APES 350 Due Diligence Duties for Accountants

APES 350 sets an accountant’s duties when participating in or reporting to a due diligence committee for a public document. Your agreed role determines the work you perform, the reports you issue and whether you sign the committee’s collective conclusions.

When APES 350 Applies

APES 350 applies to members in public practice who participate in or report to a due diligence committee for a public document issued in Australia. A public document includes a disclosure document or product disclosure statement. It also includes specified documentation for a scheme of arrangement, takeover or compulsory acquisition under the Corporations Act. The standard also addresses work with overseas elements, subject to conflicting local laws.

The Accounting Professional & Ethical Standards Board (APESB) publishes the APES 350 standard. Its bold requirements are mandatory. Normal-type passages explain those requirements or give guidance. Paragraph 1.6 recommends applying the standard as far as practicable to committee work that does not concern a public document.

A due diligence committee coordinates the client’s enquiries before issuing the public document. Its participants bring different expertise. An accountant’s role must remain within the agreed work and professional expertise, even when the committee considers the document as a whole.

The standard defines three roles, which can overlap where the engagement permits:

• A DDC Member participates in committee decisions and signs its collective reports. The role usually includes a separate Due Diligence Sign-off on specified information.
• A DDC Observer attends meetings without joining collective decisions or signing collective reports. An observer can have attendance-only duties, or agreed enquiries and reporting duties.
• A Reporting Person reports the results of specified procedures to the client and committee. That appointment does not itself make the accountant a committee member.

Compiling financial information is a separate engagement covered by APES 315 compilation duties. Ordinary tax advice also does not automatically appoint you to a committee. A tax report for a public document can fall within a Reporting Person appointment, depending on the agreed role.

Accepting the Role and Agreeing the Engagement

Before accepting the appointment, identify your role and assess threats to your ability to comply with the Code of Ethics. APES 350 requires you to address threats by removing their cause, applying effective safeguards or declining or ending the activity. Conflicts of interest and professional competence also require attention.

Independence depends on the services and client relationship. For an assurance client, assess the applicable audit, review or other assurance independence requirements. An audit client also brings applicable Corporations Act independence requirements. Determine whether the engagement, or part of it, is an assurance engagement before deciding which requirements apply.

Paragraph 3.8 recommends considering the transaction, timetable, available information and scope limits before accepting. It also covers the expertise of other committee participants and any financial-services licensing implications. These are acceptance considerations in the guidance, rather than a universal mandatory checklist.

If the proposed sign-off needs expertise you lack, paragraph 3.14 requires qualified assistance or advice, or declining the engagement. Where you rely on third-party advice for a report, disclose the adviser’s name, qualifications and subject matter in that report. Assess the adviser’s competence and objectivity, and whether their work is adequate.

Document and communicate the engagement terms under APES 350 and APES 305 engagement requirements. Paragraph 4.2 recommends identifying the public-document work, your committee role and the information you will examine. State any proposed assurance report, sign-off and observer New Circumstances Statement.

In practical terms, your engagement letter can record who supplies information, who receives your reports and how unresolved issues reach the committee. Include scope limits and the work needed before issuing each report. These arrangements help the client understand what you have accepted.

Compare your engagement letter with the Due Diligence Planning Memorandum, which allocates the participants’ responsibilities. Paragraph 4.3 requires action when that memorandum assigns you additional duties. Agree acceptable additions in amended engagement terms, or tell the client and committee about the mismatch and seek correction. If prohibited or conflicting responsibilities remain after those steps, paragraph 4.4 requires you to decline the engagement.

Evidence, Materiality and Committee Reporting

Your conclusions must follow the procedures actually performed on the information identified in your engagement. Receiving a management spreadsheet does not, by itself, establish a basis for a sign-off. Decide what enquiries and supporting evidence the agreed work needs.

A practical working-paper record connects each disclosure with its source, the procedure performed and any issue raised. Record the response and your resulting conclusion. Paragraph 6.1 requires working papers that record the work, identify sources of significant information and demonstrate compliance with applicable professional requirements.

Bring significant concerns about the wider document or due diligence process to the client or committee when they arise during your work. Paragraph 5.10 requires that communication. Your expertise and appointment still limit the conclusions you can issue independently.

What the Materiality Letter Does

A Materiality Letter gives the client and committee guidance for considering materiality in the due diligence work. When engaged to provide that guidance, you must comply with applicable auditing and assurance standards and issue the letter. These requirements appear in paragraphs 4.6 and 4.8.

Paragraph 4.7 recommends limiting your guidance to quantitative matters. The client decides the quantitative and qualitative treatment of a proposed disclosure after committee consideration. A numerical threshold does not automatically resolve an omission that changes an investor’s understanding.

Appendix 2 supplies a model letter. Its quantitative examples are guidance, not fixed thresholds every engagement must use. Choose a suitable basis for the circumstances and explain the limits of numerical guidance.

What the Sign-off Says

A Due Diligence Sign-off reports your conclusions on specified financial or other information after the agreed work. Paragraph 7.1 requires you to assess whether your procedures are sufficient and appropriate. Consider scope limitations and establish that the client or committee has addressed all material matters arising from your work.

Paragraph 7.2 prohibits the standard’s negative-form conclusions when your work is only limited enquiry or procedures from an earlier engagement. Access to an old report cannot replace the work needed for the current sign-off.

Paragraph 7.3 requires the sign-off to identify the engagement and recipients, its purpose and your capacity. It must describe the information examined and procedures performed, with scope limits and the basis for the statements. Include the conclusions, assumptions, qualifications and distribution restrictions. The report also records its issue date.

The conclusions address whether your work revealed misleading or deceptive information, including omissions. They also address whether the relevant planned enquiries constitute all enquiries reasonable in the circumstances. Appendix 1 supplies a model sign-off that needs adaptation for the actual engagement, including an observer appointment.

A committee sign-off is distinct from an audit opinion. Any separate assurance work follows its applicable assurance standards. Paragraph 5.8 permits signing collective reports on the wider document only as a DDC Member, with the other members approving and signing concurrently.

APES 350 also prohibits preparing the financial information that is the subject of your Due Diligence Sign-off. That prohibition includes related extracts, summaries or analysis elsewhere in the public document. You can review drafts and comment on matters affecting your sign-off.

When Information or Conclusions Change

Changed information requires you to reconsider the work and conclusions affected by the change. Record the new information, the enquiries made and the communication to the client or committee. An unresolved material matter prevents you from meeting the sign-off conditions in paragraph 7.1.

For example, in a fictional prospectus engagement, an observer examines specified revenue information and is asked to provide a sign-off. The draft includes a customer contract as continuing revenue, but supporting correspondence shows the contract has ended. The observer records the discrepancy and raises it with the client and committee.

If the client corrects the disclosure, the observer performs the work needed on the revised information before deciding whether to sign. If the issue remains unresolved, the observer cannot treat the original draft as sufficient evidence. The engagement record retains both the issue and the outcome.

When the public document is still a draft, paragraph 7.4 requires consideration of unfinished information and any necessary sign-off amendments. Guidance recommends identifying the exact draft version and relevant qualifications. Before consenting to your name or report appearing in the document, paragraph 7.8 requires obtaining its final draft and assessing the presentation.

After issue, paragraph 7.13 requires communicating material new circumstances you become aware of, under the planning memorandum or relevant legislation. The obligation’s period usually comes from those documents. Closing your immediate work does not remove a continuing obligation that applies to the engagement.

A New Circumstances Statement has a specific role. Under paragraphs 7.9 to 7.12, only an observer who has already issued a Due Diligence Sign-off can provide it when requested. It must stay within the earlier sign-off’s subject matter. A DDC Member instead participates in the committee’s collective new-circumstances sign-off.

At completion, retain the final reports and the working-paper record required by paragraph 6.1. Record any continuing communication obligation and its responsible person. These closing arrangements make the remaining duties visible to your practice.

If a threat prevents compliance, apply the standard’s requirements for addressing it, including ending the activity where necessary. For incomplete information, assess the effect on your reporting and agreed work before deciding whether withdrawal is necessary. Communicate that decision and keep its reasons in the engagement record. Resolve the scope and outstanding issues before allowing a closing report to imply a conclusion your work cannot support.