Question

In February 2012, the Australian Accounting Standards Boards decided at its meeting to propose the withdrawal of AASB 1031 Materiality. There were several reasons for this proposal which includes: there is no International Reporting Standard equivalent and it does not look like there will be, since 2005 there has been the gradual withdrawal of additional Australian guidance from a number of Australian Accounting Standards, and there is now an updated guidance on materiality in the IASB Conceptual Framework.

The major impact of the withdrawal of AASB 1031 is the removal of the specific quantitative guidance for materiality. The withdrawal of AASB 1031 became effective to annual reporting beginning on or after 1 July 2015.

Question --- Post withdrawal of AASB 1031, would this harmonise/bring uniformity to auditors’ assessment ofmateriality misstatements or would this bring disparity to auditors’ assessment of misstatements? What other influence this would bring to the auditors’ judgment on misstatements? Discuss your answer and rationale. (Support your answers with the relevant Australian Accounting Standards and Australian Auditing Standards as well as published Peer-reviewed Academic Journals and Articles.)

Answer 1

At the time AASB 1031 was issued the Framework for the Preparation and Presentation of Financial Statements contained limited guidance on materiality in comparison to AASB 1031. Accordingly, as part of the AASB’s implementation of the Financial Reporting Council’s policy of adopting the
Standards of the International Accounting Standards Board (IASB) for application to reporting periods beginning on or after 1 January 2005, the AASB decided to retain AASB 1031, in a revised format, to ensure that the meaning of materiality remained well explained.AASB-1031 on the concept of Materiality was issued provides a detailed guidance to auditors to enable them assess the risk of material misstatements and to identify frauds and errors in any financial statements on the basis of sufficient appropriate audit evidences. The concept of Materiality helps them to quantitatively and qualitatively analyse, on the basis of certain criterion, those audit evidences which when gathered together suffice the defnition of 'sufficient ànd appropriate'. In other words, issuing of AASB -1031 gives a standard basis to all the auditors for a specific guidance to audit procedure.

However in February 2012 AASB -1031 stands withdrawn.The main reason behind such withdrawal is that the AASB has a policy of not providing unnecessary local guidance on
matters covered by IFRSs.

Such wiyhdrawal will actually not cause any disparity in audit procedures because the concept of materiality is alredy covered in IFRS and hence the uniformity shall be maintained.

Answer 2

Explain how Accounting standards are developed in Australia ?