Australia: The new Associations Incorporation Act 2015 (WA) - reviews and audits

Last Updated: 4 September 2016
Article by Brenton Oakley and Philip Mavor

This is the sixth of a series of legal updates that Kott Gunning is producing throughout 2016 on the key features and reforms under the new Associations Incorporation Act 2015 (WA) (Act).

This instalment deals with new review and audit requirements introduced under the Act.

The association's financial statements may be reviewed or audited

An association's financial statements or financial reports may require a review or audit under the new Act.

An audit is a detailed process that provides a high level 'positive form' of assurance on whether the financial statements or reports have been prepared (in all material respects) in accordance with an applicable financial reporting framework and are free from material misstatement.

A review provides a 'negative' (limited) form of assurance about the financial statements, i.e. that nothing has come to the reviewer's attention to suggest that the financial reports have not been prepared in accordance with the applicable financial standards.

A tier 1 association does not need to have its financial statements reviewed or audited, unless the Commissioner directs, or a majority of members at a general meeting resolve, that it do so.

A tier 2 association must have its financial reports reviewed, unless the Commissioner directs, or a majority of members at a general meeting resolve, that it be audited.

A tier 3 association must have its financial reports audited.

Commissioner may require special audit

The Commissioner may direct that an association cause an audit of all, or part, of the association's financial records. The auditor's report must be lodged with the Commissioner within the time specified.

The Commissioner may give the direction regardless of whether or not the financial records have previously been audited.

The association must comply with the Commissioner's direction.

A penalty of $2,750 applies.

An auditor's report under this section must state whether the association's financial records have been properly kept, and give a true and fair view of the association's affairs.

Review or audit to be conducted in accordance with auditing standards

The reviewer and auditor must conduct the review or audit in accordance with the standards issued by the Auditing and Assurance Standards Board (an independent body established under the Australian Securities and Investments Commission Act 2001).

A penalty of $5,500 applies.

Working papers to be retained for 7 years.

A reviewer or auditor who conducts a review or audit must retain all working papers prepared by or for, or considered or used by, the reviewer or auditor for at least 7 years after the date of the report prepared in relation to the review or audit.

A penalty of $5,500 applies.

Reviewer's or auditor's independence declaration

The reviewer and auditor who undertakes a review or audit of a financial statement or financial report must give the management committee a written declaration that, to the best of their belief:

  • there has not been a contravention of any applicable code of professional conduct in relation to the audit or review; or
  • the only contraventions of any applicable code of professional conduct are those contraventions set out in the declaration.

A penalty of 5,500 applies.

The information in the declaration (and any document or thing obtained as a result of the declaration) is not admissible in evidence in any criminal proceedings against the reviewer or auditor.

Reviewers report on financial statement or financial report

The reviewer's report on a financial statement or financial report must include:

  • a statement whether the reviewer became aware of any matter that causes the reviewer to believe the financial statements/report do not satisfy the requirements of Division 3; and
  • a description of any matter that causes the reviewer to believe the financial statements/report do not satisfy the requirements of Division 3; and
  • a statement why the matter causes the reviewer to so believe.

A penalty of $5,500 applies.

Auditor's opinion and report on financial statement or financial report

The auditor's report on a financial statement or financial report must include:

  • a statement whether the auditor is of the opinion that the financial statements or financial report complies with Division 5 of the Act;
  • if not, why not;
  • a description of any defects or irregularity in the financial statements or financial report;
  • a description of any deficiencies, failure, or shortcomings in the association's record keeping, and whether the association provided the auditor with all information and assistance necessary for the audit;
  • include any statements or disclosures required by the auditing standards;
  • the date on which it is made; and
  • if the auditor considers there has been non-compliance in the preparation of the financial statements or reports, the auditor is to try to quantify the effect the non-compliance has on financial statements or reports, or say why it is not practical to do so.

Reporting breaches of the Act to Commissioner

A reviewer or auditor must notify the Commissioner in writing within 28 days of becoming aware of:

  • any reasonably suspected contravention of the Act (if the contravention is significant, or if it is not significant but they are of the view that the contravention has not been or will not be adequately dealt with by commenting in the report or bringing it to the attention of the committee); or
  • an attempt by a person to unduly influence, coerce, manipulate, mislead, or interfere with the proper conduct of the review or audit.

A penalty of $5,500 applies.

Fees and expenses

The reasonable fees and expenses of a reviewer or auditor are payable by the association.

Information and assistance

An officer of an association is to allow a reviewer or auditor access at all reasonable times to the books of the association, and (upon a reasonable request) provide them with information, explanations or other assistance for the purpose of audit. The term 'officer' is not confined to a committee member.

A penalty of $2,750 applies.

Reviewer and auditor right to attend general meeting and be heard

A reviewer or auditor (or their authorised agent) is entitled to:

  • receive the same notices and communication received by members relating to any general meeting;
  • attend any general meeting; and
  • be heard at the general meeting on any part of the business of the meeting that concerns the functions of the reviewer of auditor.

The association must ensure that these rights are observed.

A penalty of $2,750 applies.

The rights apply even if an auditor or reviewer retires at a meeting, or a resolution to remove the reviewer or auditor from office is passed at the meeting.

Appointment of reviewer or auditor

A reviewer or auditor may only be appointed by:

  • a resolution of members at a general meeting; or
  • the management committee, if the association is required to ensure that its financial statement are reviewed or audited, and no appointment has been made at a general meeting.

A reviewer or auditor appointed at a general meeting holds office until the person dies, becomes insolvent under administration, ceases to be qualified, is removed from office by resolution at a general meeting, or resigns.

A reviewer or auditor appointed by a management committee holds office until the report of the review, or the auditor's report, is presented at the annual general meeting.

A reviewer or auditor may resign by written notice to the association. The association must lodge the notice of resignation with the Commissioner within 14 days of receiving it.

A penalty of $1,000 applies.

Qualifications for appointment

An association must not appoint a reviewer or auditor unless that person is qualified for appointment.

A person is qualified as a reviewer or auditor if the person is:

  • a member of a professional accounting body who has a designation that is prescribed by the regulations; or
  • a registered company auditor under the Corporations Act; or
  • a person the Commissioner considers has the appropriate qualifications and experience.

Removal of reviewer or auditor by resolution at a general meeting

A reviewer or auditor may be only removed from office by a resolution at a general meeting.

Written notice of an intention to move such a resolution must be given to every member at least 2 months before the general meeting is held.

The notice must state in full the proposed resolution.

As soon as possible after being given the notice of the resolution, the committee of the association must give a copy to the reviewer or auditor, and lodge a copy with the Commissioner.

A penalty of $1,000 applies.

Reviewer or auditor may make representations

A reviewer or auditor who received a notice from the committee of a resolution for their removal may, within 30 days of receiving the notice, make a written representation (not exceeding a reasonable length) to the committee of the association.

Under s.90(2), if the reviewer or auditor makes a written representation, then a resolution to remove the reviewer or auditor has no effect unless:

  • the committee gives a copy of the representation (by the reviewer or auditor) to all its members at least 7 days before the general meeting; and
  • the reviewer or auditor is allowed to attend the meeting and address the members before the vote on the resolution is taken.

A document required to be given to a member may be given personally, by post, or by any other means authorised by the rules of the association. The costs are to be borne by the association.

Exemption from section 90(2) requirements

An association may lodge with the Commissioner an application for an order exempting the association from the requirements of s.90(2) of the Act. The application must be in writing and state the reasons for the exemption, and the prescribed fee (if any).

The Commissioner may make the order subject to any conditions the Commissioner thinks appropriate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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