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AFIAA CONFERENCE GOLD COAST 28 May 2009 Presented by Neville Sinclair

AFIAA CONFERENCE GOLD COAST 28 May 2009 Presented by Neville Sinclair. APS 310 Risk Management 2010 APRA on the prowl?. APS 310 Audit Report 2009 . 2009 APRA RISK MANAGEMENT REPORTS . APS 310 Audit Report 2009 . NO CHANGES TO PREVIOUS REPORT STRUCTURE OR SCOPE

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AFIAA CONFERENCE GOLD COAST 28 May 2009 Presented by Neville Sinclair

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  1. AFIAA CONFERENCE GOLD COAST 28 May 2009 Presented by Neville Sinclair

  2. APS 310 Risk Management 2010APRA on the prowl?

  3. APS 310 Audit Report 2009 • 2009 APRA • RISK MANAGEMENT REPORTS

  4. APS 310 Audit Report 2009 • NO CHANGES TO PREVIOUS REPORT STRUCTURE OR SCOPE • APS 120 Securitisation standard • APS 330 Public reporting ?

  5. APS 310 Audit Report 2010 • 2010 • WHATS DIFFERENT • Reporting • Audit scope • INTERNAL CONTROLS • Prudential standards • APRA reports D2A

  6. APS 310 Audit Report 2010 • WHATS DIFFERENT • Reasonable Vs Limited assurance • Reliability of data • Materiality • Accounting records

  7. APS 310 Audit Report 2010 • AUASB REFERENCES • REASONABLE ASSURANCE • All audit standards • LIMITED ASSURANCE • ASAE 3000 (internal controls) • ASRE 3100 (compliance)

  8. APS 310 Audit Report 2010 • REASONABLE ASSURANCE • DATA DERIVED FROM ACCOUNTING RECORDS • Requires audit to be conducted on all data derived from accounting records

  9. APS 310 Audit Report 2010 • LIMITED ASSURANCE • data derived from non accounting records • As defined in AUASB Glossary • the general and subsidiary ledgers, • records such as work sheets and spreadsheets, computations, reconciliations and disclosures

  10. APS 310 Audit Report 2010 ACCOUNTING RECORDS • As defined in AUASB Glossary • Includes • the general and subsidiary ledgers, • records such as work sheets and spreadsheets, computations, reconciliations and disclosures

  11. APS 310 Audit Report 2010 • Non accounting records limited to • APS 117 interest rate changes • ARF 112-1 loans classes & LVR Everything else = accounting records , includes • ARF 221 large exposures • ARF 220 impairment

  12. APS 310 Audit Report 2010 • APPOINTED AUDITOR • Separate to financial statements audit (can be the same) • Must audit final D2A • Balance sheet • Income & expenditure • Other data

  13. APS 310 Audit Report 2010 APPOINTED AUDITOR • No reliance on APRA • Some reliance on the work conducted within the Corporation Act audit • Plus additional scope required to form the audit opinion

  14. APS 310 Audit Report 2010 • LIMITED ASSURANCE also over • the ADI controls to ensure compliance with • All the prudential requirements • All reporting obligations [D2A]

  15. APS 310 Audit Report 2010 • 38 (d) The ADI has controls that are designed to ensure the ADI: • (i) has complied with all applicable prudential requirements; • (ii) has provided reliable data to APRA in the reporting forms prepared under the FSCODA;

  16. APS 310 Audit Report 2010 • LIMITED ASSURANCE on internal controls covers • existence and adequacy and • Whether they have operated effectively throughout the financial year.

  17. APS 310 Audit Report 2010 • INTERNAL CONTROLS expected • All prudential requirements scoped • Systems documentation in place • Tasks assigned and understood • Independent checks carried out • that compliance checking records are maintained

  18. APS 310 Audit Report 2010 • Likely review scope • Obtain details of control framework and systems • Identify compliance functions • Confirm controls evidenced? • Limited reperformance of controls for compliance

  19. APS 310 Audit Report 2010 • Assess weaknesses / breakdowns / identified errors • Impact of weaknesses on scope • Conduct additional assurance steps to gain reasonable assurance on the data in the accounting records • Comments in APRA reports

  20. APS 310 Audit Report 2010 • Audit / review considerations • Competence, independence and authority of compliance staff • Evidence of processed and checks • Internal audit • Letters of representations

  21. APS 310 Audit Report 2010 • Audit scope conclusion • ARE CONTROLS • Adequate ? • operating effectively ? • ARE REPORTS TO APRA RELIABLE ?

  22. APS 310 Audit Report 2010 • RELIABILITY • when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent” AUASB framework

  23. APS 310 Audit Report 2010 • MATERIALITY • Need to assess the users and purpose of data • Importance of trends in key ratios (capital, liquidity, provisions) • Key data (large exposures; arrears; B/S & IE classes )

  24. APS 310 Audit Report 2010 • MATERIALITY • APRA – expects Low levels reported for capital and liquidity if measured on each item • Should also look at aggregated impact of all items (value; frequency; impact; importance) • Needs to be explained in the report

  25. APS 310 Audit Report 2010 • REPORTS • Short form • To detail • Scope, materiality • Forms audited and date lodged • Opinion • Appendices - exceptions and recommendations

  26. APS 310 Audit Report 2010 • REPORTS • 4 sections • Data from Accounting records • Data from non accounting records • Internal controls over data to APRA • Internal controls over other prudential requirements

  27. APS 310 Audit Report 2010 • What scope has reduced in 2010 • Only verify the 4th qtr D2A (possible efficiency) • No audit of compliance with policies per se (subject to tests of controls) • No copy of management letters required

  28. APS 310 Audit Report 2010 • What scope has increased • all accounting records are to be audited if reported to APRA (even if not required by Corps Act audit) • Internal control documentation and assessment and testing over the year for ALL areas of prudential compliance

  29. APS 310 Audit Report 2010 • What scope has increased • D2A will need to reflect the final audit numbers or we need to comment – adjustments will be checked to audit accounts • Need to issue amended D2A accounts.

  30. APS 310 Audit Report 2010 • OTHER ISSUES • Banking Act S 16B; 16BA; 16C • Criminal offence to not report immediately if (S6) • Insolvent • Materially prejudice depositors interests

  31. APS 310 Audit Report 2010 • OTHER ISSUES - Banking Act S 16B; 16BA; 16C • Report as soon as practicable if a significant Failure to comply with S6 • Banking act • Prudential standards • APRA direction • Condition of authority

  32. APS 310 Audit Report 2010 • AUASB GUIDANCE • GS XXX • EXPECTED IN END JUNE 2009

  33. APS 310 Audit Report 2010 • How can credit unions contain costs • 1. document internal systems for every prudential matter • 2. ensure systems of compliance are evidenced for ease of checking • 3. ensure internal controls are tested by internal audit and • 4. tests are documented

  34. APS 310 Audit Report 2010 • Audit considerations • IF IT IS NOT DOCUMENTED IT IS NOT DONE (audit standards) • Applies to the • Controls in place • Compliance checks • Internal audit

  35. APS 310 Audit Report 2010 Why make the effort? • 1. errors and weaknesses may be material to warrant audit comment • 2. we don’t know how APRA will react to control deficiencies or breakdowns

  36. QUESTIONS?

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