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Friday, August 20, 2010

Hockey: "It was an audit" Auditing firm: "We are not responsible for what he says"

The firm the Coalition says audited its election costings has been accused of breaching both auditing and ethical standards in a complaint to be lodged with the Institute of Chartered Accountants.

Professor Bob Walker of Sydney University, a 40-year member of the Institute, will lodge a private complaint because he says it is "in the public interest that auditing standards be respected".

"If they had produced a report like this on a prospectus, they would be in trouble because it would be an offence under the Corporations Act not to comply with relevant standards," Professor Walker said.

"But as this does not fall under the Corporations Act, it is a matter for the profession."

Geoff Kidd, one of the principals of WHK Horwath who signed the letter endorsing the Coalition's costings is a former Western Australian chairman of the Institute.

Australian Auditing Standard 804 requires an auditor to "obtain sufficient appropriate audit evidence as to whether management's best-estimate assumptions on which the prospective financial information is based are reasonable".

The one-page letter from WHK Horwath attached to the Coalition's costings released Wednesday explicitly states it relied "on the assumptions provided".

The standard requires auditors to instead investigate whether "all material assumptions are adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or hypothetical assumptions."

The costings document discloses no assumptions...

The firm did not assert that it had in fact conducted an audit in the one-page letter released Wednesday. Instead it said it had been engaged "to review the costings estimates prepared by the Coalition".

However in spruiking the document on radio and television yesterday Coalition Treasury spokesman Joe Hockey repeatedly described it as an audit.

"We have the fifth biggest accounting firm in Australia auditing our books and certifying in law that our numbers are accurate," he told ABC TV. "They have certified our numbers based on all the information we have provided them, they have legal obligations and legal risks," he added.

Speaking to ABC radio he said the analysis was "signed off by the fifth-biggest auditor in Australia".

"I tell you, it is an audit. This is an audited statement," he said.

The code of ethics requires accountants to endeavour to make sure clients and others do not misinterpret their work.

Asked by The Age yesterday whether Mr Hockey had been correct to describe the work as an audit Mr Kidd said he was "not responsible for what Mr Hockey says".

"We are well aware of our obligations. We provided one document and we believe it speaks for itself."

Professor Walker said big firms had "backed away from sprinkling holy water over political forecasts" precisely because of the danger their work would be misused.

Institute general manager Lee White said it took seriously the requirement that members ensure their work was not misrepresented, but "in some ways you can only do so much".

Dr Christine Jubb of the ANU's National Centre for Audit and Assurance Research said it was clear the document was not an audit.

"Audit and review have very distinct meanings. Joe Hockey is playing fast and loose, there's no doubt," she said.

An economist who has previously costed policies for oppositions told the The Age he was surprised by the work presented Wednesday.

"Anyone doing costings has to do an assessment of assumptions," said. "Otherwise it is just 10 plus 10 equals 20, and you say, yes we agree it equals 20."

Published in today's SMH and Age

Auditing Standard 804

Section .02: In an engagement to audit prospective financial information, the auditor should obtain sufficient appropriate audit evidence as to whether:

. management's best-estimate assumptions on which the prospective financial information is based are reasonable for the preparation of the prospective financial information;

. the prospective financial information is properly prepared on the basis of the assumptions;

. the prospective financial information is properly presented and all material assumptions are adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or hypothetical assumptions; and

. the prospective financial information is prepared on a consistent basis with historical financial reports, using appropriate accounting principles.

APES 110 Code of Ethics for Professional Accountants

Section 130.6: Where appropriate, a Member should make Clients, employers or other users of their services aware of limitations inherent in the services to avoid the misinterpretation of an expression of opinion as an assertion of fact.

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