CLARITY AROUND THE FS71 CHANGES FOR AFSL HOLDERS

If you have an Australian Financial Service Licence (AFSL), you might be aware that some of the documents you signed as part of your audit last year were a little different. This is because ASIC has amended the AFSL engagement audit report (Form FS71), not only once, but twice last year. The second amendment occurred mid September, right in the peak lodgement period. This caused problems within the industry.

The most interesting changes were what happened in Section 9 Non-material Matters. Your auditors now have to report immaterial matters as well as material matters. Effectively, any and all breaches of section 912AC identified during the audit must be reported to ASIC.

What’s really interesting are the type of matters that ASIC have listed on the FS71 as being potentially immaterial matters. Here are the non-material matters referred to on the form:

1. the specified internal controls not being effective, or the required accounts not being operated and controlled as required;
2. necessary records, information and explanations not being received from the licensee; and/or
3. the licensee not complying with the matters referred to in our opinions (in Parts 4 to 8), including as appropriate:
   1. compliance with the financial or other conditions of its licence;
   2. compliance with requirements of the Act;
   3. whether the licensee had the required cash flow projections;
   4. whether the projections have been correctly calculated;
   5. whether the basis for selecting assumptions adopted was unreasonable; and
   6. whether the licensee had adequate risk management systems. as referred to in the opinions we expressed.

The biggest issue with this, is that these breaches are going to be material issues almost every time. Think about it, trust account not being operated as required, necessary information not being received, non-compliance with the AFSL or not having a cash flow projection; these breaches are going to be a big headache for any auditor.

The FS71 changes we saw last year were one of those typical things that always happen to prove that the best laid plans of mice and men often go awry. Having an engaging and innovative auditor, who thinks on his or her feet and takes the time to talk these issues through with you to provide you with clarity around the FS71 changes for AFSL holders, is going to be your best defence against having these sorts of changes sprung on you bang in the middle of lodgement season.

Alana Thomas

AUDITOR – OPTIMA AUDIT