Auditing and Assurance

This report provides an overview of auditing and assurance, including its role in financial decision-making and the impact of new accounting standard ASA 701. It also explores key audit matters in the Australian mining industry.

Running head: Auditing and Assurance
Auditing and Assurance
Name of the Student
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Auditing and Assurance
Executive Summary
The report include about the auditing and how it help the financial user to take necessary
decision in regards of the company financial position. It also include an details of the Lehman
Brothers case and how it make for the needs of the new accounting standard. It also contains
the detail explanation of the need of new standard ASA 710 and details of the paragraph
contain in the standard. Lastly it includes about the mining industry and key audit matters of
the company under mining industry and how the auditor deal with the same.

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Auditing and Assurance
Table of Contents
Introduction................................................................................................................................4
ASA 701: Rationales..................................................................................................................4
ASA 701: Explanation...............................................................................................................6
KAMs of the Australian Mining Industry..................................................................................7
Downer Edi Limited...............................................................................................................7
BHP Group Limited...............................................................................................................8
Evolution Mining Limited......................................................................................................8
Newcrest Mining Limited......................................................................................................9
Rio Tinto Limited...................................................................................................................9
Witchaven Coal....................................................................................................................10
Conclusion and Recommendations..........................................................................................10
Reference..................................................................................................................................12

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Auditing and Assurance
Introduction
Auditing is a process from which an auditor access the company financial statement
and give its opinion whether the financial statements are showing true and fair view or not.
This help the company to know about the problem which are there in the financial book and
help them to overcome those problem (Azim 2013). Audited financial statement are the base
which help the financial users to take decision in according of the financial statement of the
company and as the opinion of the auditor is present in the financial statement so it help the
company to get the confident of the financial user and let them invest in the company. As per
the recent time it is seen that the auditor are not able to gain the confident of the public as the
society is not able to trust the audited financial statement by the auditor as due to the collapse
of big corporate firm in the recent decades (Carson, Zhang and Fargher 2014). So to
overcome the criticism and also to gain back the confident of the public in the auditor
profession a new standard is been introduced by the Australian Accounting standard Board.
This new standard is ASA 701 which deals with the matters related to Communicating Key
Audit Matters in the Independent Auditor’s Report. This new section has also replaced some
other regulation and ASA 501 which was related to the going concern. So this report shows
the impact of the new standard 701 and what is inside the standard 701. It also explain the
Key Audit Matter Paragraph which is there in the annual report of the company, it show the
Key Audit Matters of the company related to Mining Industry (Kumar and Sharma 2015).
ASA 701: Rationales
The major reason which came in the failure of the Lehman Brothers case was the
auditor fault as they are unable to carry their audit process properly in the company (DeFond
and Zhang 2014). So it can be seen that the management of the Lehman brother was already
in the malicious act in the company. It can be seen from the case that the management of the

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company have use the Repo rate in wrong way so that it able to give a good position to the
company strengthen their financial statement and as a result it show exceed of $50 billion in
the financial statement (Zakari 2013). The auditor have carry their audit process properly and
able to know that the company is using such kind of method and it is been involve in doing
the fraud but still the auditor have gave them the clear report that is Unqualified report so it
show that the company is showing true and fair view in the financial statement of the
company (Peytcheva, Wright and Majoor 2014). The auditor have gave them the clear report
so this was one of the reason for the decline of company and also it was the primary reason
for the financial crisis that happened in 2008.
Due to two important reason the ASA 701 have been introduced in the accounting
system and also in the auditing of the financial statements. As per the ASA 701 it have put
some rules and norms upon the auditor in respect of the auditing process which is been
carried by them in the company for a specific timing and specific operation. As kind of
regulation was not been there in the time of the case of Lehman Brothers (Knechel and
Salterio 2016). The reason of imposing such rules is to reduced the auditing gap which
happen after case of Lehman Brothers. As per the paragraph in the ASA 701 it states that the
auditor have to show all information which the auditor think will have the highest amount of
risk in the company. So all the information should be given in the annual report of the
company. This information help the auditor to give an better opinion upon the financial
statement of the company. This paragraph is been introduced as it was not been there in the
case of the Lehman Brothers time so the auditor does not able to provide the amount of risk
which was there in the financial statement of the company (Furnham and Gunter 2015). The
details of the estimation which was done by the company in regards of the accounting was
also not mention in the information provided by the auditor. As due to all these reason the
downfall of the Lehman Brothers took place and also due to this the auditor lost all their

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Auditing and Assurance
respect in the eyes of public and as a result the profession of audit also lost its reputation in
the society. So the need of the new accounting standard it there as it make an regulation upon
the auditor that it should have reported all the risk material of the company and also should
disclose the estimate which was done by the company in regards of the accounting.
The auditor was also unable to know the process of the capability of the firm in
regards of the business upon its future needs. So from the Lehman Brothers case and the
financial crisis of 2018 it came to know the it is not necessary for the business to run long
term as in short term also the business can suffer huge amount of loss and result in the
downfall of the business (Griffiths 2016). So it became very hard to know the going concern
concept as per the company. So due to these the Lehman Brothers saw a downfall in the
business. So it is necessary for the standard to impose such restriction so that in future no
business can face such short downfall in the business. It does not take consideration the old
concept of the going concern as the auditor should show the facts which show the company is
having going concern in the business. This standard does not the assumption which the
company show in regards of the going concern in the company. So this help the auditor to
stop any more types of the case like Lehman Brothers so this help them to minimize the risk
of downfall of the business (Power and Gendron 2015).
ASA 701: Explanation
The ASA 701 help the auditor to improve the auditor report as it contain many details
information of the company business. It should be governed by IAASB. This standard help
the auditor to maintain the communication in between the auditor report which it have got
after the proper analysis of the company financial reporting and the key audit risk matter in
the company (William Jr, Glover and Prawitt 2016). The regulation which is there in ASA
701 has been discussed below:

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Auditing and Assurance
 Helps in the communication of the key audit matter and the auditor report of the
company that are listed in Australian Stock Exchange (ASX).
 It help in arrangement of the audit matters of the company
 More amount of explanation are been needed by the auditor in regards of the key
audit matters of the company.
 Help the auditor by guiding them the process in regards of the key audit matters
 Help the auditor in regards of the documentation of the company
 The standard also helps the auditor to know when to address the audit matter and
when not to address the matter (Xu et al., 2013).
KAMs of the Australian Mining Industry
As per the Australian Stock Exchange the report is been based upon the minning
industry and it show an analysis of the key audit matters of the company under the minning
industries (Barton and Bruder 2014). The key audit matter of the selected companies is
shown below:
Downer Edi Limited
As per the annual report of the company it can be seen that the company auditor have
given many key audit matter in respect of the company. The key audit matters are related to
revenue recognition, goodwill valuation, adjustment in regards of AASB 15 and the
acquisitions of the entities (Downergroup.com. 2019). Primary part of the key audit matter
paragraph contain about the judgements and estimation which are taken by the company
found complex by the auditor. The auditor have carry many types of the audit process such as
sampling method, analysis of data and many other process as per the needs of the company.
As per the goodwill valuation the auditor have used CGU method, budgeted of the future
revenue and the terminal increase rate and discounting rate. The auditor carry many different

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process in regards impairment structure of goodwill, checking the accuracy in regards of
forecasting, impairment in regards of decision process and also other process. It show that the
company have used much complex in regards of the acquisition, size of acquisition and also
the process finalizing method. So this process was new in the company and it was consider
having some risk by the auditor.
BHP Group Limited
As per the annual report of the company is been consideration it can be see that the
key audit matter of the company includes the demonstration and allocation of the Onshore US
assets, estimation in regards of the asset and also the closure and rehabilitation of provision
(Bhp.com. 2019). The auditor found out that judgment which are made by the company are
not proper and also the process which was used by them in regards of the reduction of
corporate income was not appropriate. The auditor have carry many process to check the
above mention points as it did the checking of impairment charges, assessment of the
Samarco and also checking the assertion in regards of the contingent liabilities of the
company (Zhang, Yang and Appelbaum 2015).
Evolution Mining Limited
As per the annual report of the company it can be seen in regards of the key audit
matters that the auditor have recorded two matters as firstly the valuation process of the asset
which was help in the case of Mungari and Cowal and secondary the calculation which are
done in regards of the asset’s carrying value. It is been seen first matters hold the most
importance in regards of the company (Evolutionmining.com.au. 2019). It is because the
auditor needs to know the assumptions and judgement, the size of the mine development, the
amount which is been carry in the financial statement in regards of the plant and equipment.
The judgement which the company have taken in regards of the assessment of the tax
position of the company. The auditor carry many procedure in regards of the valuation report,

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related to the capabilities of the external values. The secondary matter was also been judged
by the auditor as the judgement related to the impairment charges related to the CGU. So the
auditor has impairment indicators and also the assessing of the appropriateness in regards of
the impairment.
Newcrest Mining Limited
As per the annual report of the company it can be seen that the auditor have listed two
key audit matter in related to the company. The matter are the how the company carry the
non-current asset, mine rehabilitation provision and taxation scheme (Newcrest.com.au.
2019). The auditor have carry many audit process to check whether the company have any
impairment chargers in the financial statement or not. It also check the multiple tax effects on
the company and the complexity in regards of the estimation done by them in related to the
mine rehabilitation provision. To check all the details the auditor have also access the
impairment indicator of the company, evaluation regarding the provision of the tax in the
company and also checked the calculations in regards of the mine rehabilitation provision of
each mine of the company.
Rio Tinto Limited
As per the annual report of thee company it can be seen the auditor have given the key
audit matters related to provision for the close down, restoration, impairment indicators and
the provision related to the enigmatic tax position in the company (Riotinto.com. 2019). The
auditor mention the impairment as a key audit matter as the auditor think that it contain the
material misstatement and can affect the decision of the financial user. The auditors carry the
procedure as by checking how the company manages their impairment indicators. The second
matter was related to the accuracy of the provision which needed in regards of the future
costs. The process carry by the auditor is that it assess all the management process and also

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carry some test in the company. The third audit matter is been checked by the auditor is by
checking the tax calculation of the company.
Witchaven Coal
As per the company annual report it can be seen that the auditor have listed two audit
matters in the annual report of the company. The matters which the auditor have listed in the
report is impairment of the property, plant and equipment and the rehabilitation of mine and
closure provisions (Whitehavencoal.com.au. 2019). The auditors have consider this as key
audit matters as it hold more amount in the financial statement. The auditor also takes into
consideration the judgement and the consideration which the management have made in the
regards of the impairment of the asset. The auditor checks whether all the matters are deal in
regards of the Australian Accounting Standard or not. The auditor of the company also
checked the accuracy and the provision in regards of the assessment and approval of
rehabilitation and also checks the process for recognition of the same.
Conclusion and Recommendations
The report concludes about the auditing process and how it help the financial user to
take decision in regards of the company. Auditing is the processes which help the auditor to
know whether the financial statements are showing true and fair view or not. It help the
financial user to know how the company is been performing in the industry and whether it
contain any risk or not in the business. As per the discussion given in the report it can be seen
that the auditor have lost all their respect and the confidence of the financial user after the
Lehman Brothers case and also the financial crisis in 2018. So due to these the new standard
have to came in the picture as this will help the auditor to present their audit report more

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easily and help them to get back the confidence of the public upon the audit profession. Some
recommendation which can be given to the external auditor as:
 The auditor should perform some procedure in the company so that it able to get the
business risk and can report the same in the key audit matter section of the annual
report of the company.
 The auditor should disclose all the related matters in the company annual report and
also should report all the transaction and important events of the company in the
annual report of the company
 It should check the material misstatement and the materiality and should disclose the
same in the annual report of the company
 It should be independent while giving the information in the key audit matters of the
company as it should be free from all management decision
 It should follow all the standard and rules in the new accounting standard as ASA 701
and should record the same in the annual report of the company. As this help them to
get an better overview of the company.

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