AGS 1068 “AUDIT REQUIREMENTS FOR AUSTRALIAN
FINANCIAL SERVICES LICENSEES UNDER THE
CORPORATIONS ACT 2001”
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whether the assumptions have been correctly applied in preparing
the projections. This may include ensuring that the documented
assumptions on the timing of cash flows have been correctly applied
to budgeted revenues, expenses and capital expenditure.
.73 Based on the cash flow projections already obtained, consider
whether there is evidence that the cash flow assumptions were not
appropriately documented or that the projections did not
demonstrate that the licensee had access as needed to sufficient
financial resources at all times in compliance with paragraphs (b)
and (d) of either the Option 1 or Option 2 definitions throughout the
period. The auditor considers whether the documentation is
sufficient to enable the auditor to ascertain whether the assumptions
have been correctly applied in preparing the projections. This may
involve reviewing the documentation of budget assumptions if the
cash flow documentation does not stand alone.
.74 If the licensee relied on Option 1, then based on reviewing the
assumptions in line with the auditor’s knowledge of the business and
on enquiries of management, the auditor considers whether there is
evidence that the assumptions used are unreasonable. This may
involve obtaining an understanding of the licensee’s budgeting
process if budgets are used to prepare the cash flow projections, or
considering the historical accuracy of the assumptions in predicting
actual cash flows.
.75 If the licensee relied on Option 2, then based on reviewing the basis
of selecting the assumptions in line with the auditor’s knowledge of
the business and on enquiries of management, the auditor considers
determining whether there is evidence that the basis for selecting the
assumptions was unreasonable. For Option 2, there is no
requirement to consider whether the assumptions themselves are
reasonable, unlike for Option 1.
.76 Where the licensee is using group cash flow projections to meet the
cash needs requirement, on the basis of alternative A (under licence
condition 13(d)(v)), the audit report will be required to include an
audit opinion about whether there is an enforceable and unqualified
commitment to pay on demand an unlimited amount to the licensee,
or to meet the licensee’s liabilities (including any additional
liabilities that the licensee might incur while the commitment
applies). In addition, the report will be required to contain a
statement about whether the auditor has any reason to believe that
the documented basis for selecting the assumptions on which the
licensee’s expectation concerning the period during which the
commitment will apply was unreasonable.