GS003 09/22

‘ [

GS 003

(September 2022)

Guidance Statement GS 003

Assurance Relating to Australian Financial

Services Licences issued under the

Corporations Act 2001

Issued by the Auditing and Assurance Standards Board

GS 003 - 2 - GUIDANCE STATEMENT

Obtaining a Copy of this Guidance Statement

This Guidance Statement is available on the Auditing and Assurance Standards Board (AUASB)

website: www.auasb.gov.au

Contact Details

Auditing and Assurance Standards Board

Podium Level, Level 20, 500 Collins Street

Melbourne Victoria 3000 AUSTRALIA

Phone: (03) 8080 7400

Fax: (03) 8080 7450

E-mail: [email protected].au

Postal Address:

PO Box 204, Collins Street West

Melbourne Victoria 8007 AUSTRALIA

protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered

form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment

of the source as being the AUASB.

Requests and enquiries concerning reproduction and rights for commercial purposes should be addressed to the Technical

Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne Victoria 8007 or sent to

[email protected]. Otherwise, no part of this Guidance Statement may be reproduced, stored or transmitted in any

form or by any means without the prior written permission of the AUASB except as permitted by law.

ISSN 1833-7600

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 3 - GUIDANCE STATEMENT

Important Note

Guidance Statements are developed and issued by the AUASB to provide guidance to auditors and

assurance practitioners on the application of AUASB Standards and, where relevant, legislation

regulation or other authoritative publications, to assist auditors and assurance practitioners to comply

with AUASB Standards. Guidance Statements are intended to assist auditors and assurance

practitioners in applying an existing standard or standards of general application to particular

circumstances or specialised industries/sectors.

Guidance Statements are designed to provide assistance to auditors and assurance practitioners to

achieve the objective(s) of the audit or other assurance engagement. Accordingly, Guidance

Statements refer to, and are written in the context of specific AUASB Standard(s); and, where

relevant, legislation, regulation or other authoritative publication. Guidance Statements are not aimed

at providing guidance covering all aspects of the audit or other assurance engagement.

Guidance Statements, whilst formally approved and issued by the AUASB, do not establish new

principles or amend existing standards. Guidance Statements therefore do not include any additional

requirements or extend or vary the existing requirements of any AUASB Standards and are not legally

enforceable.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licenses issued

under the Corporations Act 2001 relating to Licensees may give rise to a number of special assurance

considerations. Accordingly, this Guidance Statement has been developed to identify, clarify and

summarise the responsibilities which the auditor has with respect to conducting such assurance

engagements, and to provide guidance to the auditor on additional factors which the auditor may

consider when planning, conducting and reporting in relation to the assurance engagements of

Licensees. It is not, and is not intended to be, a substitute for compliance with relevant AUASB

Standard(s) and auditors and assurance practitioners are required to comply with the relevant AUASB

Standard(s) when conducting an audit or other assurance engagement.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 4 - GUIDANCE STATEMENT

CONTENTS

AUTHORITY STATEMENT

Paragraphs

Application .............................................................................................................................................. 1

Issuance Date .......................................................................................................................................... 2

Introduction ........................................................................................................................................ 3-9

Definitions ............................................................................................................................................. 10

Selected Regulatory Requirements for AFS Licensees

Corporations Act Requirements ....................................................................................................... 11-14

Financial Requirements for AFS Licensees ..................................................................................... 15-21

Reporting Framework............................................................................................................................. 22

Natural Persons ................................................................................................................................ 23-24

FS71 Auditor Reporting Requirements ............................................................................................ 25-32

Considerations for the Auditor ........................................................................................................... 33

Those Who May Audit the AFS Licensee .............................................................................................. 34

Agreeing on the Terms of the Engagement ...................................................................................... 35-36

Planning ............................................................................................................................................ 37-47

Materiality ........................................................................................................................................ 48-54

Auditor Considerations Relating to FS71

Application Statements (FS71, section 1) .............................................................................................. 55

Confirmation of Auditor’s Report on the Licensee’s Financial Report (FS71, section 2) ..................... 56

Reasonable Assurance - Controls (FS71, section 2) ........................................................................ 57-71

Assurance - Financial Requirements (FS71, sections 4-10) ............................................................. 72-85

Limited Assurance - Risk Management Systems (FS71, sections 4-10) .......................................... 86-88

Statement on Section 990K(2) Matters (FS71, section 13) .............................................................. 89-95

Overall Assurance Reporting Considerations ................................................................................ 96-100

Communications with Those Charged with Governance ............................................................. 101-102

Conformity with International Pronouncements ............................................................................ 103

APPENDICES:

Appendix 1 Example Engagement Letter

Appendix 2 Example Management Representation Letter

Appendix 3 Summary of Financial Requirements Applicable to Certain AFS

Licensees

Appendix 4 Tailored Cash Requirements

Appendix 5 Tailored Assurance Requirements

Appendix 6 Cash and Assurance Requirements

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 5 - GUIDANCE STATEMENT

AUTHORITY STATEMENT

The Auditing and Assurance Standards Board (AUASB) formulates Guidance Statement GS 003

Assurance Relating to Australian Financial Services Licences issued under the Corporations

Act 2001 pursuant to section 227B of the Australian Securities and Investments Commission

Act 2001, for the purposes of providing guidance on auditing and assurance matters.

This Guidance Statement provides guidance to assist the auditor to fulfil the objectives of the

audit or assurance engagement. It includes explanatory material on specific matters for the

purposes of understanding and complying with AUASB Standards. The auditor exercises

professional judgement when using this Guidance Statement.

This Guidance Statement does not prescribe or create new requirements.

Dated: 6 September 2022 W R Edge

Chairman - AUASB

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GUIDANCE STATEMENT GS 003

Assurance Relating to Australian Financial Services Licences issued under

the Corporations Act 2001

Application

1. This Guidance Statement (GS) has been formulated by the Auditing and Assurance Standards

Board (AUASB) to provide guidance to auditors conducting assurance engagements relating

to Australian financial services licensees (Licensees) reporting in accordance with the

requirements of Chapter 7 of the Corporations Act 2001 (the Act) and the associated

Corporations Regulations 2001 (the Regulations).

Issuance Date

2. This Guidance Statement is issued on 6 September 2022 by the AUASB and replaces GS 003

Audit and Review Requirements for Australian Financial Services Licensees under the

Corporations Act 2001, issued in September 2015.

Introduction

3. In order to provide financial services in Australia, a person or entity is required by the Act to

either hold an Australian Financial Services Licence (AFSL) (a Licensee) or be an authorised

representative of the AFSL holder. The Australian Securities and Investments Commission

(ASIC) has responsibility for assessing and granting AFSLs on the basis of criteria set out in

the Act

. In addition, ASIC enforces financial and assurance requirements for Licensees to

meet their obligations under the Act.

4. The assurance requirements relating to Licensees may give rise to a number of special

assurance considerations. Accordingly, this Guidance Statement has been developed to

identify, clarify and summarise the responsibilities which the auditor has with respect to

conducting such assurance engagements, and to provide guidance to the auditor on additional

factors which the auditor may consider when planning, conducting and reporting in relation to

the assurance engagements of Licensees.

5. This Guidance Statement does not extend the responsibilities of the auditor beyond those

which are imposed by Auditing Standards, Standards on Assurance Engagements (ASAEs),

the requirements of the Act and the Regulations, applicable ASIC regulatory documents, class

orders and legislative instruments.

6. This Guidance Statement is to be read in conjunction with, and is not a substitute for referring

to the requirements and application and other explanatory material contained in:

(a) The Auditing Standards;

(b) Applicable Standards on Assurance Engagements, including ASAE 3000,

ASAE 3100,

ASAE 3150

and ASAE 3450.

Part 7.6 Division 4 of the Act.

See ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information.

See ASAE 3100 Compliance Engagements.

See ASAE 3150 Assurance Engagements on Controls.

ASAE 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information is applicable when

providing assurance around the cash needs requirements for AFSLs as required within section 4 of FS71.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

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Financial requirements (RG 166) reissued in July 202 and Pro Forma 209 Australian

financial services licence conditions (PF 209) reissued in July 2022; and

(d) Applicable ASIC Class orders including ASIC Class Order CO 13/760 Financial

Requirements for responsible entities and operators of investor directed portfolio

services; CO 13/761 Financial requirements for custodial or depository service

providers; and CO 12/752 Financial requirements for retail OTC derivative issuers.

7. This Guidance Statement should not be used as a checklist of issues to be considered by the

auditor. Furthermore, it is not intended that this Guidance Statement limits or replaces the

auditor’s professional judgement or limits the application of AUASB Standards on such

engagements. AUASB Standards contain the basic principles and essential procedures to be

applied to assurance engagements. Assurance engagement programs are to be designed by the

auditor to meet the requirements of a Licensee’s particular circumstances, giving careful

consideration to the size and type of the Licensee and the adequacy of its internal control

structure.

Legislative Background

8. The Financial Services Reform Act 2001 (FSR Act) and the overall AFS licensing regulatory

regime, which is administered by ASIC, are operative for all Licensees under Chapter 7 of the

Act.

9. The FSR Act provides a single licensing regime for financial advice and dealings in relation to

financial products. The Act requires a person or an entity that operates a financial services

business to hold an AFSL or be authorised by the Licensee.

Definitions

10. For the purposes of this Guidance Statement, the following items have the meanings attributed

below:

(a) Auditor ― A registered company auditor

(b) AUASB Standards ― Australian Auditing Standards and Standards on Assurance

Engagements, Standards on Review Engagements and Standards on Related Services.

sufficient appropriate evidence in order to express a conclusion designed to enhance

the degree of confidence of the intended users other than the responsible party about

the subject matter information (that is, the outcome of the measurement or evaluation

of an underlying subject matter against criteria).

(i) Reasonable assurance engagement ― An assurance engagement in which the

auditor reduces engagement risk to an acceptably low level in the

circumstances of the engagement as the basis for the auditor’s conclusion.

The auditor’s conclusion is expressed in a form that conveys the auditor’s

opinion on the outcome of the measurement or evaluation of the underlying

subject matter against criteria.

(ii) Limited assurance engagement ― An assurance engagement in which the

auditor reduces engagement risk to a level that is acceptable in the

circumstances of the engagement but where that risk is greater than for a

reasonable assurance engagement as the basis for expressing a conclusion in a

form that conveys whether, based on the procedures performed and evidence

Section 990B(1) of the Act.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

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obtained, a matter(s) has come to the auditor’s attention to cause the auditor to

believe the subject matter information is materially misstated. The nature,

timing, and extent of procedures performed in a limited assurance engagement

is limited compared with that necessary in a reasonable assurance engagement

but is planned to obtain a level of assurance that is, in the auditor’s

professional judgment, meaningful. To be meaningful, the level of assurance

obtained by the auditor is likely to enhance the intended users’ confidence

about the subject matter information to a degree that is clearly more than

inconsequential.

Selected Regulatory Requirements for AFS Licensees

Corporations Act Requirements

11. The Act

requires the Licensee to prepare and lodge a profit and loss statement and balance

sheet with ASIC. In addition, Licensees other than limited Licensees,

are required

to lodge

an auditor’s report in a prescribed form with ASIC for each financial year. ASIC requires the

Licensee’s financial statements to be attached to the form: Australian financial services

licensee: profit and loss statement and balance sheet (FS70). The form also requires

compliance with the accounting standards to the extent outlined in FS 70. Form FS70 can be

found on the ASIC website www.asic.gov.au.

12. Section 989D(1) of the Act and regulation 7.8.14A of the Regulations require the Licensee to

lodge FS70 and the form Auditor’s Report for AFS Licensee (FS71) with ASIC within the

following timeframes:

(a) if not a body corporate – the day that is two months after the end of that financial year;

(b) if a body corporate that is a disclosing entity or a registered scheme – the day that is

three months after the end of that financial year; or

four months after the end of that financial year.

13. Many Licensees lodge annual financial reports and the auditor’s report under Chapter 2M of

the Act (within three or four months of the financial year) with ASIC. The lodgement

requirements under Chapter 2M and Part 7.8 of the Act are separate obligations, so it is

necessary for Licensees to lodge financial statements under both provisions. The lodgement

requirements under Chapter 2M of the Act apply to companies in general. Only the financial

reports lodged under Chapter 2M are on public record. FS70 and FS71 contain information

that is not required under Chapter 2M. Even if a Licensee is not required to lodge annual

financial reports under Chapter 2M, they are still required to lodge FS70 and FS71 with ASIC

under Part 7.8 of the Act.

14. The Licensee can apply to ASIC for an extension of time to lodge FS70 and FS71 under

Section 989D(3) of the Act.

Financial Requirements for AFS Licensees

Financial Requirements for APRA Regulated Entities, Market and Clearing Participants

15. The base level financial requirements (refer paragraph 18) and other financial requirement

conditions, as set out in ASIC Pro Forma 209 (PF 209), do not apply, but FS70 and FS71 are

still required to be lodged with ASIC, if the Licensee is either:

Section 989B(1) and 989B(2) of Part 7.8 of the Act.

Limited licensees are defined in section 989B(4) of the Act (introduced by the Regulation 7.8.12A).

Section 989B(3) of Part 7.8 of the Act.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

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(a) a body regulated by the Australian Prudential Regulation Authority (APRA) as

defined in Section 3(2) of the Australian Prudential Regulation Authority Act 1998;

(b) a market participant (other than a principal trader, unless the principal trade is a

registered market trader) as defined in Key Terms in RG 166 as an entity that is a

participant of a financial market on which financial products are traded. Financial

markets are operated by:

(i) ASX Limited (ASX market) that is required to comply with, and complies

with, the rules of the ASIC Market Integrity Rules (ASX Market) 2010 that

impose financial requirements, taking into account any waiver by ASIC;

(ii) Cboe Australia Pty Limited (Cboe market) and APX markets that are required

to comply with, and comply with, the rules of the ASIC Market Integrity Rules

(Cboe Australia Market) 2011 and APX market 2013 that impose financial

requirements, taking into account any waiver by ASIC; or

(iii) Australian Securities Exchange Limited (ASX 24 market), that restricts its

financial services business to participating in the ASX 24 market and

incidental business

; and is required to comply with, and complies with, the

rules of the ASIC Market Integrity Rules (ASX 24 Market) 2010 that impose

financial requirements, taking into account any waiver by ASIC; or

section 761A of the Act in relation to a clearing and settlement facility (“CS facility”),

where that facility is the licensed CS facility operated by:

(i) ASX Clear Pty Limited, and the Licensee is required to comply with, and

complies with, the operating rules of ASX Clear Pty Limited that impose

financial requirements, taking into account any waiver of those requirements

by ASX Clear Pty Limited; or

(ii) ASX Clear (Futures) Pty Limited, and the Licensee restricts its financial

services business to participating in that CS facility and incidental business;

and is required to comply with, and complies with, the operating rules of ASX

Clear (Futures) Pty Limited that impose financial requirements, taking into

account any waiver of those requirements by ASX Clear (Futures) Pty

Limited.

16. Where a Licensee is a body regulated by APRA, PF 209 condition 27 requires the auditor’s

opinion to state whether for the relevant period, the Licensee was a body regulated by APRA

at the end of the financial year or for any period of time that ASIC requests. ASIC includes

this licence condition confirmation as an Application Statement made under section 1 of FS71.

The auditor completes the Application Statement in FS71.

17. Where a Licensee is a market participant or a clearing participant, PF 209 condition 28

requires the auditor’s opinion to state whether, during any part of the period for which the

Licensee relied on being a market participant or clearing participant, the Licensee was a

participant in the market conducted by:

(a) ASX market;

ASIC Regulatory Guide RG 166.198 explains that the relevant financial requirement in the ASIC market integrity rules may not be

sufficient where an ASX 24 participant undertakes additional business.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

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(b) ASX 24 market, and restricted its financial services business to participating in the

ASX 24 market and incidental business;

(d) FEX market;

(e) NSX market;

(f) SSX market;

(g) Licensed CS facility operated by ASX Clear Pty Limited; or

(h) Licenced CS facility operated by ASX Clear (Futures) Pty Limited, and restricted its

financial services business to participating in the licensed CS facility and incidental

business.

ASIC includes this licence condition confirmation as an Application Statements made under

section 1 of FS71. The auditor completes the Application Statements in FS71.

18. All Licensees that are not exempt from the base level financial requirements are required to

comply with these requirements under the Act. The base level financial requirements

(summarised in Appendix 3) include:

(a) the solvency and positive net assets requirements;

(b) the cash needs requirement (appendix 6), unless a tailored cash needs requirement

applies (refer paragraph 20 and 21).

19. In addition, there are financial requirements specified in PF 209 and RG 166 for:

(a) trustee companies providing traditional services (net tangible assets requirement, refer

to PF 209 condition 19B and RG 166 Appendix 5);

(b) issuers of margin lending facilities (net tangible assets requirement, refer to PF 209

condition 19A and RG 166 Appendix 6);

and RG 166 Appendix 7);

(d) holding client money or property (tiered surplus liquid funds requirement, refer to

PF 209 condition 21 and RG 166 Section C);

(e) transacting with clients as principal (adjusted surplus liquid funds (ASLF)

requirement, refer to PF 209 condition 22 and RG 166 Section D); and

(f) reporting triggers for Licensees who are not APRA regulated and are not retail over

the counter (OTC) derivative issuers (refer to PF 209 conditions 23-26 and

RG 166.82).

Financial Requirements for Responsible Entities, Operators of Investor Directed Portfolio Services

(IDPS), Custodial or Depository Service Providers, Retail OTC Derivative Issuers, Crowd Source

Funding Intermediary and Corporate Director of Retail Collective Investment Vehicles

20. In addition to the standard solvency and positive net assets requirements specified in

paragraph 18, tailored financial and assurance requirements apply to the following types of

Licensees:

(a) A responsible entity authorised to operate a managed investment scheme and IDPS

operators.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

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(b) Custodial or depository service providers.

(d) Crowd-sourced funding intermediary (CSF).

(e) Corporate Director of Retail Corporate Collective Investment Vehicles (CCIV).

21. Tailored financial and assurance requirements that apply to Licensees mentioned in

paragraph 20 include:

(a) tailored cash needs requirement (refer Appendix 4);

(b) tailored net tangible assets (NTA) requirement;

(d) tailored assurance requirement (refer Appendix 5).

Refer Appendix 3 for more details and relevant regulatory references.

Reporting Framework

22. Licensees are required to lodge their annual financial report and Form FS70 with ASIC. From

1 July 2021 ASIC has updated the financial reporting requirements of Licensees in Form FS

70. Licensees reporting under Chapter 2M and Chapter 7 of the Corporations Act 2001 will

be required to prepare general purpose financial statements (GPFS). Subject to some

transitional arrangements, from years commencing 1 July 2021, special purpose financial

statements (SPFS) will no longer be able to be prepared

. Instead, Licensees will prepare

either Tier 1 or Tier 2 GPFS depending on whether they meet the definition of public

accountability set out in AASB 1053 Application of Tiers of Australian Accounting

Standards

. However, ASIC also specifies that certain licensees are required to prepare Tier 1

GPFS

Natural Persons

23. ASIC has issued Instrument 2017/307 ASIC Corporations (Financial Reporting: Natural

Person Licensees) on reporting requirements for Licensees who are natural persons. A natural

person is defined as an individual, as opposed to a company, partnership or trustee.

Instrument 2017/307 states that where the licensee is a natural person, the licensee may

exclude from the profit and loss statement, the revenue and expense that do not relate to any

business of the licensee or all the revenue and expenses that do not relate to a financial

services business of the licensee.

24. Alternatively, a natural person licensee can choose not to rely on Instrument 2017/307 and

instead include in a profit and loss statement all of their revenues and expenses, whether

personal or business. The relief under Instrument 2017/307 is confined to the preparation of

the profit and loss statement. ASIC requires a natural person licensee to still prepare a balance

sheet that discloses all of their assets and liabilities, including their personal assets and

liabilities and the assets and liabilities of any other business.

FS71 Auditor Reporting Requirements

25. The FS71 auditor’s report requires:

See ASIC Financial reporting and audit: Frequently asked questions on the transitional arrangements.

See AASB 1053 – Appendix A for definition of public accountability.

See ASIC Form FS70 Part 1 Certification 11(a)(ii).

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

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(a) Confirmation as to whether an auditor’s report on the financial report was prepared

separately to the FS71, in order to meet the licensee’s obligation to lodge it with ASIC

in accordance with section 989B(3) of the Act, and attached to the financial report

lodged with the FS70 (see section 2 of FS71).

(b) Reasonable assurance on the following matters as stated in Regulation 7.8.13(2) of the

Regulations (included within section 2 of FS71):

(i) the effectiveness of internal controls used by the Licensee to comply with:

• Divisions 2, 3, 4, 4A,

5 and 6 of Part 7.8 of the Act; and

• Division 7 of Part 7.8 of the Act other than section 991A; and

(ii) whether each account required by sections 981B and 982B of the Act to be

maintained by the Licensee has been operated and controlled in accordance

with those sections; and

(iii) whether all necessary records, information and explanations were received

from the Licensee.

requirements under the licence; and a combination of reasonable and limited assurance

in relation to the relevant cash needs requirements either as outlined in:

(i) Appendix 4 and 5 if the Licensee is a responsible entity, an operator of IDPS,

a custodial, a depository service provider or a retail OTC derivative issuer,

that is subject to tailored cash and audit requirements (included within

sections 4 and sections 6-8 of FS71); or

(ii) Appendix 6 if the Licensee is not a body regulated by APRA or a market or

clearing participant or a body subject to tailored cash and audit requirements

(refer paragraph 18(b)) (included within sections 4 and 5 of FS71).

(d) A report that there are no matters that should have been reported to ASIC in

accordance with section 990K of the Act during or since the financial year that have

not previously been reported to ASIC, other than the matters detailed in FS71

(section 13 of FS71).

26. ASIC Pro Forma 209 Australian financial services licence conditions (PF 209), reissued in

July 2022, sets out the standard licence conditions which subject to individual circumstances,

will usually be applied to licences authorising a person to provide financial services under the

AFSL. It is important that the individual AFSL conditions are examined carefully so that the

appropriate reporting and auditing obligations are met.

27. In addition, ASIC Class Orders CO 12/752, CO 13/760 and CO 13/761 set out the financial

requirements applicable to specific categories of Licensees. It is important that these tailored

requirements are examined carefully so that the appropriate financial and auditing obligations

are met.

Exemptions From Lodging Form FS71

28. The holder of a limited AFSL is not required to lodge FS71 with ASIC. Regulation 7.8.12A

and 7.8.13A of the Regulations exempts limited Licensees

from lodging an auditor’s report

with ASIC, but requires the lodgement of a compliance certificate with ASIC. Under

sections 989B(1) and 989B(2) of the Act, limited Licensees are still required to prepare and

Division 4A is added by virtue of regulation 7.8.12A of the Regulations.

Limited licensees are defined in regulation 7.8.12A of the Regulations.

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under the Corporations Act 2001

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lodge with ASIC, a profit and loss statement and balance sheet in the approved form FS70

within the required timeframes. Where the licensee holds a limited AFSL for part of the

financial year but holds a full license for the remainder of the year, the FS71 is required to be

completed for the part of the year for which the full licence is held.

29. A foreign Authorised Deposit-taking Institution (“ADI”) which holds the AFSL that has relief

under Instrument 2016/186 ASIC Corporations (Foreign Licensees and ADIs), is not required

to lodge FS71 with ASIC. It is exempt from the requirements of section 989B of the Act,

where equivalent reports prepared for the overseas regulator of the foreign ADI are lodged

with ASIC at least once in every calendar year and at intervals of not more than 15 months.

30. Where the foreign ADI is also regulated by APRA and the AFSL contains condition 27 in

PF 209, then it is necessary for the foreign ADI to lodge an audit report (even if the foreign

ADI is exempt under Instrument 2016/186), that states whether for the relevant period, on a

reasonable assurance basis, the Licensee was a body regulated by APRA at the end of the

financial year or for any period of time that ASIC requests. This is because the APRA

regulation confirmation requirement is in addition to Section 989B of the Act or Instrument

2016/186. The format of this audit report does not need to be in accordance with FS71. To

avoid any processing problems, ASIC requires the audit report to be lodged and accompanied

by a letter identifying the Licensee, licence number and financial year, and clearly stating the

reasons why FS71 has not been lodged. ASIC requires this letter to include reference to the

instrument and to the requirement for a report pursuant to the relevant licence condition.

31. Instrument 2016/186, issued 24 March 2016 provides that a foreign company AFSL holder

can lodge accounts prepared for their home regulator with ASIC to meet their AFSL

requirements. As a result the foreign company does not have to comply with regulations made

for the purposes of sections 988A, 988B, 988D(a) and 988F of the Act and hence is not

required to lodge FS70 or FS71.

32. RG 166.8 also states that if the Licensee is prudentially regulated overseas, they can apply to

ASIC for relief from the financial requirements. ASIC will give this relief on a case-by-case

basis if they are satisfied that the applicant is regulated in a way that is comparable to

regulation by APRA for entities of that kind. If applicable, ASIC will consider the extent to

which the relevant foreign prudential regulation is consistent with the Basel Committee

guidelines for regulating deposit-taking institutions.

Considerations for the Auditor

33. ASIC form FS70 is completed and lodged by the Licensee. The auditor does not have any

reporting requirements in relation to FS70. The auditor inserts the date the FS70 was signed

by the Licensee in Section 2 of FS71. In section 2 of FS71, the auditor confirms that the

auditor’s report was prepared for the licensee, in order for the licensee to meet their obligation

to lodge it with ASIC, in accordance with section 989B(3) of the Act. Section 2 of FS71 also

requires the auditor to confirm whether the auditor’s report was qualified, otherwise modified

or unmodified.

Those Who May Audit the AFS Licensee

34. Section 990B(1) of the Act and regulation 7.8.16(1)(a) of the Regulations, requires the

Licensee to ensure that at all times a registered company auditor who is not made ineligible

through regulation 7.8.16 of the Regulations is engaged to audit the Licensee’s financial

report.

Agreeing on the Terms of the Engagement

35. The auditor complies with the requirements contained in ASAE 3000, ASAE 3100,

ASAE 3150 and ASAE 3450 when agreeing on the terms of the Licensee’s assurance

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engagement in writing. Such terms may be outlined in an engagement letter,

an example of

which is provided in Appendix 1 to this Guidance Statement. ASA 210

contains information

that the auditor may find helpful when agreeing on the terms of the engagement in this

context.

36. The auditor may also use the engagement letter to clarify the respective roles of the Licensee

and the auditor. In particular, it is important to highlight in the engagement letter the

Licensee’s obligation to establish and maintain effective internal control in relation to

compliance with the requirements of the Act. It is the responsibility of the Licensee to comply

with all the conditions under its AFSL, including all of the financial requirements. As part of

the acceptance of the assurance engagement, the auditor may consider obtaining

acknowledgment of this obligation from those charged with governance of the Licensee when

obtaining agreement on the terms of the engagement.

Planning

37. The auditor plans the engagement in accordance with ASAE 3000, ASAE 3100, ASAE 3150

and ASAE 3450. In planning the auditor performs preliminary engagement activities to

establish and document the overall assurance engagement strategy that sets the scope, timing

and direction of the engagement, and guides the development of the engagement.

38. ASA 315

contains information that the auditor may find helpful when obtaining an

understanding of the entity and its environment, including its internal controls, to provide a

basis for the identification and assessment of the risks of material misstatement in relation to

financial requirements, compliance with the conditions of the Licensee’s AFSL and the

requirements of Part 7.8 of the Act and operating effectiveness of controls whether due to

fraud or error, sufficient to design and perform further audit procedures.

Understanding the Entity and its Environment

39. In gaining an understanding of the entity and its environment, the auditor can draw on

knowledge gained as part of the annual financial statement audit, however this understanding

needs to be updated and broadened to address the subject matters included in an engagement

on AFSLs issued under the Act.

(a) ASAE 3100

provides a list of matters to be considered by the auditor in

understanding the entity and the compliance framework with respect to the

compliance section of the engagement;

(b) ASAE 3150 provides a list of matters to be considered by the auditor in understanding

the entity with respect to the controls section of the engagement; and

the entity with respect to projections and the cash requirements section of the

engagement.

40. In planning the reasonable assurance sections of the engagement, the auditor will usually

conduct the following procedures in obtaining that increased understanding and assessing risk:

enquiries, analytical procedures, observation, inspection and reperformance.

41. For the limited assurance sections of the engagement the auditor does not normally develop

the depth of understanding of internal controls in relation to those areas, as is required in a

reasonable assurance engagement, and gaining an understanding may be limited to enquiries.

Or other suitable form of audit contract.

See ASA 210 Agreeing the Terms of Audit Engagements.

See ASA 315 Identifying and Assessing the Risks of Material Misstatement.

See ASAE 3100, paragraphs 30-46.

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Identifying and Assessing Risks of Material Misstatements, Compliance Breaches or Control

Deficiencies

42. The auditor of the Licensee may consider:

(a) Key responsibilities and risks identified by the Licensee;

(b) Reliability and processes of reporting systems established by the Licensee to

implement the licence conditions; and

to the licence conditions and the Act requirements. The auditor may obtain from

management a copy of the licence conditions, together with any documentation of the

procedures and processes which the Licensee has established to ensure compliance

with those licence conditions.

43. In planning the assurance engagement and in assessing risk, the auditor considers matters

including:

• The licence conditions.

• The nature and extent of any recent changes to the licence conditions and whether any

detected breaches are deemed to be reportable in light of the revised licence

conditions.

• The nature of and extent of any changes to the operations of the Licensee itself.

• Changes since the last reporting period to:

(i) the requirements of relevant AUASB Standards;

(ii) the Act and Regulations; and

(iii) relevant ASIC Regulatory Guides, Class Orders and Legislative Instruments.

• Reports and other documents submitted to the board of the Licensee regarding the

operation of the licence and its compliance functions.

• Previous auditor’s reports, including the auditor’s report on the financial report of the

Licensee, and related management letters.

• History of non-compliance with licence conditions.

Overall Responses to Assessed Risks of Material Misstatement in Financial Requirements, AFSL

Compliance Breaches and Deficiencies in Controls

44. The auditor designs and performs further assurance procedures which are responsive to the

assessed risks of material misstatement, material compliance breach or deficiency in controls.

In obtaining reasonable assurance, the auditor chooses a combination of assurance procedures,

which may include: inspection, observation, confirmation, recalculation, re-performance,

analytical procedures and enquiry.

45. ASAE 3000 clearly differentiates between the objectives of a limited versus a reasonable

assurance engagement and provides detail around the sufficiency of audit evidence on which

to base conclusions. The nature, timing and extent of evidence gathering procedures which

are conducted in any given circumstance is a matter of professional judgement and is

determined in response to the auditor’s determination of materiality, risk assessment and the

results of the procedures conducted in response to assessed risks. As the level of assurance

obtained in a limited assurance engagement is lower than in a reasonable assurance

engagement, the procedures the auditor will perform will vary in nature from and will be less

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in extent than for a reasonable assurance engagement. In a limited assurance engagement

procedures primarily involve enquiries and substantive analytical procedures and may not

include tests of controls (except where the subject matter is controls).

46. Although procedures in a limited assurance engagement will be more limited in nature, timing

and extent than for a reasonable assurance engagement, ASAE 3000, ASAE 3100 and

ASAE 3150 require additional procedures to be conducted if the auditor becomes aware of a

matter which causes them to believe the subject matter may be materially misstated or there

may be material compliance breaches or control deficiencies. The auditor may conduct

procedures more akin to a reasonable assurance engagement on this particular matter in order

to satisfy themselves that either the subject matter is not materially misstated, it is materially

compliant or the controls are operating effectively, in all material respects.

47. In a reasonable assurance engagement, procedures may include tests of controls as well as

substantive testing. When conducting a reasonable assurance engagement, if the auditor is

able to obtain evidence that the controls they wish to rely on are operating effectively, then the

nature, timing and extent of substantive testing may be reduced or modified. If reliance is to

be placed on the operating effectiveness of controls throughout the period, then testing will

need to cover that period. Alternatively, if the identified controls are not operating effectively,

then the nature, timing or extent of substantive testings will need to be increased or modified.

Materiality

48. The auditor considers materiality when determining the nature, timing and extent of assurance

procedures. The objectives of setting materiality are to establish:

(a) A tolerable level of misstatement in relation to financial requirements, deficiency in

controls, or non-compliance with AFSL conditions;

(b) The scope of assurance work to be performed; and

compliance.

Materiality is addressed in the context of the Licensee’s auditor’s objectives, which are

developed having regard to the reasonable expectations of issues that would likely influence

the decisions of the user(s).

49. The auditor sets materiality in accordance with ASAE 3000, ASAE 3100, ASAE 3150 and

ASAE 3450. ASA 320

contains information that the auditor may find helpful in this context.

In considering materiality the auditor exercises professional judgement having regard to the

Licensee’s obligations, together with the size, complexity and nature of the Licensee’s

activities. The auditor develops separate materiality levels for each section of the engagement

as follows:

(a) For the compliance sections of the engagement, materiality is set in accordance with

requirements in ASAE 3000 and ASAE 3100;

(b) For the controls sections on of the engagement, materiality is in accordance with

requirements in ASAE 3150; and

with requirements in ASAE 3450.

See ASA 320 Materiality in Planning and Performing an Audit.

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50. As identified in ASAE 3000, ASAE 3100, ASAE 3150 and ASAE 3450, when assessing

materiality, the auditor considers qualitative factors as well as quantitative factors.

51. Materiality is determined in the same way whether the engagement is a reasonable or limited

assurance engagement. The difference between reasonable and limited assurance

engagements lies in the nature, timing and extent of evidence gathering procedures, which will

differ in order to reduce the risk of a material misstatement, compliance breach or control

deficiency remaining undetected to an acceptably low level, in the case of a reasonable

assurance engagement, or to a limited level, in the case of a limited assurance engagement.

The risk of material misstatements, compliance breaches or control deficiency in a limited

assurance engagement is not reduced to the same extent as in a reasonable assurance

engagement, because of the more limited nature, timing and extent of procedures conducted.

In a limited assurance engagement, the auditor seeks to obtain a meaningful level of assurance,

which is likely to enhance the intended users’ confidence about the subject matter to a degree

that is clearly more than inconsequential.

52. When determining materiality, the auditor considers ASIC Regulatory Guide RG 34 Auditor’s

obligations: Reporting to ASIC that contains information on the obligations of an auditor of a

Licensee in terms of breach reporting and ASIC Regulatory Guide RG 78 Breach reporting by

AFS licensees and credit licensees that contains information on Licensees breach reporting

obligations.

53. Although there is a greater risk that misstatements, control deficiencies or non-compliance

may not be detected in a limited assurance engagement than a reasonable assurance

engagement, the judgement as to what is material is made by reference to the subject matter on

which the auditor is reporting and the needs of those relying on that information, as opposed to

the level of assurance obtained.

Other Immaterial Matters Requiring Reporting to ASIC

54. An auditor may have concluded that it is appropriate to issue an unmodified opinion or

conclusion but during the course of the engagement may have identified non-material matters.

The auditor is not expected to modify their audit approach to detect such matters, however

non-material matters that may come to the auditor’s attention as a result of their audit

procedures in relation to:

• Report on internal controls and required accounts (section 2, FS71)

 Specified internal controls not being effective; or

 Required accounts not being operated or controlled as required; and/or

• Report on records, information and explanations (section 2, FS71)

 Necessary records, information and explanations not received from the

licensee; and/or

• Licensee not compliant with matters referred to in the auditor’s opinions included in

sections 4-10 of FS71 including:

 Compliance with financial or other conditions of the licence;

 Compliance with requirements of the Act;

 Whether the licensee had the required cash flow projections;

 Whether the projections were correctly calculated;

 Whether the basis of assumptions used was unreasonable;

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 Whether the licensee had adequate RMSs

These non-material matters are included in section 11 of FS71 unless they have already been

reported to ASIC under section 990K of the Act or have been included elsewhere in FS71.

Auditor Considerations Relating to FS71

Application Statements (FS71, section 1)

55. The auditor completes the Application Statements in section 1 of FS71. The Application

Statements confirm the basis of the auditor’s completion of the FS71.

Confirmation of Auditor’s Report on the Licensee’s Financial Report (FS71, section 2)

56. Section 2 of FS71 requires the auditor to confirm whether an auditor’s report on the financial

statements was prepared separately to the FS71, and attached to the financial report lodged

with the FS70, in order for the licensee to meet their obligation under section 989B(3) of the

Act. In addition, the auditor confirms whether the report was qualified, otherwise modified or

unmodified.

Reasonable Assurance - Controls (FS71, section 2)

57. Section 2 of the FS71 audit report requires reasonable assurance on the control environment to

achieve compliance with the requirements of Divisions 2, 3, 4, 4A, 5 and 6 of Part 7.8 of the

Act and Division 7 of Part 7.8 other than section 991A. These provisions include:

• Dealing with clients’ money.

• Dealing with other property of clients.

• Special provisions relating to insurance.

• Obligations to report.

• Financial records, statements and audit.

• Other rules about conduct (i.e. giving priority to client orders, transmission of

instructions through licensed markets, maintaining records of instruction, dealing with

non-licensees and employees).

Planning Assurance on Controls

58. In assessing the control environment, the auditor needs to determine which of the controls at

the Licensee are necessary to achieve compliance with Divisions 2, 3, 4, 4A, 5 and 6 of

Part 7.8 of the Act; and Division 7 of Part 7.8 of the Act (other than section 991A).

59. Where the auditor is unable to identify controls which are suitable or controls as designed are

not suitable to achieve compliance with each requirement, if operating effectively, this may

constitute a deficiency in relation to the suitability of design which would result in the controls

being ineffective.

60. The auditor assesses the risk of the controls necessary to achieve the compliance requirements

not operating effectively and uses professional judgement in determining the specific nature,

timing and extent of procedures to be conducted.

Obtaining Evidence on Controls

61. Controls to achieve compliance with Division 2 of Part 7.8 subdivision A of the Act relating to

handling of client money need to ensure:

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• Client money is identified.

• An approved trust account is established for client money.

• Client money is paid into the trust account within one business day.

• Money is only withdrawn from the trust account in accordance with regulation 7.8.02

of the Regulations.

• Client and Licensee money is properly separated in accordance with regulation 7.8.01

of the Regulations.

• Interest on client money is treated in accordance with requirements.

• Surplus liquid funds requirements are met if client money is held.

• Appropriate processes for regularly reconciling the balances in the approved trust

account.

62. The auditor establishes whether the Licensee has controls to identify client money received to

ensure a trust account is appropriately established. The auditor performs procedures to

determine whether the Licensee has designed controls that are suitable to meet the relevant

requirements and then tests that those controls have operated effectively throughout the

period.

63. Controls to achieve compliance with Division 2 of Part 7.8 subdivision B of the Act relating to

monies paid to a Licensee by way of a loan from a client, need to ensure:

• Loans from clients are appropriately identified.

• An approved trust account is established.

• Money borrowed is paid into the trust account within 1 business day.

• The terms and conditions of use of the loan and the purpose for which funds will be

used is given to the client in a statement.

• Funds are only used for the specified purpose outlined in the terms and conditions or

subsequently agreed to in writing.

64. The auditor establishes whether the Licensee has controls in place to identify when the

Licensee has received a loan from a client to ensure a trust account is appropriately

established. The auditor performs procedures to determine whether the Licensee has designed

controls suitable to meet the relevant requirements; and then designs procedures to test that

those controls have operated effectively throughout the period.

65. Controls to achieve compliance with Division 3 of Part 7.8 of the Act relating to the handling

of property other than money given to the Licensee, need to ensure:

• Client property is identified.

• Deposits or registration of client property is in accordance with the requirements.

• Property is held as security only in permitted circumstances.

• Secured property is returned to the client within one business day of the client settling

their obligation to the Licensee.

• Clients are provided with statements of property held as security every three months.

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66. The auditor establishes whether the Licensee handles client property. The auditor determines

whether the Licensee has designed controls suitable to meet the requirements relating to client

property and then designs procedures to test that those controls have operated effectively

throughout the period.

67. Controls to achieve compliance with Division 4 of Part 7.8 of the Act relating to the receipt of

client monies by Licensees who are insurance brokers and agents of general and/or life

insurance contracts, but not the actual insurer, need to ensure:

• Client insurance money is identified.

• Insurance money is paid over to the insurer in accordance with the requirements

68. The auditor determines whether the Licensee has designed suitable controls for handling client

monies in accordance with the requirements and designs procedures to test that those controls

are operating effectively throughout the period.

69. No controls are required to achieve compliance with Division 5 of Part 7.8 of the Act which

makes provision for the regulations to impose reporting requirements in relation to money to

which Division 2 or 3 applies, or to a Licensee dealing in derivatives, as currently, there are no

regulations relating to this Division.

70. Division 6 of Part 7.8 of the Act relates to financial records, statements and audit. The auditor

determines whether the Licensee has suitable controls to meet the relevant requirements and

then designs procedures to test that these controls are operating effectively throughout the

period.

71. Division 7 of Part 7.8 of the Act (other than section 991A) relates to other rules about conduct

in licensed markets. The auditor considers firstly whether the legislation is applicable to the

Licensee. If the legislation is applicable, the auditor determines whether the Licensee has

suitable controls to meet the relevant requirements and then designs procedures to test that

these controls are operating effectively throughout the period.

Assurance - Financial Requirements (FS71, sections 4-10)

72. The FS71 audit report requires a combination of reasonable assurance opinions and limited

assurance conclusions on the Licensee’s compliance with prescribed financial requirements

and other relevant legislation. The auditor identifies the relevant financial requirements by

referring to the licence conditions.

73. Audit evidence for the matters requiring reasonable assurance may be gathered through a

combination of enquiry and observation, tests of controls, substantive testing and

representations from management. Audit evidence for the matters requiring limited assurance

may be limited to enquiries. The amount of evidence from each source is a matter for the

auditor’s professional judgement. The nature and extent of procedures will be based on the

complexity of the Licensee, nature of their business, risk assessment and level of assurance

required. When auditing compliance with the Licensee’s financial requirements throughout

the period, it is important for the auditor to:

(a) understand how the Licensee derives their calculations, so the auditor can conclude as

to whether this method is in accordance with the requirements;

(b) ascertain whether all the calculations prepared during the period demonstrate a

compliant position; and

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Cash Needs Requirement – Assurance Considerations

74. ASIC requires reasonable assurance and limited assurance on the entity’s compliance with the

Licensee’s financial requirements throughout the year, not just at year-end. Hence,

evidence-gathering procedures will need to include an understanding of the processes adopted

by the Licensee to confirm compliance throughout the year, such as formal policies, monthly

calculations, use of standard calculation templates and monitoring by the Licensee’s board or

appropriate delegate. The auditor considers testing to be performed on a sample basis

depending on the assessment of effectiveness of controls. The auditor applies the

requirements of ASAE 3450 when obtaining assurance over projections.

75. If the Licensee has adopted Option 1 for the cash needs requirement or is subject to a tailored

cash needs requirement, the auditor considers compliance throughout the period with the cash

holding requirement in Part (e) of the Option 1 definition, or with the cash holding

requirement per the applicable ASIC Class Order (CO 12/752, CO 13/760 or CO 13/761).

76. The auditor considers obtaining the cash flow projections throughout the relevant period and

determines whether the cash flow projections are either:

(a) a projection of the Licensee’s cash flows over at least the next three months based on

the Licensee’s reasonable estimate of what is likely to happen over this term

(Option 1);

(b) a projection of the Licensee’s cash flows over at least the next three months based on

the Licensee’s estimate of what would happen if the Licensee’s ability to meet its

liabilities over the projected term (including any liabilities the Licensee might incur

during the term of the projection) is adversely affected by commercial contingencies

taking into account all contingencies that are sufficiently likely for a reasonable

Licensee to plan how they might manage them (Option 2); or

Licensee’s reasonable estimate over what is likely to happen over this term and is

approved at least quarterly by those charged with governance (tailored cash needs

requirements).

The auditor considers establishing how often and when the cash flow projection is updated to

ensure it continuously covers at least the next three months (or 12 months for tailored cash

needs requirement).

77. The auditor obtains the Licensee’s documented assumptions used to prepare the cash flow

projections and checks 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.

78. Based on the cash flow projections already obtained, the auditor considers whether there is

evidence that the cash flow assumptions are not appropriately documented or that the

projections do 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 or paragraphs 3(c) or 3(e)(i) of the tailored cash needs requirements of

ASIC Class Orders CO 12/752, 13/760 or 13/761 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. The auditor may consider the use of specialists in this area.

79. 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

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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.

80. If the licensee relies on Option 2, the auditor reviews the reasonableness of the assumptions

based on the auditor’s knowledge of the business and on enquiries of management.

81. Under Option 3, where the Licensee does not prepare a cash flow projection, but instead relies

on a financial commitment from an Australian ADI, or comparable foreign institution, (under

licence condition 13(c)(iii)) the audit report is required to contain a statement about whether

the licensee has obtained an enforceable and unqualified commitment to pay on demand from

time to time an unlimited amount to the licensee, or the amount for which the licensee is liable

to its creditors at the time of demand to the licensee’s creditors or a trustee for the licensee’s

creditors.

82. Where the Licensee is a subsidiary of an Australian ADI or ASIC-approved prudentially

regulated body that does not prepare cash flow projections, on the basis of its expectation

concerning the adequacy of resources (under licence condition 13(c)(iv)), the audit report is

required to contain a statement about whether the auditor has any reason to believe that the

basis for selecting the assumptions documented by the Licensee in forming the expectation is

unreasonable.

83. Where the Licensee uses group cash flow projections to meet the cash needs requirement, on

the basis of alternative A (under licence condition 13(c)(v)), the auditor is required to include

an audit opinion on whether the parent entity has provided 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).

84. In addition, when relying on the Group cash flow projections under licence condition 13(c)(v),

the licensee auditor considers the requirement for the parent entity auditor to provide a

separate opinion modelled on the Option 1 or 2 audit requirement and that this auditor’s report

is required to be submitted at the same time as the FS71 opinion (under licence

condition 13(c)(v)(D)).

85. Where the Licensee relies on alternative B (under licence condition 13(d)(v)), the auditor’s

report is 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 adequacy of the resources required under alternative B, is unreasonable.

Limited Assurance - Risk Management Systems (FS71, sections 4-10)

86. FS71 requires limited assurance on risk management systems (RMS) to ensure ongoing

compliance with financial requirements. Section 912A(1)(h) of the Act requires the Licensee

to have adequate RMS. To satisfy this obligation, ASIC expects that the RMS will

specifically deal with the risk that the Licensee’s financial resources will not be adequate to

ensure that they are able to carry on their business in compliance with their licence

obligations. RMS are a form of control and accordingly the requirements of ASAE 3150 are

applied in obtaining assurance over these systems.

Assurance Considerations

87. ASAE 3150 requires the auditor to perform procedures to determine whether the Licensee has

designed controls that are suitable to meet the requirements of section 912A(1)(h) in that they

comprise adequate RMS and then designs procedures to test that these controls have operated

effectively throughout the period. Having regard to the risk of inadequate financial resources,

these procedures may include:

• Obtaining an understanding of the RMS and the process to identify material risks;

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• Consideration as to whether a formal documented RMS exists, although the formality

and extent of the processes required will depend on the size, nature and complexity of

the business; and

• Obtaining periodic calculations of compliance with financial requirements, and

consideration of processes that may exist to identify and address matters that may

arise between these periodic calculations that have the potential to cause

non-compliance with the financial requirements, although the extent of these

processes will depend on how much of a buffer the Licensee has above the

requirements and the sensitivity of these buffers to fluctuations in the performance and

financial position of the Licensee.

As the auditor’s conclusion is on the RMS as a whole, there is no expectation that the auditor

expresses assurance conclusions on the adequacy of the specific controls of the RMS.

88. As part of the limited assurance procedures, the auditor may seek the following types of

information and documentation:

• Copies of the RMS documents that set out the Licensee’s RMS during the period.

• Documentation that identifies and describes the systems, policies and procedures that

are in place to manage identified risks.

• Management representations of compliance with identified systems, policies,

procedures and structures.

• Minutes of the meetings of those responsible for monitoring compliance with aspects

of the RMS.

• Internal audit reports (if applicable).

• Certifications, if made by the Licensee, and relevant supporting documentation to

substantiate compliance with the RMS during the reporting period.

• Other supporting evidence to confirm that the controls identified in the RMS have

been in place during the reporting period.

The above is not meant to represent an exhaustive list and there may be other evidence that is

relevant to the specific circumstances of each Licensee.

Statement on Section 990K(2) Matters (FS71, section 13)

89. FS71 requires a statement about any matter referred to in section 990K(2) of the Act and

covers the financial reporting period and up until the date the FS71 auditor’s report is signed.

This section 990K(2) statement only deals with those matters that have not already been

reported by the auditor as required under section 990K(1). Given the 7 day reporting time

frame under section 990K, it is likely that for most matters, the auditor would not wait until

they lodge FS71 to report matters to ASIC. The section 990K(2) statement is not part of the

opinion section in FS71.

90. Reporting of section 990K matters is not required under section 13 of FS71 if the matter:

• Has already been reported separately by the auditor to ASIC;

• Is included in section 2-10 of FS71 as a basis for a modified opinion/conclusion;

• Is included in section 11 of FS71 as a non-material matter.

91. Section 990K(2) requires a report to be given in relation to any matter that, in the opinion of

the auditor:

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(a) has adversely affected, is adversely affecting or may adversely affect the ability of the

Licensee to meet the Licensee’s obligations as a Licensee; or

(b) constitutes or may constitute a contravention of:

(i) a provision of Subdivision A or B of Division 2 of the Act (or a provision of

regulations made for the purposes of such a provision);

(ii) a provision of Division 3 of the Act (or a provision of regulations made for the

purposes of such a provision);

(iii) a condition of the Licensee’s licence; or

in the conduct of the audit.

Assurance Considerations

92. If the auditor becomes aware of the matters under section 990K(2) during the course of the

audit of the financial report, performing work on FS71 or undertaking other audit work (e.g.

Managed Investment Scheme compliance plan audits), they have an obligation to report on

them. If the auditor becomes aware of a section 990K(2) matter that is outside the Act

sections subject to the engagement, the auditor is required to report on these section 990K(2)

matters but has no obligation to conduct procedures specifically to identify those matters.

93. Apart from the requirement to report section 990K(2) breaches in FS71, section 990K(1)

requires auditors to report such breaches to ASIC (and the Licensee and any relevant market

or clearing authority e.g. ASX for stockbrokers) within 7 days of becoming aware of the

matter. Auditors consider this obligation at all times of the year, but particularly during the

planning, interim and final stages of their audits. The Licensee is required to report all

‘reportable situations

’ including deemed significant matters (breaches or likely breaches that

are significant) as soon as practicable and within 30 days of becoming aware there are

reasonable grounds to believe a reportable situation has arisen as required by section 912DAA.

The auditor is expected to report breaches even if the Licensee has already reported same.

94. There is a potential conflict between the auditor’s obligation to report any breaches

and the

Licensee’s obligation to report all ‘reportable situations’ to ASIC. An opinion or conclusion is

not provided on the 990K statement in the FS71. The auditor separately considers whether a

matter reported in the statement also impacts the audit opinion within the FS71 report.

95. As the section 990K(2) statement specifically covers both the financial year and the period

between the end of the financial year and the date of signing the FS71 auditor’s report (unlike

the other reporting requirements in FS71), the auditor is obliged to formally consider the

existence of relevant matters up to the date of signing the report. To determine the existence

of such matters, the auditor considers matters including:

• Reading minutes of the meetings of those charged with governance, and compliance,

audit and executive committees, held after the reporting date, and enquiring about

matters discussed at meetings for which minutes are not yet available.

• Obtaining copies of all correspondence with ASIC and any other relevant regulators

up to the date of signing.

• Enquiring of management as to whether any subsequent events have occurred which

might represent matters referred to under section 990K(2).

S912D of the Corporations Act 2001 defines reportable situations.

See ASIC Regulatory Guide RG 34 Auditor's obligations: Reporting to ASIC: Section C: RG 34.48.

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Overall Assurance Reporting Considerations

96. Due to the nature of audit testing and other inherent limitations of an audit, together with the

inherent limitations of the Licensee and its related licence conditions, there is a possibility that

a properly planned and executed audit will not detect all breaches of the Licensee’s licence

conditions. Accordingly, the audit conclusion under section 989B(3) of the Act is expressed

in terms of reasonable or limited assurance (as appropriate) and cannot constitute a guarantee

that all compliance breaches have been detected.

97. There are also practical limitations in requiring an auditor to perform a continuous

examination of the Licensee and form an opinion or conclusion that the entity has complied at

all times with the Act during the period covered by the auditor’s report. However, the auditor

performs tests periodically throughout the financial year to obtain evidence and obtain

reasonable assurance that the compliance measures complied with the written descriptions and

were adequate throughout the period under examination.

98. Prior to issuing the FS71 audit report, the auditor considers obtaining a written representation

from the directors of the Licensee which includes their assertions that the Licensee has

complied with the licence conditions during the financial year and up to the date the FS71

audit report is signed, and that the Licensee continues to meet the requirements of Part 7.8 of

the Act. In obtaining and using these written representations, the auditor complies with the

requirements of, as appropriate, ASAE 3000, ASAE 3100, ASAE 3150 and ASAE 3450. An

example management representation letter is contained in Appendix 2.

99. The FS71 audit report is an ASIC prescribed form and can be found on the ASIC website

www.asic.gov.au. ASIC requires form FS71 to be lodged in the prescribed form and that no

modifications or deletions are made, unless consented to by ASIC.

100. It is important to check the ASIC website to ensure that the latest version of FS71 is adopted.

Communications with Those Charged with Governance

101. Under ASAE 3000, ASAE 3100, ASAE 3150 and ASAE 3450 the auditor communicates

relevant matters of governance interest arising from the engagement to those charged with

governance on a timely basis. In addition, Auditing Standards ASA 260

and ASA 265

contains information that the auditor may find useful when communicating with those charged

with governance. Examples of such matters may include:

• The general approach and overall scope of the engagement, or any additional

requirements.

• Fraud or information that indicates that fraud may exist.

• Significant deficiencies in internal controls identified during the engagement. A

significant deficiency in internal controls means a deficiency or combination of

deficiencies in internal controls that, in the auditor’s professional judgement is of

sufficient importance to merit the attention of those charged with governance.

• Disagreements with management about matters that, individually or in aggregate,

could be significant to the engagement.

• Compliance breaches.

• Expected modifications to the auditor’s report.

ASA 260 Communication with Those Charged With Governance.

ASA 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 26 - GUIDANCE STATEMENT

102. The auditor informs those charged with governance of the Licensee of any uncorrected

misstatements/non-compliance, other than those which are clearly trivial, aggregated by the

auditor during and pertaining to the engagement that were considered to be immaterial, both

individually and in the aggregate, to the assurance engagement.

Conformity with International Pronouncements

103. There is no equivalent International Standard on Auditing or International Auditing Practice

Statement to this Guidance Statement.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 27 - GUIDANCE STATEMENT

Appendix 1

(Ref: Para.35 )

EXAMPLE ENGAGEMENT LETTER

The following example engagement letter is for use as a guide only, in conjunction with the

considerations described in GS 003, and will need to be varied according to individual requirements

and circumstances.

To [Title of Those Charged with Governance]

Section 989B(3) of the Corporations Act 2001 (the Act) requires an Australian Financial Services

Licence (AFSL) holder (AFS Licensee) to lodge with ASIC the auditor’s report on the AFS licensee

(Licensee) together with a profit and loss statement and balance sheet (being the audited financial

report).

The Act, Corporations Regulations 2001, ASIC regulatory documents, ASIC Class Orders and ASIC

Legislative Instruments determine the scope of the auditor’s report. Reference to the auditor’s report

is also made in the conditions of the AFSL. Currently the required format of the auditor’s report is set

out in ASIC form FS71.

You have requested that we conduct an assurance engagement to provide an FS71 report. We are

pleased to confirm acceptance and this letter sets out in general terms, our understanding of the terms

and objectives of our engagement as auditors of the AFSL of [name of entity] (the Licensee) pursuant

to section 989B(3) of the Act. This engagement is a separate engagement from our audit of the annual

financial report [and half year review] appointment[s] under the Act.

Scope

Our reporting will be in a form consistent with the requirements of ASIC form FS71 which requires:

• Reasonable assurance on compliance with specified provisions of Part 7.8 of the Act (being

Divisions 2 to 7, except for section 991A, relating to dealing with client money, property and

insurance);

• Reasonable assurance on compliance with sections 981B and 982B of the Act (relating to the

control and operation of trust accounts);

• Reasonable assurance that all necessary records, information and explanations for the purpose

of the audit report were received;

• A combination of reasonable and limited assurance on compliance with AFSL conditions

relating to financial requirements as prescribed by ASIC in regulations, class orders and

legislative instruments; and

• A statement that during the performance of our duties as auditors of the Licensee, we have not

become aware of any matters referred to in section 990K(2) of the Act during or since the

financial year, that we have not previously reported to ASIC.

The responsibilities of the auditor

ASIC form FS71 includes a combination of reasonable assurance opinions and limited assurance

conclusions on the AFS Licensee’s compliance with AFSL conditions relating to financial

requirements as prescribed by ASIC.

• Where we are required to obtain reasonable assurance in relation to the matters in ASIC form

FS71, our reasonable assurance procedures will be conducted in accordance with AUASB

Standards, and accordingly will include such tests and procedures as we consider necessary in

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 28 - GUIDANCE STATEMENT

the circumstances. This will involve an examination of the internal controls used by the AFS

Licensee to comply with the financial requirements of the AFSL, the specified provisions of

Part 7.8 and the control and operation of each account maintained for section 981B or

section 982B of the Act.

• Where we are required to obtain limited assurance in relation to the matters in ASIC form

FS71, our limited assurance procedures are conducted in accordance with Standards on

Assurance Engagements. Limited assurance procedures consists primarily of enquiry about,

the operation of the procedures and internal control of the financial risk management system

and comparison and other such analytical review procedures as we consider necessary.

The procedures performed in a limited assurance engagement vary in nature and timing from, and are

less in extent than for, a reasonable assurance engagement and consequently the level of assurance

obtained in a limited assurance engagement is substantially lower than the assurance that would have

been obtained had a reasonable assurance engagement been performed. Our limited assurance

engagement is not a reasonable assurance engagement and we will not express a reasonable assurance

opinion on the projections and will obtain limited assurance.

Inherent Limitations

Internal Controls

Because of the inherent limitations of any internal control structure, it is possible that fraud, error or

non-compliance with laws and regulations may occur and not be detected. We will not audit the

overall internal control structure (including procedures that do not relate to the financial requirements)

and no opinion will be expressed as to its effectiveness. A reasonable assurance engagement is not

designed to detect all weaknesses in control procedures or all instances of non-compliance with

part 7.8 of the Act as it is not performed continuously throughout the period and the tests performed

are on a sample basis having regard to the nature and size of the AFS Licensee. Also, projections of

any evaluation of the control procedures to future periods are subject to the risk that the procedures

may become inadequate because of changes in conditions, or that the degree of compliance with the

procedures may deteriorate.

Projections

The projections prepared by [Management/Those Charged with Governance] in accordance with the

cash needs requirements conditions of the AFSL are based upon the achievement of certain economic,

operating and developmental assumptions about future events and actions that have not yet occurred

and may not necessarily occur. There is a considerable degree of subjective judgement involved in the

preparation of projections. Actual results may vary materially from those projections and the variation

may be materially positive or negative.

Auditor’s obligation to report matters to ASIC

In accordance with section 990K of the Act, if during the course of or in relation to our assurance

engagement, we become aware of a matter referred to in section 990K(2) of the Act we are required to

lodge a written report to ASIC within 7 days.

Responsibility of the Licensee

The [Title of Those Charged with Governance] of the Licensee are responsible for:

• Establishing and maintaining effective internal control procedures in relation to compliance

with the requirements of Part 7.8 of the Act, the conditions of the AFSL and the provisions of

the financial services laws. These duties are imposed on the AFS Licensee by the Act and the

AFSL.

• Complying with the requirements of the Act and the conditions of the AFSL.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 29 - GUIDANCE STATEMENT

Restriction on Use

The FS71 auditor’s report has been prepared for the Licensee and ASIC as required by section 989B

of the Corporations Act. We will not accept any responsibility for any reliance on this report to any

persons or users other than the Licensee and ASIC, or for any purpose other than that for which it was

prepared.

Fees

We look forward to full cooperation from your staff and we trust that they will make available to us

whatever records, documentation and other information we request in connection with our audit.

[Insert additional information here regarding fee arrangements and billings, as appropriate]

Other

This letter will be effective for future years unless we advise you of its amendment or replacement, or

the engagement is terminated.

As part of our assurance process, we will request from [management, and where appropriate, Those

Charged with Governance], written confirmation concerning representations made to us in connection

with the assurance process.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your

understanding of the arrangements for our audit of [the Licensee] as required by Section 989(B) of the

Act.

Yours faithfully,

(signed)

...............................

Name and Title

Date

Acknowledged on behalf of [Licensee] by (signed)

..............................

Name and Title

Date

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 30 - GUIDANCE STATEMENT

Appendix 2

(Ref: Para.98 )

EXAMPLE MANAGEMENT REPRESENTATION LETTER

[Client Letterhead]

[Addressee – Auditor]

[Date]

This representation letter is provided in connection with your engagement to report in accordance with

section 989B(3) of the Corporations Act 2001 (the Act) regarding the Australian Financial Services

Licence (“AFSL”) of [Name of the Licensee] (Licence No: [xx]) for the financial year ended [date].

We acknowledge our responsibility for meeting the conditions of [Name of the Licensee]’s AFSL,

effective [date of AFSL] and that this responsibility includes designing, implementing and maintaining

effective internal control to ensure compliance with the conditions of [Name of the Licensee]’s AFSL

and the requirements of Part 7.8 of the Act.

We confirm, to the best of our knowledge and belief, the following representations:

General

1. We have made available to you, and your representatives:

(a) access to all information of which we are aware that is relevant to [Name of the

Licensee]’s compliance with the Act, controls over compliance with the Act and

projections, such as records, documentation and other matters;

(b) additional information that you have requested from us for the purpose of the

engagement;

necessary to obtain evidence; and

(d) minutes of all meetings of (shareholders, directors, and committees of directors).

2. We have:

(a) no knowledge of any fraud, error or non-compliance with laws and regulations

involving management or employees who have a significant role in the internal control

structure;

(b) no knowledge of any fraud, error or non-compliance with laws and regulations that

could have a material effect on the either the form FS70 for [Name of the AFS

Licensee], or ongoing compliance with the AFSL; and

deficiencies in, financial reporting or compliance practices that could have a material

effect on our ongoing ability to comply with financial services requirements or

conditions of the AFSL.

3. We have disclosed to you:

(a) all significant facts relating to any frauds or suspected frauds which are known to us

that may have affected compliance with the conditions of the [Name of the

Licensee]’s AFSL and the requirements of Part 7.8 of the Act;

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 31 - GUIDANCE STATEMENT

(b) the results of our assessment of the risk of non-compliance with the conditions of

[Name of the Licensee]’s AFSL and the requirements of Part 7.8 of the Act as a result

of fraud;

compliance with the conditions of [Name of the Licensee]’s AFSL and the

requirements of Part 7.8 of the Act communicated by employees, former employees or

others;

(d) all known actual or possible litigation and claims whose effects are considered when

considering compliance with the conditions of [Name of the Licensee]’s AFSL and the

requirement of Part 7.8 of the Act.

4. We acknowledge our responsibility for the design and implementation of internal controls to

detect fraud and error.

ASIC Form FS70

5. We confirm that form FS70, to which form FS71 relates, has been prepared so as to be

consistent with [Name of the Licensee]’s audited financial report and it has been properly

drawn up so as to provide the information required by directions issued by ASIC under the Act

and the Regulations.

6. We confirm that any non-compliance with the conditions of [Name of the Licensee]’s AFSL

and the requirements of Part 7.8 of the Act, and the resolution of such issues have been

discussed with you.

Part 7.8 of the Act

7. There has been no matter during or since the end of the year/period ended [selected date]

which has adversely affected, is adversely affecting or may adversely affect our ability to meet

our obligations as a Licensee or constitutes a contravention of :

(a) a provision of Subdivision A or B of Division 2 of Part 7.8 of the Act (or a provision

of regulations made for the purposes of such a provision);

(b) a provision of Division 3 of Part 7.8 of the Act (or a provision of regulations made for

the purposes of such a provision);

provision of regulations made for the purposes of such a provision); or

(d) a condition of the licence.

8. We have designed and operated controls effectively to confirm that we comply with

Divisions 2, 3, 4, 4A, 5, 6 and 7 of Part 7.8 of the Act (other than section 991A).

9. We have operated and controlled each account required by sections 981B and 982B of the Act

in accordance with those sections.

Financial Requirements

10. We have complied with all the financial requirements under the Licence throughout the

year/period.

11. We acknowledge that we were a body regulated by the Australian Prudential Regulation

Authority (“APRA”) / participant in the market conducted by the ASX Limited (“ASX”) or

Cboe / participant in the market conducted by the Australian Securities Exchange Limited

(“ASX 24”) that restricted its financial services business to participating in the market and

incidental business / participant in the licensed clearing and settlement facility operated by

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 32 - GUIDANCE STATEMENT

ASX Clear Pty Limited / participant in the licensed clearing and settlement facility operated

by ASX Clear (Futures) Pty Limited and restricted its financial services business to

participating in the licensed clearing and settlement facility and incidental business for the

year ended [balance date]. [delete if Licensee is not APRA regulated or a market or clearing

participant]

12. We have maintained adequate risk management systems throughout the year/period to manage

the risk of having insufficient financial resources to comply with the conditions of the

Licence. [delete if APRA-regulated]

13. We acknowledge our responsibility for the preparation of cash flow projections and the

assumptions underpinning those projections, and confirm that the assumptions adopted for the

projections were reasonable/the basis for the selection of assumptions to meet the

requirements for the projections adopted was reasonable. [delete as applicable depending on

whether the licensee is complying with Option 1 or Option 2]

14. We confirm that we have had our cash flow approved by [those charged with governance];

and have updated our projection of cash flows in line with the requirements of ASIC

regulatory guide RG 166. [delete if Licensee is not subject to tailored cash requirements]

15. We confirm that we have access as needed to enough financial resources to meet our liabilities

over the next 3/12 months, including any additional liabilities that we project we will incur

during that term/we might incur during that term. [delete as applicable depending on whether

the Licensee is complying with tailored cash requirements, Option 1 or Option 2]

16. In relation to forecast financial information provided to you for the purpose of your report (in

particular the cash needs requirements prescribed by Option 1 or Option 2 or the tailored cash

need requirements as referred to in our AFSL and ASIC form FS71), it is confirmed, to the

best of our knowledge and belief, that:

(a) the financial position and operating results for the forecast period reflect the best

judgement of our directors and management based on expected future market

conditions and the likely course of action to be taken;

(b) the accounting principles used in the preparation of the forecast data are consistent

with those used in our historical financial report and are the same as those expected to

be used in the eventual preparation of the historical financial report come the end of

the forecast period;

commitments which would materially affect the financial forecast except as otherwise

specifically disclosed to you;

(d) the key assumptions have been consistently applied during the forecast period; and

(e) no factors that may be relevant have been omitted.

Uncorrected Misstatements and Non Compliance Identified

17. We acknowledge that you have advised management of identified uncorrected misstatements,

instances of non-compliance with the conditions of [Name of the Licensee]’s AFSL and the

requirements of Part 7.8 of the Act; and identified weaknesses in the design of the internal

controls that you became aware of as a result of your reasonable or limited assurance

procedures.

18. We believe the effects of uncorrected misstatements, instances of non-compliance with the

conditions of [Name of the Licensee]’s AFSL and the requirements of Part 7.8 of the Act and

weaknesses in the design of internal controls summarised [in Appendix [X]/below] pertaining

to the year ended [balance date] (including the effects of prior year issues impacting the

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 33 - GUIDANCE STATEMENT

current year) are both individually, and in aggregate, immaterial and are adequately reported

to ASIC.

Additional Matters

19. We have reported any reportable situations to ASIC as required under:

(a) section 912DAA of the Act; and

(b) section 601FC(1)(l) of the Act [delete if licensee is not a responsible entity of a

managed investment scheme]

and have provided you with details of all breaches, reported and unreported, of the Licence or

the Act that occurred during or since the end of the year/period of which we are aware.

20. We understand that your engagement has resulted in a combination of reasonable assurance

opinions and limited assurance conclusions. Where you were required to obtain reasonable

assurance we understand that your reasonable assurance engagement was conducted in

accordance with AUASB Standards and was designed primarily for the purpose of expressing

an opinion in relation to ASIC form FS71 and that your reasonable assurance procedures were

limited to those you considered necessary in the circumstances. In addition, we understand

that the limited assurance conclusions were also conducted in accordance with AUASB

Standards and involved limited assurance procedures. These procedures result in you

obtaining less assurance than that provided by a reasonable assurance engagement. For these

conclusions you have not performed a reasonable assurance engagement and accordingly do

not express an opinion on them.

21. [Include any additional matters relevant to the engagement]

Yours faithfully

Name of signing officer and title

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued under the Corporations Act 2001

GS 003 - 34 - GUIDANCE STATEMENT

Appendix 3

(Ref: Paras.18, 21 )

SUMMARY OF FINANCIAL REQUIREMENTS APPLICABLE TO CERTAIN AFS LICENSEES

This table summarises and provides the regulatory references for certain financial and assurance requirements applicable to all non-exempt AFS

Licensees, Responsible Entities, Operators of IDPS, Retail OTC derivative issuers, Crowd-Source Funding Intermediaries and Corporate

Directors of retail CCIVs. This appendix may not be a complete summary of all legislative requirements. Practitioners are advised to refer to the

current legislation and ASIC Regulatory Guides in place as issued from time to time.

Requirements

Relating to:

Base Level

requirements

applicable to all non-

exempt AFS

Licensees

Responsible

Entities and

operators of

IDPSs

Retail OTC

derivative issuers

Custodial or

depository

services

Crowd-Source

Funding

Intermediaries

(CSF)

Corporate

Directors of

retail CCIVs

Key

Regulatory

References

• RG 166 Section B

• ASIC PF 209

paragraph 13

• RG 166

Appendix 2

and 3

• ASIC Class

Order

CO 13/760

• RG 166 Appendix

• ASIC Class Order

CO 12/752

• RG 166

Appendix 4

• ASIC Class

Order

CO 13/761

• RG 166

Appendix 9

• ASIC Instrument

2017/339

• RG 166

Appendix 10

• ASIC Instrument

2022/449

Solvency and

positive net

assets

• Ability to pay debts

when due and payable

• Total assets

exceeding total

liabilities (unless

using adjusted assets

and liabilities defined

in RG 166 Section E)

• Regulatory

References:

o RG 166.31 RG

166.34

o ASIC PF 209

para 13

• Base level

solvency and

positive net

assets

• Base level

solvency and

positive net assets

• Base level

solvency and

positive net

assets

• Base level

solvency and

positive net

assets

• Base level

solvency and

positive net

assets

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued under the Corporations Act 2001

GS 003 - 35 - GUIDANCE STATEMENT

Requirements

Relating to:

Base Level

requirements

applicable to all non-

exempt AFS

Licensees

Responsible

Entities and

operators of

IDPSs

Retail OTC

derivative issuers

Custodial or

depository

services

Crowd-Source

Funding

Intermediaries

(CSF)

Corporate

Directors of

retail CCIVs

Cash needs

• Not applicable where

a tailored cash needs

requirement applies

• Option 1 RG 166.40-

RG 166.44

• Option 2 RG 166.45-

RG 166.47

• Option 3 RG 166.50

• Option 4 RG 166.51

• Option 5 RG 166.52

• Regulatory

References:

o ASIC PF 9

• Tailored cash

need

requirement

[RG 166.204 –

RG 166.205 and

RG 166.239 –

RG 166.241]

• At least 12

month cash flow

projection

• Documentation

of calculations

and assumptions

• Board approval

of the cash flow

projections at

least quarterly

• Tailored cash

need requirement

[RG 166.316 –

RG 166.321]

• At least 12 month

rolling cash flow

projection

• Documentation of

calculations and

assumptions

• Board approval of

the cash flow

projections

• Tailored cash

need

requirement

[RG 166.265 –

RG 166.267]

• At least 12

month cash flow

projection

• Documentation

of calculations

and assumptions

• Cash flow

projections

approved by

Board at least

quarterly

• Tailored cash

need

requirement

[RG 166.365 –

RG 166.366

• At least 12

month cash flow

projection

• Documentation

of calculations

and assumptions

• Cash flow

projections

approved by

Board at least

quarterly

• Tailored cash

need

requirement

[RG 166.373 –

RG 166.374

• At least 12

month cash flow

projection

• Documentation

of calculations

and assumptions

• Cash flow

projections

approved by

Board at least

quarterly

Net Tangible

Assets

• N/A

• If

requirements

related to

custody are

satisfied or

licensee is an

IDPS

operator, the

greater of:

o $150,000

o 0.5% of

average

value of

• Greater of:

o $1,000,000

o 10% of

average

revenue

• Regulatory

References:

o RG 166.325

RG 166.335

• Other than

incidental

providers

(satisfy

requirements for

custodian) the

greater of:

o $10 million

o 10% of

average

revenue

• For incidental

providers if all

• N/A

• If requirements

related to

custody are

satisfied or

licensee is an

IDPS operator,

the greater of:

o $150,000

o 0.5% of

average

value of

CCIV

assets up to

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued under the Corporations Act 2001

GS 003 - 36 - GUIDANCE STATEMENT

Requirements

Relating to:

Base Level

requirements

applicable to all non-

exempt AFS

Licensees

Responsible

Entities and

operators of

IDPSs

Retail OTC

derivative issuers

Custodial or

depository

services

Crowd-Source

Funding

Intermediaries

(CSF)

Corporate

Directors of

retail CCIVs

scheme

and IDPS

property up

to $5

million; or

o 10% of

average RE

and IDPS

revenue

• If requirements

related to

custody are not

satisfied or

licensee

performs

custodial

functions as an

IDPS operator,

the greater of:

o $10 million

o 10% of

average RE

and IDPS

revenue

• Regulatory

References:

o RG 166.209

RG 166.238

and

RG 166.245

RG 166.264

assets are held

by another

complying

custodian or

eligible

custodian – no

NTA

requirement;

otherwise the

greater of:

o $150,000 or

o 10% of

average

revenue

• Regulatory

References:

o RG 166.268

RG 166.292

$5 million

NTA; or

o 10% of

average

Corporate

Director

revenue

• If requirements

related to

custody are not

satisfied or

licensee

performs

custodial

functions as a

RE or IDPS

operator, the

minimum of

NTA the greater

of:

o $10 million

• 10% of your

average

corporate

director,

responsible

entity and IDPS

revenue

• Regulatory

References:

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued under the Corporations Act 2001

GS 003 - 37 - GUIDANCE STATEMENT

Requirements

Relating to:

Base Level

requirements

applicable to all non-

exempt AFS

Licensees

Responsible

Entities and

operators of

IDPSs

Retail OTC

derivative issuers

Custodial or

depository

services

Crowd-Source

Funding

Intermediaries

(CSF)

Corporate

Directors of

retail CCIVs

• RG 166.383(a)

RG 166.383(c)

Liquidity

• N/A

• Greater of

$150,000 or

50% of NTA in

cash and cash

equivalent; and

• At least 100%

of NTA in

liquid assets

• Regulatory

References:

o RG 166.214

and

RG 166.246

• 50% of NTA in

cash or cash

equivalents; and

• 50% of NTA in

liquid assets.

• Regulatory

References:

o RG 166.326

• At least 50% of

NTA in cash

and cash

equivalent; and

• At least 100%

of NTA in

liquid assets

• Regulatory

References:

o RG 166.272

• N/A

Audit

• RA: Financial

requirement;

• RA/LA: Cash needs

requirement

• LA: s912A(1)(h)

• Regulatory

References:

o RG 166.62

RG 166.68

o PF 209 para 28(d)

• Combination

RA and LA

• Tailored audit

requirements

• Regulatory

References:

o RG 166.208

RG 166.210

o RG 166.251

RG 166.252

• Combination RA

and LA

• Tailored audit

requirements

• Regulatory

References:

o RG 166.322

RG 166.324

• Combination

RA and LA

• Tailored audit

requirements

• Regulatory

References:

o RG 166.279

RG 166.281

• Combination

RA and LA

• Tailored audit

requirements

• Regulatory

References:

• RG 166.368

RG 166.370

• Combination

RA and LA

• Tailored audit

requirements

• Regulatory

References:

• RG 166.375

RG 166.377

RA: Reasonable assurance

LA: Limited assurance

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 38 - GUIDANCE STATEMENT

Appendix 4

(Ref: Para.21(a) )

TAILORED CASH REQUIREMENTS

This appendix summarises the tailored cash requirements needs for Responsible Entities, Operators of

Investor Directed Portfolio Services (IDPS), Custodial or Depository Service Providers and retail Over

the Counter (OTC) Derivative Issuers. A responsible entity authorised to operate a managed

investment scheme and IDPS operators are required to comply with the financial requirements as set

out in RG 166 Appendix 2 and 3, and ASIC Class Order CO 13/760. The financial requirements for

custodial or depository service providers are set out in RG 166 Appendix 4 and ASIC Class

Order CO 13/761. The financial requirements for retail OTC derivative issuers are set out in RG 166

Appendix 8 and ASIC Class Order CO 12/752. This appendix may not be a complete summary of all

legislative requirements. Practitioners are advised to refer to the current legislation and ASIC

Regulatory Guides in place as issued from time to time.

To meet the cash needs requirement, the licensee is required to:

(i) prepare a projection of the licensee’s cash flows over at least the next 12 months (for retail

OTC derivative issuers this is required to be done quarterly in March, June, September and

December) based on the licensee’s reasonable estimate of what is likely to happen over this

period (retail OTC derivative issuers – revenue and expenses);

(ii) have the projection approved in writing at least quarterly by the licensee’s directors (unless

the licensee is a retail OTC derivative issuer or custodial or depository service provider who

may then have the projection approved by partners or trustees of the licensee if the licensee

is a partnership or a trust, or a person if the licensee is a natural person) as satisfying the

requirements of paragraph (i);

(iii) document the calculations and assumptions used in preparing the projection, and describe in

writing why the assumptions are appropriate;

(iv) update the projection of the licensee’s cash flows if:

➢ the projection ceases to cover at least the next 12 months (not a requirement for

retail OTC derivative issuers); or

➢ there is reason to suspect that an updated projection would differ materially from

the current projection (not a requirement for retail OTC derivative issuers) or show

that the licensee was not meeting the requirements in subparagraphs (v) below;

(v) document whether (retail OTC derivative issuers require a certification in writing by the

persons referred to in (ii) above), based on the projection of the licensee’s cash flows, the

licensee:

➢ will have access when needed to enough financial resources to meet its liabilities

over the projected term of at least the next 12 months; and

➢ will hold at all times during the period to which the projection relates in cash or

cash equivalents, an amount equal to or greater than the current amount the

licensee is required to hold in cash or cash equivalents under the licensee’s

liquidity requirement;

(vi) make the projections available to ASIC on request (requirement for retail OTC derivative

issuers only).

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 39 - GUIDANCE STATEMENT

Appendix 5

(Ref: Para.21(d))

TAILORED ASSURANCE REQUIREMENTS

This appendix summarises the tailored audit requirements applicable for Responsible Entities,

Operators of Investor Directed Portfolio Services (IDPS), Custodial or Depository Service Providers

and retail OTC Derivative Issuers. A responsible entity authorised to operate a managed investment

scheme and IDPS operators are required to comply with the audit requirements as set out in RG 166

Appendix 2 and 3, and ASIC Class Order CO 13/760. The audit requirements for custodial or

depository service providers are set out in RG 166 Appendix 4 and ASIC Class Order CO 13/761.

The audit requirements for retail OTC derivative issuers are set out in RG 166 Appendix 8 and ASIC

Class Order CO 12/752. This appendix may not be a complete summary of all legislative

requirements. Practitioners are advised to refer to the current legislation and ASIC Regulatory Guides

in place as issued from time to time.

1. If the licensee is a responsible entity, operator of an IDPS, a custodial or depository service

provider then ASIC requires the following:

Reasonable assurance that the licensee:

(a) complied with the requirement to have the projection approved in writing at least

quarterly by the directors/partners/person and that the licensee has met the net tangible

assets requirements (NTA) and liquidity requirements of the licence, and any other

financial requirements in conditions on its licence;

(b) had, at all times, a projection over at least the next 12 months that purports to, and

appears on its face to be based on the licensee’s reasonable estimate of what is likely

to happen over this period;

for the projection;

2. If the licensee is a responsible entity or operator of an IDPS, a custodial or depository service

provider then ASIC requires the following:

Limited assurance that the licensee:

(a) had adequate systems for managing the risk of having insufficient financial resources

to meet the NTA requirement, cash/cash equivalent, and liquid asset holding

requirement, and any other financial requirements in conditions of its licence;

(b) did not fail to document the calculations and assumptions used in preparing the

projection and describe in writing why the assumptions are appropriate;

over the projected term of at least the next 12 months;

(d) will hold at all times during the period to which the projection relates, in cash/cash

equivalents and liquid assets, an amount equal to or greater than the current amount

the licensee is required to hold in cash or cash equivalents;

(e) adopted assumptions for its projection that were not unreasonable; or (if the licensee

complies with the NTA requirement for incidental providers) satisfied the definition of

incidental provider.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 40 - GUIDANCE STATEMENT

3. If the licensee is a retail OTC derivative issuer then ASIC requires the following:

(a) Reasonable assurance that the licensee:

(i) complied with the NTA and liquidity requirements of the licence and other

financial requirements in conditions on its licence;

(ii) had at all times a projection that purports to, and appears on its face to,

comply with the requirement to prepare in each March, June, September and

December, a projection of the licensee’s cash flows over at least the next

12 months based on the licensee’s reasonable estimate of revenues and

expenses over this period;

(iii) correctly calculated the projection on the basis of the assumptions the licensee

adopted for the projection.

(b) Limited assurance that the licensee:

(i) satisfied section 912A(1)(h) of the Act for managing the risk of having

insufficient financial resources to meet the NTA and liquidity requirements of

the licensee and any other financial requirements in conditions on its licence;

and

(ii) adopted assumptions for its projection that were not inappropriate;

(iii) had their projections approved in writing by their directors/partners/person as

being based on the licensee’s reasonable estimate of revenues and expenses

over the period;

(iv) documented the calculations and assumptions used in preparing the projection,

and described in writing why the assumptions are appropriate;

(v) updates the cash flow projections if there is reason to suspect that an updated

projection would show that the licensee :

• will not have access when needed to enough financial resources to

meet its liabilities over the projected term of at least the next

12 months; and

• will hold at all times during the period to which the projection relates

in cash or cash equivalents, an amount equal to or greater than the

current amount the licensee is required to hold in cash or cash

equivalents.

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 41 - GUIDANCE STATEMENT

Appendix 6

(Ref: Para.19(b))

CASH AND ASSURANCE REQUIREMENTS UNDER PF 209

This appendix summarises the cash and assurance requirements, that are detailed in ASIC PF 209, for

Licensees that are not regulated by APRA or are not market or clearing participants and are not subject

to tailored cash and assurance requirements as outlined in Appendix 4 and 5. Licensees that are not

APRA regulated or market participants are also subject to the requirements for reasonable assurance in

respect of other relevant financial conditions on their licence which may be applicable based on the

nature of their business. This appendix may not be a complete summary of all legislative

requirements. Practitioners are advised to refer to the current legislation and ASIC Regulatory Guides

in place.

1. If the licensee is relying on satisfying the cash needs requirement by Option 1 or Option 2,

then ASIC requires the following:

(a) Reasonable assurance that the licensee had at all times a projection (covering at least

the following three months) that purports to, and appears on its face to comply with,

paragraph (a) of the definition of Option 1 or paragraph (a) of the definition of

Option 2 (depending on which option the licensee purports to be complying with);

(b) Reasonable assurance that the licensee has correctly calculated the projections on the

basis of the assumptions the licensee adopted for the projections described above;

financial resources to comply with the conditions of the licence;

(d) Limited assurance over the cash needs requirement using either Option 1 or Option 2

except for paragraphs (a), (c) and (e) of the definition of Option 1 or paragraphs (a)

and (c) of the definition of Option 2;

(e) If the licensee relied on Option 1, limited assurance that the assumptions the licensee

adopted for its projection were not unreasonable; and

(f) If the licensee relied on Option 2, limited assurance that the basis for the selection of

assumptions to meet the requirements for the projection adopted was not

unreasonable.

2. If the Licensee is relying on satisfying the cash needs requirement with a financial

commitment by an Australian ADI or comparable foreign institution under Option 3 of

PF 209, then ASIC requires:

(a) Reasonable assurance that the Licensee has obtained from an Australian ADI or a

foreign deposit-taking institution approved in writing by ASIC as an eligible provider

an enforceable and unqualified commitment to pay on demand from time to time an

unlimited amount to the Licensee, or the amount for which the Licensee is liable to its

creditors at the time of demand to the Licensee’s creditors or a trustee for the

Licensee’s creditors;

(b) Limited assurance that the Licensee is managing the risk of having insufficient

financial resources to comply with the conditions of the licence;

unreasonable.

3. If the Licensee is relying on satisfying the cash needs requirement by relying on licence

condition 13(c)(iv) under Option 4 of PF 209, then ASIC requires:

Guidance Statement GS 003 Assurance Relating to Australian Financial Services Licences issued

under the Corporations Act 2001

GS 003 - 42 - GUIDANCE STATEMENT

(a) Reasonable assurance that the Licensee is a subsidiary of an Australian ADI or a

corporation approved by ASIC in writing;

(b) Reasonable assurance that a responsible officer of the Licensee has documented that

the officer has the reasonable expectation for at least the following three month period

together with the reasons for forming the expectation, the contingencies for which the

Licensee considers it is reasonable to plan, the assumptions made concerning the

contingencies and the basis for selecting those assumptions;

financial resources to comply with the conditions of the licence;

(d) Limited assurance that the basis for the selection of the assumptions adopted was not

unreasonable.

(i) If the Licensee is relying on satisfying the cash needs requirement by relying on licence

condition 13(c)(v) (Option 5), then ASIC requires:

(a) Reasonable assurance that the cash flows of the Licensee and each of its related bodies

corporate, other than a body regulated by APRA (“Licensee group”), are managed on

a consolidated basis and there is a body corporate within the Licensee group of which

all members of the Licensee group are subsidiaries that is not a body regulated by

APRA (“parent entity”);

(b) If the Licensee is relying on Alternative A, reasonable assurance that the parent entity

has provided an enforceable and unqualified commitment to pay on demand from time

to time an unlimited amount to the Licensee or to meet the Licensee’s liabilities;

(i) Limited assurance that the Licensee is managing the risk of having insufficient

financial resources to comply with the conditions of the licence; and

(ii) Limited assurance that the basis for the selection of the assumptions adopted

was not unreasonable; and

(d) Under subparagraph 13(c)(v)(D), a report by the parent entity’s auditor to be given to

ASIC with the Licensee’s annual audit report under condition 28 of its licence, with

respect to compliance by the parent entity with Option 1 or Option 2 as they would

apply in accordance with subparagraph (c) reflecting the report that would be required

from the auditor of a Licensee, for that period purporting to comply with Option 1

or 2.