure and management, in keeping with the overall purpose of Youth Help.

Each branch receives different tax concessions from the Commonwealth Government in recognition of their various NFP activities.

One branch of Youth Help operates a band night each Friday night to provide a place for youths to go at night, and to raise funds for its other activities. Local businesses and individuals donate food, time and services for the band nights, and the branch uses the

Band Nights to run raffles to raise funds for its other activities. The Band Nights are well attended by the local community.

Another branch of Youth Help runs an op-shop to sell donated clothes, books and furniture. It uses the funds raised from selling donated goods to provide on the job training to disadvantaged youths.

One of the branches of Youth Help donates funds to an overseas youth development organisation using monies collected from youth group attendees.

Seven branches of Youth Help are registered as public benevolent institutions and hold DGR status for their youth development activities.

Another branch of Youth Help receives large sums of money from a testamentary trust set up by the mother of a child who benefitted from their help in the past. The branch receives money from the trust on a quarterly basis and the letter of wishes states that the funds are to be used only for the activities of that particular branch of Youth Help.

In considering whether to approve collective reporting in this case, the ACNC Commissioner would have regard to that fact that the organisation is in receipt of large amounts of public monies from its multiple and varied fundraising activities, and donations from the testamentary trust. This indicates that a high level of accountability and transparency to the public is necessary.

The ACNC Commissioner would also have regard to the fact that while the governing rules are held at the central branch level, each branch has decision making authority and is responsible for the management of day - to - day activities.

The ACNC Commissioner would also have regard to the fact that one branch of the organisation sends money overseas.

These factors together mean that Youth Help may not be approved for collective reporting.

6.83 The Bill does not prevent a representative member of the reporting group from lodging the report or statement on behalf of the reporting group. However, the obligation will still remain on each individual entity to comply with their reporting obligations. This ensures that registered entities do not attempt to use grouping arrangements to avoid individual responsibilities.

6.84 A failure to comply with the reporting requirements could result in the imposition of administrative penalties for each entity that fails to report in the reporting group. However, the ACNC Commissioner is likely to use their discretion to not impose multiple penalties in such cases, unless the circumstances dictate that as an appropriate response.

Example 6.23 An entity that is likely to be approved

The Red Hat Trust is a youth development organisation that operates in NSW and Queensland. Its purpose is to advance the education of disadvantaged youths and to reduce youth unemployment and crime. The organisation operates in 20 branches in locations with high numbers of disadvantaged youths across NSW and Queensland.

The central branch of Red Hat Trust is located in Brisbane and has a high level of affiliation with each of the other branches. The central branch holds the documents that govern the whole organisation. The central branch is responsible for the day-to-day management and decision making for each branch.

Half of the branches are registered as public benevolent institutions. As such, they have DGR status and access to tax concessions such as FBT exemptions and income tax exemptions. The other half of the branches receive different charitable tax concessions.

Five branches of The Red Hat Trust operate single store op-shops to raise funds from the sale of books, clothes and used furniture.

In considering whether to approve collective reporting in this case, the ACNC Commissioner would have regard to common fundraising, accounting and reporting practices of Red Hat Trust.

The ACNC Commissioner would further note that the central branch has decision making power over each of the 20 branches.

The ACNC Commissioner would also consider the common purpose of the organisations and the lack of complexity of financial arrangements which could create a lack of transparency.

These factors together mean that Red Hat Trust may be approved for collective reporting.

6.85 Depending on the circumstances, joint and collective reporting may diverge from particular accounting standards, such as accounting standard AASB 10 Consolidated Financial Statements . In such cases, the regulations may require registered entities to apply all relevant accounting standards, except for those which are inconsistent with this type of reporting. However, as noted above, this will be the subject of further consultation.

6.86 The relevant reporting tier that should be applied to joint and collective reports is the tier applying to the largest registered entity that is included in the reporting group. [Section 60-105]

6.87 For example, if a small and medium entity combine to form a reporting group which is considered large, then the joint report can be prepared on the basis of the medium tier requirements (that is, they would be permitted to have a review rather than an audit).

6.88 Continuing with this example, if the large combined entity seeks to disaggregate into five entities that would each be considered small, and prepare five collective reports, each collective report would be prepared on the basis of the medium tier requirements, as this is the tier applying to the largest entity that is included to form the reporting group. This will ensure that entities cannot avoid their reporting obligations by disaggregating into smaller entities that would otherwise be exempt from reporting due to their size.

6.89 Where the ACNC Commissioner approves a request to allow registered entities to form a reporting group the ACNC Commissioner may impose conditions on members of the reporting group. [Section 60-100]

6.90 For example, the ACNC Commissioner may impose a condition that certain items be separately identified or explained in the financial reports and notes to the financial reports. [Paragraphs 60-100(3)(a) and (b)]

6.91 The ACNC Commissioner may also impose conditions relating to the structure of financial reports. [Paragraph 60-100(3)(c)]

6.92 For example, the ACNC Commissioner may require certain matters, such as the donations received by a DGR which is a member of the reporting group, to be separately reported.

Audits and reviews

6.93 Large entities must have their financial report audited and obtain an auditor's report. [Section 60-25]

6.94 Medium entities can choose to have their financial report reviewed, instead of being audited, unless they are expressly directed by the ACNC Commissioner to have their financial report audited. [Section 60-20]

6.95 The ACNC Commissioner would only be expected to direct a medium entity to have their financial report audited in particular cases, for example, where there had been previous problems or non-compliance by the entity.

6.96 A review, in contrast to an audit, is not designed to provide assurance that the financial information reported by the entity is free from material misstatement.

6.97 A review consists of making enquiries, primarily of individuals responsible for financial and accounting matters, and applying analytical and other review procedures. In contrast, an audit requires undertaking audit procedures, in order to detect material misstatements and carry out specific procedures to reduce fraud risk.

6.98 A review may bring significant matters affecting the financial information to the assurance individual's attention, but it does not provide all of the evidence that would be required in an audit.

6.99 The objective of an audit of a financial report is to enable the auditor to express an opinion on whether the financial report is prepared, in all material respects, in accordance with an applicable financial reporting framework. When forming an opinion on the financial report the auditor needs to evaluate whether, based on the audit evidence obtained, there is reasonable assurance about whether the financial report taken as a whole is free from material misstatement.

6.100 An audit must be undertaken by a 'registered company auditor', an audit firm or an authorised audit company, within the meaning of the Corporations Act 2001 . [Subsection 60-30(1)]

6.101 The regulations may also prescribe other entities that can undertake an audit. [Paragraph 60-30(1)(d)]

6.102 However, reviews can be performed by a wider class of individuals. In addition to registered company auditors, audit firms and authorised audit companies, a member of a professional body may conduct a review provided they hold the relevant designation of that professional body [subsection 60-30(2)] . These designations will be prescribed by the Corporations Regulations 2001 .

6.103 For example, a member of the Institute of Chartered Accountants (CA) in Australia must have CA designation to perform a review of a registered entity. Similarly, a member of Certified Practising Accountants Australia (CPA Australia) must have CPA designation.

6.104 This effectively allows a broad class of individuals to undertake reviews with some limitations to ensure that reviewers are subject to appropriate professional standards.

6.105 In practice this means that a reviewer must be a member of a professional accounting body who is not a student member and who is subject to certain minimum standards, such as continuous professional development, in line with the requirements of the professional accounting bodies.

6.106 The audit report or review report must contain a statement from the auditor or reviewer which provides their opinion or conclusion about certain key matters. The auditor or reviewer must form an opinion (in the case of an audit) or conclusion (in the case of a review) about whether:

•

in the case of an audit, the financial report meets all the requirements in the Bill [subsections 60-30(3) and (4)] ;

•

in the case of a review, anything has come to the reviewer's attention that causes the reviewer to believe that the financial report does not meet all the requirements in the Bill [subsections 60-30(3) and (4)] ; and

•

all information, explanation and assistance necessary for the conduct of the audit or review has been provided [subsections 60-30(3) and (4)] ; and

•

the registered entity has kept sufficient financial records for a financial report to be prepared and audited [subsections 60-30(3) and (4)] ; and

•

the registered entity has kept other records as required by the reporting requirements in the Bill [subsections 60-30(3) and (4)] .

6.107 The audit or review must be conducted in accordance with auditing standards. [Section 60-35]

6.108 A registered entity must obtain from its auditor or reviewer:

•

a written, signed, declaration to the responsible entities of the registered entity stating that, to the best of their knowledge, there have been no contraventions of any applicable code of professional conduct in relation to the audit or review; or

•

a written, signed, declaration to the responsible entities of the registered entity stating that, to the best of their knowledge, the only contraventions of any applicable code of professional conduct in relation to the audit or review are those detailed in the signed declaration.

[Section 60-40]

6.109 This ensures the audit or review is prepared without bias, conflict of interest, or the undue influence of others, and allows the public to have faith that the audit has been done to a high objective standard.

6.110 An explanation must be given if the auditor or reviewer does not believe that the financial report is in accordance with Division 60 of the Bill. The auditor's report or reviewer's report must quantify the effect that non-compliance has on the financial report. If quantifying the effect is not possible, the report must explain why. [Sections 60-45 and 60-50]

6.111 The auditor's report or the reviewer's report must describe any material defects or irregularities in the financial report, and any deficiencies, failures or shortcomings in respect of:

•

whether the auditor has been given all information, explanation and assistance necessary for the conduct of the audit or review;

•

whether the registered entity has kept financial records sufficient to enable a financial report to be prepared and audited; and

•

whether the registered entity has kept the other records required by the Bill.

[Subsections 60-45(3) and 60-50(3)]

6.112 The auditor's report or reviewer's report is also required to include any statements or disclosures that the auditing standards require. [Subsections 60-45(4) and 60-50(4)]

6.113 A registered entity must ensure that the auditor or reviewer has access to and is given all information that is reasonably requested. [Section 60-55]

6.114 Further information on auditing requirements can be found at the Auditing and Assurance Standards Board website at www.auasb.gov.au.