ASA 701 And Key Audit Matters In ASX Top 100 Listed Companies: An Industry Essay.

Students are required to research into the rationale for the new auditing standard ASA 701, explain clearly what it is and select an industry, eg. banking, mining, etc and analyse Key Audit Matters in the Independent Auditor’s reports of all companies in that industry in ASX Top 100 listed companies as part of your evaluation of this new standard.

Required

Using reference materials available on the internet, research the topic and prepare a report, fully referenced (including the Annual Reports of companies selected for your
assignment). Minimum of 8 academic referencesis required.

In the Auditor’s Report, the Auditing Standard ASA 701 Communicating Key Audit Matters describes major topics that the auditor is obliged to state in his audit report. Many transactions are there, that have an influence on the organisation and it is useful all that has an impact on the company based on substance should be well mentioned in the audit report. The stated standard provides the auditor with the basis that they can comprehend in reporting those necessary subjects and the regions in which they are to verify if there are any complications. For the company’s investors, the audit report is vital as they believe on it to take genuine decisions related to the company. The standards have been emancipated with the help of the Auditing and Assurance Standards Board (AUASB), and has been composed in agreement with the IFRS. It has also been composed in consideration with the standards that is linked with agreement and morality and if the auditor obeys this they can make the audit report that is absolutely transparent and according to the corresponding requirement of the members of the company. This standard emphasises at amplifying the attribute of the audit work which is in the auditor’s hands. It will abet in increasing the entire coherence of the auditor which they can carry out in executing their work even politely. In places where the auditor comes across issues they can take the help of these standards and it also help the auditor in ascertaining if they need to report some subject or not and the outcome of failing to report any matter in the audit report. The complete study of this standard is discussed underneath. The attributes of this standard takes into account the points given below-

• In a scenario for the unlisted companies, the auditor by himself determines what the matters that are necessary are and if they should be included in their annual reports. However, it is not a necessity because it entirely believes on the auditor’s part, whether they wish to include or not. In cases, where the auditors wants, they can do so. The auditors needs to see if there ae any such element which needs to be followed and based on that they can include it in the annual report of the company for further analysis.
• It is the responsibility of the auditor to enlist the important areas which are stated in the financial statements of all the listed companies. The auditor is responsible to undertake necessary decisions and highlight those topics that are important and see if there is any material misstatements in the financial statements of the organisation. This is a necessity that for all the listed companies, the auditors is expected to agree with the set standard the time they are making their audit report for the company.
• This standard also reflects the manner an auditor shall describe the essential topics that might affect the company. Thorough discussion is essential to be reflected in the audit report. Also disclosure should be shown as to why that is marked as an important topic for the company.
• It is also essential that absolute disclosure shall be made in the audit report of the organisation, so that if there are any alterations required, the same can be followed. The essence is that auditor is expected to have capability as to what they can imply at the time of making the audit report of the company
• There may be few instances, that the essential topics are not considered in the audit report, in that case, the auditor is to state basis as to why those topics are not indicated. The board shall make certain that the auditor possesses talent and they are following and abiding the same in their audit report (Belton, 2017)

The mentioned standard assigns all the necessary points that the auditor shall need to follow in abiding this standard and in the manner it is of help, it will have in the long term is also stated. The investors can refer to these necessary topics and know whether they should invest in the company or not. The important topics reflects a view to the overall financials of the company and therefore it is necessary that it should be recorded with proper concern and there should not be any loopholes from the part of auditor (Stacey, 2018).

This latest standard has been announced by the AASB in place of standard ASA 570 (ISA 570) Going Concern. It is scenario, which clearly reflects that the organisation will be working for long time and they do not have any intention of closing down their business in future to come. This is named as the going concern assumption. It is necessary as the investors depends on it to take important resolutions in case they wish to invest in the company or not. Hence, this is the way, that the management of the company works. Going concern assumption can be at hampered by many alterations that might occur in the financials of the company on time to time basis (White, et al., 2018). The previous standard did not provide proper disclosure that relates to it, but with the new standard this complications is resolved. Where there is any such alterations, it will be mentioned in the important matters of auditing that will impact the determination of the investors of the company. The best part of this standard is that they have given away all the estimation in elaboration that might influence the going concern assumption of the company in a way or the other. In case there is any issue, the auditor will be found responsible (Stacey, 2018). The auditor is necessitated to keep a contingency in professional scepticism If there are any mistake on part of the auditor it will reflect in disciplinary actions. So, this asks the auditor more responsible with their work. The company needs to check that the stakeholders achieve their debt from the company, they are reliable on the company so all the measures should be charged towards them (Bromwich & Scapens, 2016).

Analysis

In this assignment we have selected the energy sector to analyse the application of this standard in the audit report of these companies.  There are four companies in this sector which includes Caltex Limited, Origin Energy, Santos Limited and Woodside Petroleum. The annual reports of the company have been downloaded and the audit reports have been studied with key matters being highlighted by the auditors being the basis of study (Webster, 2017).

In case of the Woodside Petroleum Limited the annual audit, report has been prepared by Ernst and Young and they have stated their opinions on the key audit matter in the audit report. The significant matters that might pose some importance to the investors of the company includes:

• Impairment of Non-Current Assets – As per the auditor the calculation of the overall impairment of non-current assets is very complex and poses huge challenges to the company and hence it requires defined methodologies which the management needs to follow to make sure that the correct valuation is done. 

The other important aspect as per auditors is Accounting For petroleum resources that are unique to the energy sector and hence requires defined methodologies to analyse them and give an opinion on them as per the company. 

The second company in the energy sector includes Oil Search Limited. The books of the company have been audited by Deloitte and they have provided their opinion on the company and its financials in their audit report. The report also consists of declaration of key audit matters that include important points related to-

• Carrying Value of Exploration and Evaluation Assets
• Carrying value of investments in subsidiaries
• Recoverability of loans receivable from related entities

All these as per the auditor are significant matters that requires special attention from the investors and hence they are included in the audit report (Lane & Ferretti, 2017). The overall valuation of these items has been stated in details along with the methods adopted by the auditor in conducting the audit of these items of the financial statements of the company. An extract from the audit report of the company is given hereunder- 

The third company that is included in this sector is Santos Limited and the books of the company has been audited by Ernst and Young and they have provided important disclosure in their financial statements regarding the company and have stated their opinions on key significant matters. These important matters of the company include:

• Estimation of oil and gas reserves and resources
• Recovery of carrying value of exploration and evaluation and oil and gas assets
• Accounting for deferred tax and Petroleum Resource Rent Tax

All these matters are significant to the investors of the company and the auditors have stated in brief on how they have audited these items and have provided disclosures in the financial statements with respect to that (Grundy, et al., 2017). The auditors have also highlighted why these items are important and have stated that they are responsible in case there in any under or over valuation based on the audit reports that they are giving. These items are peculiar to the energy sector and hence their overall analysis is different and different accounting methods are applied in case of these companies (Kusolpalalert, 2018). An extract from the audit report of the company have been stated below for references- 

The last company is the list is of the largest company in this sector and hence been in operations since ages. The company is known as Caltex Limited and important disclosures regarding the key significant matters by the auditors of the company have been given below for analysis and reference (Wellmer, 2018). The books of the company have been audited by KPMG and they have included disclosures regarding the key matters in their audit reports. The matters that have been stated in brief includes:

• Site remediation and dismantling provisions
• Taxation of Singaporean entities.

The auditor has stated the methodologies on how they have audited these financial statements of the company and have put significant focus on these items that are stated above.  An extract from the audit report of the company have been stated below for reference and analysis of the company-  

Thus, it can be seen in the overall analysis of all the given entities that how important these matters are and how important it is for the auditors of the company to make sure that they are providing accurate disclosures regarding that. And these can be analysed from the audit reports of the above given companies on how much importance they have placed on key significant matters. All the matters stated above for unique to the energy sector and they all involve different methods of valuation and accounting procedures to be followed. Hence it becomes important that investors should have knowledge on how the analysis is being done and what are the areas in which they need to focus more (Lepistö & Ihantola, 2018).

Conclusion

Based on the overall analysis it can be said that these audit reports are the mirrors that provide the correct view of the company financial position and key matters are those elements which might affect the current status of the company and hence it is important to have proper details regarding them so that in case there is any issue then the management of the company and the investors can refers to these to take important decisions regarding the company. Every auditor is required to follow such standards and should report them accordingly in their financial statement. This is main basis for the preparation of these standards to help the auditors and the investors to understand how they can function and what are the areas in which they should put more focus so that the overall quality of the audit increases. Audit is the main task that requires ethical behaviour from the auditors of the company and hence it is important that it must be conducted with the best amount of judgement and these standards helps the auditors in applying these judgements which help in their long term success and goals of the management can be achieved.

References 

Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.

Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management Accounting Research, Volume 31, pp. 1-9.

Grundy, Q., Held, F. & Bero, L., 2017. A Social Network Analysis of the Financial Links Backing Health and Fitness Apps. American Journal of Public Health.

Kusolpalalert, A., 2018. The relationships of financial assets in financial markets during recovery period and financial crisis. AU Journal of Management, 11(1).

Lane, P. & Ferretti, G., 2017. International Financial Integration in the Aftermath of the Global Financial Crisis. IMF working paper No. 17/115.

Lepistö, L. & Ihantola, E., 2018. Understanding the recruitment and selection processes of management accountants: An explorative study. QUALITATIVE RESEARCH IN ACCOUNTING & MANAGEMENT.

Stacey, T., 2018. Myth and Solidarity in the Modern World: Beyond Religious and Political Division. USA: Routledge.

Webster, T., 2017. Successful Ethical Decision-Making Practices from the Professional Accountants' Perspective. ProQuest Dissertations Publishing.

Wellmer, A., 2018. The Persistence of Modernity: Aesthetics, Ethics and Postmodernism. fourth ed. UK: Polity Press.

White, B. et al., 2018. The effect of the global financial crisis on preventable hospitalizations among the homeless in New York State. Journal of health services research & Policy.