ACCT3031 Chap.6 Audit, Assurance and Governance Oversight
Audit, Assurance and Governance Oversight
An audit committee and an external auditor are only as useful as the oversight they support.
This chapter explains board committees and delegation under the Corporations Act, the ASX Listing Rule and Principle 4 requirements for audit committees, the APRA board audit committee rules, what an external audit opinion covers and the three-part audit expectation gap, and then uses the HIH Royal Commission to show assurance being received without being tested.
The chapter's recurring question is whether a mechanism that exists on paper is providing oversight in practice, which is exactly what the reports ask you to judge.
What this chapter covers
- 01
Board committees and delegation
- 02
Audit committee requirements
- 03
ASX Principle 4 and APRA CPS 510
- 04
The external audit opinion
- 05
Knowledge, performance and evolution gaps
- 06
HIH audit committee and actuaries
- 07
Independence of appearance and of mind
Worked example · free
Name the expectation gap behind three complaints
- +1The fraud guarantee reflects a knowledge gap: the public misunderstands what an audit opinion provides.
- +1Skipped required steps reflect a performance gap: auditors fell short of existing standards.
- +1Adding climate risk reflects an evolution gap: society wants the audit itself to change.
Key terms
- Board committee
- A group of directors given delegated work on a specialised area, which recommends to the full board rather than deciding for it.
- Audit committee charter
- The document setting out an audit committee's purpose, responsibilities, authority, membership, meetings and reporting line.
- Unqualified opinion
- An auditor's conclusion that the financial report complies and gives a true and fair view, without reservation.
- Performance gap
- The part of the audit expectation gap that arises when auditors fall short of what standards or regulation require.
- CEO and CFO declaration
- The statement listed entities receive before approving accounts that records are kept, standards met and controls operating.
Audit, Assurance and Governance Oversight FAQ
When must a listed company have an audit committee?
ASX Listing Rule 12.7 requires a company in the S&P All Ordinaries when its financial year begins to have an audit committee for that year. A company in the S&P ASX 300 must also follow the recommendations on its composition and operation, such as three non-executive members with an independent majority and an independent chair.
Does an unqualified audit opinion mean the board can relax?
No. An unqualified opinion is the outcome of an audit; it does not remove the need for the audit committee and the directors to probe what lies beneath it. At HIH the audit committee chair was mainly concerned with whether the opinion would be unqualified, even though the auditors rated HIH a maximum-risk client.
What is the difference between independence of appearance and of mind?
Independence of appearance is judged against listed factors such as recent executive roles, business relationships and long tenure. Independence of mind is whether a director actually exercises separate judgement. A committee can pass every formal test and still fail to challenge management, which is why the module stresses information, expertise and willingness to question.
Why do committees not reduce the board's responsibility?
Under the Corporations Act a board may delegate to a committee, and directors may rely on its advice if they assess it independently and in good faith, but they remain responsible for how the delegated power is used. A committee recommends and the full board decides, so delegation never becomes abdication.
What does APRA add for regulated financial institutions?
APRA's governance standard requires a board audit committee of at least three non-executive members with an independent majority and an independent chair; the board chair may be a member but may not chair it. The committee needs free access to management, internal audit, risk and the actuary, and APRA must be told the reasons for removing an auditor.
Assessment move
Build a side-by-side table of the ASX and APRA audit committee requirements, then learn the three expectation gaps with one example each. Use the HIH findings to practise a paragraph that separates receiving assurance from exercising oversight, a distinction that recurs in both reports.
When you read a company's audit committee charter, compare what it promises with any evidence of how the committee actually met and challenged.
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