Audit, Assurance and Compliance - Altium Limited Compliance Requirements

The report evaluates the compliance requirements of Altium Limited, a company listed on Australian Stock Exchange, particularly related to enhanced audit requirements which are newly framed regulations. The report discusses the requirement of bringing about transparency in audit reporting by establishing rules for independence declaration by auditors; non-audit services and also for reporting of key audit matters.

Audit, Assurance and Compliance
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Executive Summary
The report is prepared with an aim to evaluate the compliance requirements of a company listed
on Australian Stock Exchange, particularly related to enhanced audit requirements which are
newly framed regulations. Altium Limited is selected for this purpose.
Report discusses about requirement of bringing about transparency in audit reporting by
establishing rules for independence declaration by auditors; non audit services and also for
reporting of key audit matters.
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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Background of the Report............................................................................................................3
Scope of the Project.....................................................................................................................4
Discussion........................................................................................................................................4
1) Auditor’s Independence Declaration................................................................................4
2) Independent auditor’s report.............................................................................................6
3) Non-Audit services performed by the Auditor.................................................................7
4) Auditors’ Remuneration....................................................................................................8
5) Role, functions and composition of the Audit Committee................................................9
6) Independent Auditors report to the members (shareholders)............................................9
7) Review all Key Audit Matters noted and the associated audit procedures.....................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Introduction
Background of the Report
In order to increase transparency in the reporting system, enhanced audit requirements have been
framed. For the purpose of this report, annual report of the company has been analysed. This will
help in understanding the compliance requirements of reporting by auditors as well as by
management.
Scope of the Project
The report is presented in seven major headings namely, Auditor’s Independence Declaration;
Independent Auditor’s Report; Non-audit services performed by the auditor; Auditor’s
Remuneration; Audit Committee; Independent Auditor’s Report to the shareholders and; Review
of Key Audit Matters.
New regulations framed for the above headings are discussed in detail below.
Discussion
Altium Limited is an American Company, owned by Australian public software company which
is involved in the activities related to designing of software for those engineers engaged in
designing printed circuit boards (Altium Limited, 2018). In other words, it operates under
software industry. The reason behind selecting this company for analysis is that it is a listed
company (listed on Australian Stock Exchange). Its headquarters are in United States of
America. Since, it is a listed company therefore it is required to follow the new guidelines
framed for improving the quality of reporting by the auditors. Such an evaluation of the annual
report will provide an insight into the extent to which the regulations framed in this regard have
been complied with.
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1) Auditor’s Independence Declaration
The law which lays down all the requirements related to compliance procedures to be adopted by
the auditor of the company is the Corporations Act, 2001 (CCH Australia Limited, 2011).
Independence of auditor appointed by the company is one such compliance requirements that
have been mentioned in the act. As per the provisions of the act and some other regulations by
other authorities such as auditing standards issued in this regard, an auditor must act separately
from the company in which he is serving as an auditor and must be careful and vigilant so that an
appropriate opinion can be drawn by him (CAANZ (Chartered Accountants Australia & New
Zealand), 2016). The opinion can be relied upon only when the auditor is working separately
from the organization. He must not have any personal interests in such as organization.
Companies operating in Australia have to adhere to several laws framed by different authorities.
The regulations with relation to independence of auditor are as follows:
 Section 307C stated under the Corporations Act, 2001, give details about the declaration
of independence that an auditor of a company is required to produce and it forms a part of
the annual report of the company. According to the provisions stated in this section, an
auditor is supposed to declare that he is independent from the company and this
information is to be given in the Auditor’s Independence Declaration. Furthermore, there
are some other provisions also that have been mentioned in this act and they include
Divisions 3, 4 and 5 of Part 2M.4 (Wolters Kluwer, 2018).
 In addition to the above provisions of Corporations Act, 2001, there are some other
provisions also which are to be followed. APES 110 contain certain ethical codes of
conduct that are applicable on the auditors of the company. As per the regulations, all the
auditors are required to declare their independence and that they have been ethical while
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discharging their duties as an auditor. The declaration is about informing the members of
the company that they have discharged their duties with utmost vigilance and fulfilled
their ethical responsibilities (Chartered Accountants (Australia-Newzealand), 2018).
The auditors of Altium Limited have also given a statement for their independence in the annual
report of the company by the name ‘Auditors Independence declaration’, which is as per the
provisions stated under the Corporations Act, 2001. The declaration given in the report also
mentions that the auditors of the company have diligently followed the Code of Ethics for
professional accountants given under APES 110. Ethical responsibilities have been fulfilled
throughout the audit in accordance with the code (Altium Limited, 2017).
2) Independent auditor’s report
The purpose of conducting an audit is to express an opinion on the truth and fairness of the
financial statements of a company that are prepared by the management (Porter et al., 2014).
Hence, in other words, the opinion of the auditors has a huge impact on the members and
shareholders of the company as their decisions are based upon their opinion (Basu, 2010). There
are four types of opinion which can be given by an auditor (opinion depends upon the findings of
audit), which include
 Unqualified Opinion;
 Qualified Opinion;
 Adverse Opinion and;
 Disclaimer of Opinion (Leung, 2009)
The auditors of Altium Limited have issued an unqualified opinion, which means in the opinion
of auditors the financial statements so prepared by the company presents a true and fair view.
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This opinion of the auditors also suggests that the management has complied with all the laws
effectively.
3) Non-Audit services performed by the Auditor
Non audit services are those services which are accepted by an auditor of a company in addition
to his audit and assurance services. These services might have an impact on the independence of
the auditor as the auditor may develop some personal interests in the business of the company.
Therefore, the non audit services form one of the most significant factors that affect
independence while performing an audit. The auditor is therefore required to exercise utmost
care and judgment prior to accepting the task of performing any non audit services to the client
(Frankel, 2018).
There are some countries in which the auditors are not allowed to take up any other services in
the same company in which they are performing audit. One such country is the United States of
America. In order to keep a check on the auditors the American authorities framed Sarbanes and
Oxley act. As per the act, the auditors are strictly prohibited to undertake any activity other than
providing audit services in the same company (Mitchell, 2018). However, in countries such as
Australia, there is no such restriction on auditors. The auditors in Australia can perform other
services such as providing taxation consultancy in the same company. However, they are
supposed to give a declaration of their independence in writing. In case where the auditor comes
across a conflict of interest then he must not accepts such an assignment and give such
information to the relevant authorities (ASIC, 2018).
The auditors of Altium Limited have also performed non audit services in the year 2017. As per
the declaration given by the auditors in this regard, they have performed their work with full
integrity and that providing such services did not have an impact on objectivity of the auditor.
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The auditors of the company have provided tax consulting services in addition to the audit
services in the year 2016. But in 2017, the company has not received any payment for providing
non audit services (Altium Limited, 2017).
4) Auditors’ Remuneration
The auditors of the company are given a certain amount of payment for the services they perform
for the company. Remuneration is paid for both audit and non audit services given by the
auditors (Caanz , 2015).
As per the information given in the annual report, the auditors of the company performed both
audit as well as non audit services. The information about the remuneration paid to the auditors
is given in notes to accounts. The table below provides the remuneration maid to the main
auditors for both audit as well as non audit services.
Particulars 2017 2016
Percentage
Change
Audit or review of the financial report
310,58
7 368,367 -16%
Other non audit related services (In
relation other assurance, due diligence
and taxation) - 384981 -
Total Remuneration
310,58
7 753,348
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The above table gives a detail about the remuneration for audit and non audit services. In the
year 2017, there can be seen a sharp decline in the audit fees by 16%. Also the auditors of the
company did not perform any non audit services in 2017.
5) Role, functions and composition of the Audit Committee
The main purpose of establishing audit committees is to provide assistance to the board so that
they are able to discharge their responsibilities with due care and diligence (CAANZ (Chartered
Accountants Australia & New Zealand), 2016). It is also the responsibility of the audit
committee to see that all the internal controls are working effectively. All the companies that are
listed of Australian Stock Exchange are required to form an audit committee (Arens et al., 2016).
Altium Limited has established an Audit and Risk Management Committee, which comprises of
three non executive directors. Such directors possess knowledge required for this purpose. No
information about the committee is given at one place in the report which makes it difficult to
find out the composition of the committee and its roles.
6) Independent Auditors report to the members (shareholders)
As per the Australian Accounting Standards, the auditors of all the companies have to submit a
report regarding the findings of their audit and also express their opinion on the financial
statements, based on which the members take important decisions. Hence, the auditors have a
huge responsibility towards the members and shareholders and their opinion on the financial
statements matters a lot (Gay & Simnett, 2015). However, the auditors are not responsible for the
preparation of the financial statements. The preparation as well as presentation of the financial
statements is the responsibility of the company’s management (Knechel & Salterio, 2016).
Management is responsible for choosing the most appropriate accounting policies and it also has
to ensure that the financial statements are free from any material misstatements (Media, 2015).
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Subsequent events are also required to be reported to the members of the company. Subsequent
events are those events which arise after the date of balance sheet but before issuance of financial
statements. These are required to be reported so as to evaluate their impact on the financial
statements. One such event occurred in the financial statements of Altium Limited. The company
acquired a 100% stake in Upverter Inc. which is based in Canada. This was acquired in August
2017. The amount involved is significant and the company is required to issue ordinary shares
for the same. However, no shareholder approval has been taken by the company.
7) Review all Key Audit Matters noted and the associated audit procedures
In order to bring about more clarity and transparency in the reporting to the members and
shareholders of the company, the auditors and the auditing firms are required to comply with the
new regulations framed in this regard. These are termed as Enhanced Audit Reporting
Requirements. As per the regulations, now the auditors of the company are required to report on
certain additional matters which according to them are significant to be reported separately. The
reason for stating key audit matters is to bring a clear picture of the major transactions that might
have an impact on the financial statements of the company, to the members. The auditors of
Altium Limited have reported two key audit matters in their report to shareholders and members.
These matters are as follows: Recoverability of deferred tax assets
 Carrying value of goodwill and other definite lived intangible assets (Altium Limited,
2017)
The auditors addressed the key audit matters based on the audit of the whole of financial
statements. These matters are detailed as under:
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Recoverability of deferred tax assets- This matter is related to the recognition of deferred tax
assets as per the Australian Accounting Standards. As per the standards, the extent to which
deferred tax assets can be recognized depends on the probability that the company has taxable
profits in future. It is essential to ensure that there are profits in the company in foreseeable
future because only then the benefits of deferred tax can be realized. Deferred tax assets provide
tax benefits on future income as they can be deducted from future profits and hence there is
lesser tax liability on the company at that point of time. The reason behind considering deferred
tax assets as a key audit matter is the quantum involved. It is because of the quantum of money,
the auditors of the company had to exercise a significant judgment to make an assessment about
the sufficiency of profits in the future so that the tax benefit can be availed in the later years.
The auditors of the company applied test of controls and test of detail of balances in order to
calculate the foreseeable profits of the company.
Carrying value of goodwill and other definite lived intangible assets- All the assets of the
company are required to undergo an annual impairment assessment as per the Australian
Accounting Standards. Intangible assets such as goodwill are also included in this. At the end of
the year, these assets are tested for the impairment. The management of the company had
prepared certain financial models for the purpose of carrying out test of impairment. This
involved estimation of cash flows and also rates of discount. Hence, the auditors of the company
considered this as a key audit matter. The methods used for estimating the flows of cash, the rate
of discount as well as the growth rates.
The auditors of the company applied substantive procedures in order to assess the models used
by the company to forecast the cash flows. In addition to this, some models were also prepared
by the auditors and hence test of detail of balances.
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Conclusion
The purpose of presenting this report was to identify whether the company and its auditor
selected is complying with rules and regulations framed to bring about transparency in reporting.
All the information so provided in this report appears to be backed by appropriate law. However,
with respect to the information about the audit committee, the annual report does not provide for
the same. Also the website of the company does not contain such information. The reason may
be that the annual report comprises of such information also which is not required to be provided
and because of this main information gets lost. This must be avoided by the company.
References
Altium Limited, 2017. Annual Report. Altium Limited.
Altium Limited, 2018. About Us. [Online] Available at: https://www.altium.com/ [Accessed 17
September 2018].
Arens, A. et al., 2016. Auditing, Assurance Services and Ethics in Australia with ACL Access
Code Card. Pearson Education Australia.
ASIC, 2018. Auditor independence and audit quality. [Online] Available at:
https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/auditors/auditor-
independence-and-audit-quality/ [Accessed 16 September 2018].
Basu, S.K., 2010. Fundamentals of Auditing. Pearson Education.
CAANZ (Chartered Accountants Australia & New Zealand), 2016. Auditing, Assurance and
Ethics Handbook 2016 Australia: Incorporating All the Standards as at 1 December 2015. John
Wiley & Sons.
CAANZ (Chartered Accountants Australia & New Zealand), 2016. Auditing, Assurance and
Ethics Handbook 2016 Australia: Incorporating All the Standards as at 1 December 2015. John
Wiley & Sons.
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Caanz , 2015. Auditing and Assurance Handbook 2015 New Zealand+auditing and Assurance
Handbook 2015 New Zealand Wiley E-Text Card. John Wiley & Sons Australia, Limited.
CCH Australia Limited, 2011. Australian Corporations & Securities Legislation 2011:
Corporations Act 2001, ASIC Act 2001, related regulations. CCH Australia Limited.
Chartered Accountants (Australia-Newzealand), 2018. Perspective.
Frankel, R.M., 2018. The Relation Between Auditors' Fees for Non-Audit Services and Earnings
Quality (Classic Reprint). Fb&c Limited.
Gay, G.E. & Simnett, R., 2015. Auditing and Assurance Services in Australia. McGraw-Hill
Education (Australia).
Knechel, W.R. & Salterio, S.E., 2016. Auditing: Assurance and Risk. Routledge.
Leung, P., 2009. Modern Auditing & Assurance Services. John Wiley & Sons Australia.
Media, B.L., 2015. CPA Australia Advanced Audit and Assurance: Passcards. BPP Learning
Media.
Mitchell, K., 2018. Independence – Navigating the murky waters between Audit & Non-Audit
services. [Online] Available at: https://rochford-group.com/independence-navigating-murky-
waters-audit-non-audit-services/ [Accessed 11 September 2018].
Porter, B., Simon, J. & Hatherly, D., 2014. Principles of External Auditing. Wiley.
Wolters Kluwer, 2018. Corporations Act 2001, Section 307c Auditor’s Independence
Declaration. [Online] Available at:
https://iknow.cch.com.au/document/atagUio486340sl14508496/corporations-act-2001-section-
307c-auditor-s-independence-declaration [Accessed 9 September 2018].
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