Key Implication of ASA 701 Assessment 2 Answer
Audit and assurance
This report divulges the key implication of the ASA 701 and how companies could strengthen the transparency and true and fair value of the recorded items by complying with this newly introduced auditing and accounting standard. . The major goal behind this audit standard is to bring more transparency into the companies in concern of their financial data and figures. It mitigates the risk of economic crisis into the organizations as the shareholders and other concerned stakeholders of the company are being involved and known with the financial facts of the company due to the ISA 701. The aim of ASA 570 is to establish crucial needs and proper explanatory regulation on the auditor’s responsibility in the audit of financial reports by respect to going concern assumption. The aim of ASA 570 is to establish crucial needs and proper explanatory regulation on the auditor’s responsibility in the audit of financial reports by respect to going concern assumption
Audit is a key feature of the corporate governance which provides assurance on the effectiveness of governance, risk management and other control processes which helps the companies to achieve operational, financial and strategic objectives. It is a process of inspection of various books of accounts by an auditor through which the accuracy of financial statement can be ascertained. The major purpose of the process of auditing is to perform an independent inspection of financial statements which would increase the accountability and value of the statement. The report prepared by the auditors with the proper accuracy and execution of professional accounting measures is called as an Auditor’s report (Knechel, &Salterio, 2016). For enhancing the value and relevancy of an audit report, the assistance of reporting standards of auditors is necessary. In order to mitigate the uncertainty on overall business activities which are necessary to continue a going business concern, ISA 701 has been defined under the provisions. ISA 701 deals with the responsibility of auditors to communicate the key audit matters into their auditor’s report (Zhang, et al. 2012).
2. Need for development of ASA 701
In 2008, various sector was affected by the occurrence of global crises. The huge impact of global crises is basically on the financial sector, especially for banks. At that time, Lehman brothers, one of the most famous investment bankers flies for bankruptcy security in the UK. Surprisingly, during that time growth was taken place and hence it becomes fourth largest bank. It was happened at that time due to people who trust on an unproductive auditing process that was carried out (Kroutilı́ková, Novotný, & Judas, 2013).
Now in this project report, discussion has been made on the auditing process from which this type of cries shall be avoided. In 2008, chapter 11 bankruptcy liquidation, the economic slowdown occurs by Lehman brother. Sudden cause of the cries was due to the housing region in the UK (William, Glover and Prawitt, 2016). Firstly, the banks were mortgaging their customer so they would invest in their own house. Secondly, some modification were made in bank sector to create difficulties for a lot of people to repay their loan and outstanding debts. All these things were able to implement because of a weal and inefficient auditing procedure that has led to the unforeseen collapse of the investment business. The main objective of auditing is to examine or determine the financial condition of an organisation during that time and also able to estimate the future scenario. With these financial situation ASA701 is also communicating the audit and the KAM in independent auditor’s report which is not in process during the time of Lehman brothers (Messier, Glover, &Prawitt, 2018). The term KAM is refers by this particular ASA701 of the AUASBcommittee that helps in taking the personal judgment of auditors were important aspects in financial reports. By implementation of these new standard in various companies now they have to pay more attention on these matter which previously not focused in the key audit matters. It also consider crucial information with the auditors so that the relevancy and consistency can be maintained in the annual report. By implementation of this new audit standard the improvement is taken place in the way of auditing and by this it made the audit practise more reliable and trustworthy (Boynton, & Johnson, 2016).
The implementation of ASA 701 in the financial report of the organization which come with their annual report after 2016. Now the project role is to determine the role of implementation of new standard that has been developed to enhance the confidence between the people on the banking sector and over auditory process (Helms, &Mancino, 2019). There is also difference between ASA 701 and ISA 701, in ISA 701 which is made with respect to Australian legislative situation and build audit quality where AUASB is accounted for specific reason to do so. The development of ASA 701 reflects with AUASB to improve the auditor report growth by the international auditory as well as assurance standards. Following are the specific characteristic:
- It helps to determine auditor of different company to decide, whether to conclude KAM in their independent auditor’s report.
- It also examine the matters communicated that needs valuable auditor attention with all those charged to governance (Farooq, & de Villiers, 2019).
- The statement of KAM in the auditor’s report of audits of listed business firms is mandate by this.
- The materiality test which is associated with the undertaken business program is also determine by this.
- It is also helps to set up transparency in the process.
It has been seen that because of not implementing the ASA 701, the Lehman brother triggered the economy cries. From this it is revealed that there is absence of communication and standard of valuable facts that explain the accounting worth of an organization. Every information which leds to serious failure and downfall of entity entirely. Hence, it is clear that the financial manager have to pay full attention to deal with the important issues of Westpac groups (Rhodes, et al. 2019).
3. Review of ASA 570
For the predictable future, the going concern in accounting is business function that operates without any treat of liquidation. The chances of bankrupt is increased if the company is not based on going concern and its asset were subjected to liquidate. It is developed to make sure the readers of accounting statement to assume that the organization is working with full efficiency and committed towards its long term goal and also create a transparency, all these things together helps to build the confidence and trust. Assets and liabilities of Westpac group is assumed to realized the value of debts during regular course of business activity is due to the accounting of going concern in the organization. Therefore, the auditing standard ASA 570 is to satisfy the requirement of legislative provision and auditing policies is issued by AUASB. At least the period of 12 month is required by the auditor to implement the reliable aspects of the management of going concern from the preparation of statement (Farooq, & de Villiers, (2019).
Like AASB 101 is used to address the problem of capabilities with continue going concern that means management tends to use the going concern basis of financial accounting as relevant standard to public sector firms. The specific aspect of going concern has to analysed is the role of an auditor. When auditor would communicate and provide a reliable solution to an organization before preparing financial report if an organisation is not able to operate according to the going concern. To assess the ability to operate of an entity on the basis of going concern standard is guide by AAS. A formal statement with respect to the solvency of the firm is required by the legal obligation like corporation act 2001 which is made by concern authorities charged by governance (Knechel, &Salterio, 2016). The aim of ASA 570 is to establish crucial needs and proper explanatory regulation on the auditor’s responsibility in the audit of financial reports by respect to going concern assumption. The auditor can take into account when management is requested to do their assessment and they are unwilling to do then the requirements to rectify the report as an outcome of limitation on the goal of auditor's work.There is need to set up proper audit and risk model which consider the detention, control and inherent risk model to strengthen the true and fair view of the recorded assets and liabilities.
The shareholders are requested to rationale for analysing ASA 570 so they can see the earlier sign of possible problem present in the respective organization strength to continue as a going concern accounting standard. Hence, the material uncertainty related to the activity casting doubt on their liabilities are must be disclose by the accounting statement to persist as reliable standards for the company (Zhang, et al. 2012). ASA 570 is analysed in conjunction by preamble to AUASB norms that sets out the intentions of AUASB on the way auditing standards are to be applied. All the companies has strengthen the audit program and helps in increasing the transparency.
It is determined that when organization is not able to meet its financial matters then a potential implication tends to arise. It is the liability of person who held the responsibility for recording the financial information within a year. An effective doubt is created when a company is not able to fulfil debt service for their future. Before making any financial decision it is mandatory to make a proper analysis of the key matter regarding the performance of the organization. It is beneficial to measure problem related to capital debt and make mitigation plan accordingly by the auditors. To strengthen the transparency and recordedframework, the audit and assurance program is beneficial for the organization in an effective manner. The accountability of the company is based on the transparency maintained, this is revealed by the annual report of these companies (Kroutilı́ková, Novotný, & Judas, 2013).
4. Key Audit Matters in the independent audit report
Key audit matters in the independent auditors’ report which are more significant in the audit of the financial statement of the company. Independent auditor’s report of Newcrest mining does not provide a separate opinion on these matters. Some of the key matters are discussed below –
Assessment of the carrying value of non-current assets
Newcrest consolidated financial statements include the PPE of $7816 million and the intangible assets of $33 million. The company assesses the indicators which reflect the impairment of assets and if the indicators exist then the effect shall be given by the group in its consolidated financial statement (Newcrest Company, 2019).
Auditor addressed the key audit matter
The auditors evaluated all the indicators and also calculated the recoverable amount and the testing of the impairment of the CGU of the company. With the help of the external and internal experts, all indicators are properly assessed and accordingly, the effect was given as per AASB 136 and also checked the compliance in the financial statement.
Provision for mine rehabilitation
Newcrest has obligations for rehabilitation to rehabilitate and restore the land and environmental disturbances that occurred by the operations of the mine, including development and exploration activities. Newcrest has to determine the obligations according to the regulatory and legislative requirements. The company has recorded $361million, on 30, June 2019, as per the provision of mine rehabilitation. The estimation of the rehabilitation of the mining program is very complex (Newcrest Company, 2019).
Auditor addressed the key audit matter
The company has used the internal and external expert or analyze the estimation that supports the mine rehabilitation provision made by the company. The company has used the reasonableness properly for the economic assumption (Newcrest Company, 2019).
Adoption of new revenue accounting policy
Evolution Mining has adopted the new revenue accounting policy due to the introduction of the AASB 15 Revenue for contracts with the customers. The adoption is mandatory and it is the key audit matter due to (Evaluation Company, 2019).
- Revenue is significant to understand the financial statement
- It is complicated to apply the new AASB 15 as the requirement given has the nature of bespoke terms and conditions.
- The judgment required in the application of new AASB 15, include the multiple performance obligation (Evaluation Company, 2019).
Auditor addressed the key audit matter
- Understanding is developed and evaluated the effectiveness of key revenue internal control.
- Assess the methodology to determine the extent of contract reviews to identify the AASB 15 impact on the financial statements (Evaluation Company, 2019).
- Assessment of the carrying value of assets
Evolution Mining has the exploration and mine development assets of $1672 million and PPE of $557 million. In the requirement of AASB 136, the company has properly evaluated the indicators' existence that whether the financial assets may be impaired or not. AASB 136 requires the assessment of indicators in every financial report (Evaluation Company, 2019).
Auditor addressed the key audit matter
The auditor performed the comparison of the current year the US $ gold prices when the impairment takes place and compared the gold prices forecasts when the impairment has taken place. They also calculate the recoverable amount and sensitivity of the key assumptions and compared the carrying value of the assets appearing in the financial statements (Evaluation Company, 2019).
From the above discussion, it is clear that to maintain financial stability of an organization is seen that the accountability of auditor depends upon some specific condition. At every stage of evaluation it is not being effectively communicating the poor accounting would affect the key audit matter (Greenstein, & McKee, 2014). 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. All specific matters which involve potential risk, activity and related transaction are deal by contemporary auditor. In the case of Lehman brother it is revealed that there is requirement for strict standard and regulation to avoid these type of mistake in future. For robust risk evaluation strategies in these specific mining industries, the potential regulation mentioned in ASA 791 and ASA 570 going concern with regard to key audit in independent auditor’s report required. To decrease the chance of auditing mistake while recording information into the account book, they must follow each and every step in the proper manner. For strengthen the transparency and make effective implication of the key audit matters the ASA 701 is helpful for an organisation (Holliman, et al. 2013).
From the above research, it is concluded that to keep the accuracy of their accounting matters auditing is essential. To promote effective administration and regulate its financial event every company needs resource during that time. Hence, to evaluate the financial report of top ASX 100 mining industries, auditor required to follow all accounting regulation. So due to this reason, to improve the ways of auditing the new auditing standard must be implemented and this has made audit practice to be more reliable and efficient for an organization. Now it is clear that to assess the transparency of the business of company proper audit and assurance should be mandatory for effective implication of proper audit model. To satisfy the legislative provision and auditing policies, auditing standard ASA 570 is issued by AUASB. And finally it results to auditor to take into account the reliable aspects of management of going concern for define period of the companies.