Key Audit Matters with Latest Auditing Standards Assessment 2 Answer
Auditing and Assurance
This project report summaries specific information about the key audit matters that are disclosed in context with the latest auditing standards ASA 701 communicating audit mattes in independent auditor reports. These matters are analyzed with respect to top ASX 100 mining companies. However, the development of new standards is started with the global financial crisis situation. Therefore, it has been found that because of not having proper regulation the financial sectors get impacted. Henceforth, ASA 701 and 570 will help to review the key audit matters to examine the financial statements of an organization.
Auditing is an effective way of evaluating various books of accounts by a financial auditor to make sure that every department is keeping its documented or transaction while recording their transactions. The primary purpose of auditing is to deliver independent examination of financial statements that would enhance the value and accountability of the statement by an organization. A vital audit of a matter arises from the auditing of statements that was communicated to the audit group. The new auditor reporting standards would assist in increasing the value and relevance of the auditor’s report (Arens, Elder and Mark, 2012). ISA 701 tends to define all those matters that were significant in the audit of the accounting statement of the financial period. Henceforth, a material uncertainty associated with an activity that can cast valuable doubt on the overall business ability to continue as a going concern. Therefore, this report critically analyzes and evaluates the key audit matters in the banking industry. Further, it also examines a case situation that has surprised plenty of stakeholders regarding their audit reporting along with the new auditing standards in an awakening of a financial crisis. ISA 701 consists of a judgment-related framework to help auditors in evaluating which matters would be taken into account as key audit matters.
Rational for the development of ASA 701
In the year, 2008 a global financial crisis occurs that has created huge impacts on the various financial sectors, especially for banks. During that time, one of the famous investment bankers Lehman Brothers files for bankruptcy security in the UK. The growth has taken place by surprise at the give time hence it was the fourth-largest bank. It was partly due to trust that people at the time located on an unproductive auditing process that was carried out. The reason behind this infamous downfall in accordance to the new auditing standards would be discussed under this project. Because of Chapter 11 bankruptcy liquidation in the year 2008, Lehman's brother triggered the economic slowdown. The quick cause of the crisis was a boom in the housing region in the UK (William, Glover and Prawitt, 2016). The banks were mortgaging their customers so they would invest in their own house. Therefore, a modification has started in the banking sector that has made it difficult for a lot of people to repay their loans and outstanding debts. It was all arises because of a weal and inefficient auditing procedure that has led to the unforeseen collapse of the investment business. The objective of auditing is to examine the financial condition of an organization during the time and estimate a foreseeable future. In context with these financial situations ASA 701 which is a communicating KAM in the Independent auditor's reports. It deals with all specific matters that were not addressed while auditing of Lehman brothers statements. The KAM is defined by this particular ASA 701 of the AUASB committee that helps in taking the personal judgment of auditors were important aspects in financial reports. These new standards assist various companies as well as management to pay more attention to these matters of showing key audit matters. It also examines crucial information with the auditors so that relevancy and consistency could easily be maintained in the annual reports. This new auditing standards should improve the ways of auditing that are being approached and this has made audit practice to be more reliable and efficient for an organization.
The development of ASA 701 could be implemented in the financial report of an organization that would come with its accounting reports for the period after 2016. The project aims to determine the role of new standards that have been developed to enhance the confidence between the public has on the banking sectors as well as the over auditing process. This standard tends to have a difference from ISA 701 which have made to accord with the Australian legislative situation and build audit quality where AUASB has accounted for a specific reason to do so. It also fulfils requirements and other explanatory material with KAM in independent auditors report (Simnett, 2012). The development of ASA 701 reflects AUASB’s to conformity with recent improvement to auditor reporting growth by international auditing as well as assurance standards. Its specific characteristic is:
- It enables auditors of other companies to decide, whether to conclude KAM in their auditor reports.
- It also determines matters communicated with all those charged to governance that needs valuable auditor attention.
- This should mandate the statement of KAM in the auditor’s reports of audits of listed business firms.
- It enables to determine the materiality test associated with the undertaken business program and helps in setting up the transparency associated with the process.
It has been seen that because of not having ASA 701, it has cause the collapse of Lehman brothers. This shows no any communication and standards of valuable facts that explain the accounting worth of an organization. Every information led to serious failure and downfall of entity entirely. Henceforth, it has become the role of financial manager to pay full attention to deal with important issues of Westpac group.
Review of ASA 570
Going concern in accounting is a business function that operates without any threat of liquidation for the predictable future. In case, an entity is not based on going concern, it means there is a huge chance of bankrupt and its assets were liquidated. It is based on specific guidelines that allow the readers of accounting statements to assume that an organization would tend to continue on long sufficient to carry out their goals and commitments. In respect to the applicability of going concern concept of account in the Westpac Group, its assets and liabilities assumed to be realized the value of debts during a regular course of business activity. Thus, AUASB issues auditing standards ASA 570 to satisfy the requirements of legislative provision and auditing policies. It needs the auditors to take into account the reliable aspects of the management of going concern for a definite period of at least 12 months from the preparation of statements (Eccles, Krzus and Watson, 2012).
Management tends to use going concern basis of financial accounting as relevant standards to public sector firms like for example, AASB 101 used to addresses the problems of the capability to continue as going concern. Henceforth the role of an auditor to the accuracy of going concern that has been analyzed in terms of specific aspects. In case an organization is not able to operate according to going concern standards, then the auditor would communicate and provide a reliable solution before preparing financial reports (Christensen, Glover and Wood, 2012). However, AAS used to guide the management to assess the ability of an entity to operate on the basis of going concern standards. The legal obligation like the corporation Act 2001 needs a formal statement with respect to the solvency of the firm to be made by concern authorities charged by the governance. The objective of ASA 570 is to establish crucial needs and provide proper explanatory regulation on the auditor’s responsibility in the audit of financial reports by respect to going concern assumption. In case, management is unwilling to make their assessment when requested to do so by the auditors, the auditor shall take into account the requirements to rectify the report as an outcome of limitation on the goal of auditor's work. This shows that in order to strengthen the true and fair view of the recorded assets and liabilities, there is need to set up proper audit and risk model which considers the detention, control and inherent risk model.
Henceforth, the rationale for analyzing ASA 570 is being requested by the shareholders regarding the earlier signs of possible problems present in accordance with organization strength to continue as a going concern accounting standards. Therefore, the accounting statements would disclose the material uncertainty related to the activity casting doubt on their liabilities to persist as reliable standards for the company (Bell and Griffin, 2012). ASA 570 is analyzed in conjunction by preamble to AUASB norms that sets out the intentions of AUASB on the way auditing standards are to be applied. This shows that all the companies has strengthen the audit program and helps in increasing the transparency of the business process.
Analysis of key audit matters in independent auditors reports and concepts of going concern in respect of Top ASX 100 mining industries
|Key Audit Matter (KAM)||Top ASX 100 mining companies in which matters are examine|
|Transparency regarding audit work||The auditors in Evolution Mining Limited had always reported to their boards about their financial strength and future implication while recording information. The company is having a strong motivation to provide disclosure because transparency is always rewarded on the basis of stock performance. The auditor used to make investors access the need for financial data regarding EML stock price, market potential and audited financial situation. The mining company is committed to developing an existing relationship with its close stakeholders so that they can provide more potential results in favour of the company.|
|Accuracy while auditing||An audit of the Newcrest mining system determines if the solutions are accurate of profitable for the company. It can pertain to billing coding like using medical facilities. They are held responsible for disclosing the correct value that reflects their proper values. The management, tax bodies, and investors would rely on the accuracy of their financial statements in order to make a decision regarding their company growth and performance. Henceforth, the auditors could provide the right solution as a result of the auditing process along with the key observation of those related to their key matters (Manetti and Toccafondi, 2012).|
|Hedging auditing risk||In accounting, it has been seen that most of the transactions are not so secure that they would lead to serious issues for an organization. In the case of Norilsk Nickel, they face issues because of accounting exposure. This has different from independent auditor’s reports of the company that helps the auditors are the potential to determine specific matters of an organization. It could be an effective condition that affects the decision made in terms of financial statements of the current period. The material uncertainty associated with an activity that can cast valuable doubt on the overall business ability to continue as a going concern. Therefore, this report critically analyses and evaluates the key audit matters in the banking industry Henceforth, the auditors could deliver an appropriate indication of the outcome of the audit matters along with the key solution to deal with the accounting matters. These accounting matters are used to hedge the risk associated with the annual report of the company.|
|Understandability of audit matters||It is simply related to the unchanged audit report on consolidated financial reports. Advanced analysis of key matters can easily be determined effectively. In the context of Wheaton Precious metals, the auditors need to understand the potential strength of matters that can help in attaining the profitability of an organization for a longer period. Reasonable information on the firm matter is required to gain a high level of accountability for the company.|
It has been examined that a potential implication tends to arise when an organization is not able to meet its financial matters. It has become liability within a year of the person who is held responsible for recording the financial information. In case, the company is not able to fulfil the debt services for their future, then an effective doubt is created. Hence, it is important to make a proper analysis of the key matter before making any financial decision regarding the performance of an organization (Griffiths, 2016). It will help the auditors to measure problems related to capital, debt and make mitigation plans accordingly. The audit and assurance program is helpful for the organization to strengthen the transparency and recorded framework in effective manner. These annual report of the companies reveals that if the accountability of company are based on the transparency maintained and helps in assuring the audit program in the process.
From the above research, it is has been seen that the accountability of auditors is depended upon some specific conditions that can help an organization maintain its financial stability. Poor accounting that would affect the key audit matter which is not being effectively communicate at every stage of evaluation. This rules and regulations provide in context to ASA 701 that helps in communicating Key audit matters in independent auditor’s reports of Westpac Group. Contemporary auditors would make sure that they can deal with all specific matters which involve potential risk, activity, and related transactions. Henceforth, the collapse of Lehman Brothers would show the specific requirements for strict standards and regulations so that future mistakes can be avoided in the future. The potential regulation mentioned in ASA 701 and ASA 570 going concern with respect to key audit matters in independent auditors’ reports required for robust risk evaluation strategies in these specific mining industries. They need to follow every single step in a proper manner so that chances of auditing mistakes can be tackling while recording of information into the account book. This AS 707 is useful to strengthen the transparency and make effective implication of the key audit matters. However, this is also useful for the effective and audit and assurance program in the business process.
From the above project research, it has been concluded that auditing is an essential way to keep the accuracy of their accounting matters. However, every company needs to resource entirely with respect to promote effective administration and regular its financial event during the time. Henceforth, auditors required to follow all accounting regulations to evaluate the financial reports of top ASX 100 mining industries. Therefore, new auditing standards should improve the ways of auditing that are being approached and this has made audit practice to be more reliable and efficient for an organization. Now in the end, it could be inferred that the proper audit and assurance program is useful for effective implication of proper audit model to assess the transparency of the business of company. This has revealed that AUASB issues auditing standards ASA 570 to satisfy the requirements of legislative provision and auditing policies and it results to auditors to take into account the reliable aspects of the management of going concern for define period of the companies.