Functioning of Audit Processes in BHP Billiton

AUDITING
2019

BHP Billiton
Executive Summary
This report sheds light on the functioning of the audit processes in BHP Billiton. The auditors
of BHP Billiton must assess the financial statements in a manner that the areas that are prone
to material misstatements are easily identified. With the help of the materiality concept, an
auditor can easily distinguish major misstatements from the minor ones. Material
misstatements have a huge tendency to impacting the decision-making process of the users of
the financial statements. Therefore, an auditor must exercise due focus in tracing the
misstatements in the financial statements of an entity and must also label the same as
intentional or unintentional.
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BHP Billiton
Contents
Introduction...........................................................................................................................................3
Level of materiality................................................................................................................................3
Notes and disclosures............................................................................................................................4
Financial Statement Analytical Review..................................................................................................6
Cash flow...............................................................................................................................................7
Review of Auditor report.......................................................................................................................8
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10
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BHP Billiton
Introduction
It is the duty of an auditor to minimize or eliminate the presence of material misstatements in
the financials of the company so that the users of the same are not misguided about the
functioning and financial well being of the company. Materiality is a crucial concept and
therefore, an auditor must trace the presence of misstatements in the financials of the
company and must discuss his findings with the management of the same. An auditor must
also evaluate whether the management of BHP Billiton has opted to make necessary
rectifications so as to reduce or eliminate the presence of material misstatements in the
financial statements of the same (BHP Billiton, 2018).
Level of materiality
The auditors must determine materiality on the basis of its qualitative and quantitative
characteristics. An auditor must take an estimated percentage into his due consideration for
evaluating the quantitative characteristics of materiality (Brown, 2013). This estimated
percentage must be charged at an appropriate basis for the ascertainment of the level of
materiality for financial instruments of the company’s annual reports 9 BHP Billiton, 2018).
The auditors must consider the size and nature of the group so as to determine the percentage
that needs to be charged for the ascertainment of the level of materiality. The auditors take
net profit, business inventory, alterations in the accounting policies and accounting methods
for the purpose of evaluating the qualitative characteristics of materiality. The materiality is
performed at various levels. In the first stage, the auditors chose determination of materiality
and in the next stage, all the financial instruments are chosen for the computation of
materiality.
The auditors of BHP Billiton are required to use various materiality bases so as to evaluate
the quantitative characteristics of materiality. This will help the auditors in determining the
actual financial well being of the group. The auditor must consider all the important items
from the Income statement and Balance sheet of an organization so as to evaluate the
different bases for materiality (BHP Billiton, 2018). Total revenue, total sales, net profit
before tax are the significant items from the Income statement that are required to be
considered during the process of materiality determination. The auditor must consider the
total assets of an organization reflected in the balance sheet of the same for the purpose of
materiality determination (Creswell, 2014).
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