ASA 701 and ASA 570: Key Audit Matters and Going Concern in Energy Industries

This report examines the new auditing standards ASA 701 and ASA 570, focusing on their application in the energy sector. It analyzes the key audit matters (KAMs) and going concern disclosures of three ASX-listed energy companies: Caltex Australia, Origin Energy, and Santos Limited. The report explores the significance of these standards in enhancing transparency and providing insights for investors. It also discusses the responsibilities of auditors and management in ensuring compliance with these standards.

ACC707 Auditing and Assurance
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Executive Summary
The report explains about the auditing standards ASA701 which has been developed so as to
communicate the key audit matters which was developed in the global financial crisis. This
development is made so that the response can be gathered from the shareholders about their
decision related to the investment. The analysis has been done by evaluating the key audit
matters of the Energy industries such as Caltex Australia, Origin Energy and Santos Limited.
The standard of the ASA 570 was revised due to the reason that there were various issues with
the ability to use the going concern concept. The report basically focuses on the new standards
that have been revised so that the improvements can be made and the profitability of the
organization can be increased.
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Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
ASA 701......................................................................................................................................................5
Key Auditing Matters of all companies.......................................................................................................7
Auditing Standards ASA 570....................................................................................................................10
Going Concern Disclosure for ASA 570 of all Companies.......................................................................12
Recommendations.....................................................................................................................................14
Conclusion.................................................................................................................................................15
References.................................................................................................................................................16
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Introduction
The report deals with the understanding of the new auditing standards of ASA701 which deals
with the communication of the Key Audit Matters according to the report of the Auditor. With
that the ASA 570 is also explained which deals with the Going Concern concept so that the
actual valuation of the new standards can be done. Caltex Australia is the ASX Listed
organization which is the energy industry which is used in more than 60 countries in the Asia
pacific region. With this the report also deals with the overview about the Key auditing matters
of the companies which are listed in the ASX. The ASA 570 which deals with the going concern
will also be highlighted in the analysis. The reports will explain about the applicability and the
management about the responsibilities of various directors. The understanding about the two
auditing standards will be gained after the analysis is done by deeply evaluating these two
standards.
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ASA 701
The ASA 701 includes all the financial statements which are related to the period after the
December 2016. They basically aim at describing the responsibilities of the organization and are
applicable to the financial reports which basically explain the key auditing matters in his report.
There are various modifications which are made in the accounting standards with that of the ISA
701 (Auditing and Assurance Standards Board, 2015). All the related matters of the ASA 701 are
described under the Auditing and assurance standard board.
Features:
There are various features of the ASA 701 such as:
 This will help the managers of the organization to evaluate that the recommendations of
the other auditors are to be included or not (KPMG, 2014).
 It has made mandatory for the organizations to include the key maters in their reports
which are prepared by the auditors of the organization (Auditing and Assurance
Standards Board, 2015).
 The audit matter will also be prescribed which will help in determining the manner in
which the auditor has to prescribe those factors.
 The standards also specify those factors clearly in which the disclosure has not to be
done by the auditors.
Key Audit Matters:
The Key auditing matters encloses those issues that have been of the most importance in the
reports or the financial papers within its auditing (Auditing and Assurance Standards Board,
2015). The matters which will be relevant in determining the key matters are:
 Those areas in which there are the chances of risk in relation with that of the
misstatement or the other relevant risk factors.
 Those matters which provides the major or the significant impact on the audit of the
organization (Auditing and Assurance Standards Board, 2015).
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 The areas which involve the judgment of the management are also included in the key
audit matters and will be considered by the auditors.
Reporting of the Key Audit Matters:
The companies which ask for the different individuals troubles in the key audit matter should
consist of the successful judgment (Auditing and Assurance Standards Board, 2015). By
considering the key audit matters in the proximity for the selection of the inspection will provide
the clean estimation for the obligations of the particular statistics to the customers and also
provide the unmistaken fine to such information (Australian National Audit Office, 2015).
Documents related to the Key Auditing Matter:
The auditors should have the proper documentation so that the supporting can be done for their
opinion according to the ASA 230. The judgments which are grasp which concerns the key
auditing matters should be the part of the conformation (Auditing and Assurance Standards
Board, 2015). The opinion of the evaluator is of the most importance for maintaing all the
documents which are required for the analyst’s exchange with which the survey documents
which are related with the each of the man and woman trouble and ensures that the other
documents of the audit documents should be rising inside the midst of the survey within the
organization (Australian National Audit Office, 2015).
The ASA 701 will help in maintaing the transparency within the organization as the proper
communication will be maintained (Auditing and Assurance Standards Board, 2015). The
shareholders of the organization will be receiving all the related information which is for the
particular purposes. This will help the shareholders in taking the investment decision by
analyzing the key factors. In the auditor’s report section of the company’s annual report the key
auditing matters are included (Australian National Audit Office, 2015).
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Key Auditing Matters of all companies
Origin Energy Limited: The following are the matters which are enclosed in the Key auditing
matters of the organization such as:
Key Audit Matter How matter is addressed in Audit
Financial Assets and Liabilities
The liabilities and the assets are the key
factors which are considered in the key
auditing matters due to complexity. The
factors which includes the complexity are:
 The judgment is made in the Group
estimation so that the fair value of
the certain items within the portfolio
of the Group can be determined and
can be applied to the industries
which are not based upon the historic
data (Origin Energy Limited, 2018).
 The detailed spreadsheets which are
used by the Groups underlay the
disclosure which is required by the
AASB7. Specially those which are
most prone than the system
generated to the errors.
 The specialists are evaluating the
internal models that can be applied to
the financial instruments against the
practices of the market.
 The specialists re-perform the sample
which are generated by the financial
instruments valuation and provides the
actual results by comparing them with
that of the Group results (Origin
Energy Limited, 2018).
 The segregation of the duties is
controlled by performing testing on the
basis of the samples so the settlement
can be done of the financial instruments
trade with the software systems
(KPMG, 2014).
Unbilled revenue
This is considered as the key auditing
matter due to the uncertainty which is
involved in the determination of the volume
which is supplied to the customers and due
to the application of the complex pricing
structure (Origin Energy Limited, 2018).
 The stratification and the
disaggregation of the audit testing
are required as the various rates,
offers and the plans are provided in
the regulated and the unregulated
markets across the world.
 There is the loss in the physical
energy due to the purchase of the
energy and the delivery of that
energy till the customers may
provide the wrong estimation.
 The testing is done of the energy which
is purchased on the wholesale by the
group of AEMO are done invoices on
the basis of samples (Origin Energy
Limited, 2018).
 The audit procedure includes: The
historic accuracy is assessed of the
Group estimates accordance with that
of the subsequent bills so that the
accuracy of the outcomes as well as
process can be evaluated accurately.
 The reconciliation is done of the
purchase volume to that of the sales
volume so that the accuracy can be
examined.
 The current period estimates are
challenged (Origin Energy Limited,
2018).
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Caltex Australia: The below mentioned are the Key auditing matters which are disclosed in the
annual reports of 2017 in the Caltex Australia.
Key Matters: The organization has the current holdings which are assessable and are
determined of the holdings of the company’s belongings (Caltex Australia, 2018). The
recoverable measures are evaluated by the view of call of the excellent judgment which is helps
in ensuring that all the activities in the organization are in accordance with the compliance and
the utilization is also ensured by perceiving the inability for the recommendations (Caltex
Australia, 2018). The recoverable measure evaluation is the advantage which will help in
obtaining the ability so that the resources can help in obtaining the favorable position within the
organization.
Auditor’s Action: The auditors get the real view for the valuation of the models which are
associated with the control and are used so as to overview the degree of the Group which is held
on the petroleum which is received. The auditors challenged the current period network by
developing the estimation and distributing it at any variance which is not in the boundaries of the
organization. They also coordinated with various things so that the bargaining can be done and
the pending part can be passed on the satisfactory and the appropriateness for the collection
which will be favorable for the organization.
Santos Limited: The key audit matters of the Santos Limited are explained as below:
Image: Key Audit Matters
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Source: Santos Limited, 2016
The key audit matters are those matters which are more significant in the professional
development of the annual reports of the current year (Santos Limited, 2016). The matters are
expressed in the context of the whole but the company does not provide the separate opinions on
the particular matters. All the responsibilities which are highlighted under the Auditor’s
Responsibilities for the Audit of the Financial Report Section are included in the relation to that
of the key matters. The audit procedures are designed in such a way that the performance and the
procedures can be increased by assessing the risky areas of the material misstatement according
to the financial report (Santos Limited, 2016). The capitalization of the expenditure and the
evaluation of the assets are done so that the diversification can be examined within the
organization. Both internal as well as the external auditors conduct the conduct the calculation of
the decommissioning (Santos Limited, 2016).
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Auditing Standards ASA 570
The Australian government has represented the auditing standards ASA 570. It was the revision
of the accounting standards from the ISA 570 to that of the ASA 570 Going Concern Concept
(Auditing and Assurance Standards Board, 2015). These are managed and maintained so that the
higher quality can be maintained and the Interest of the public can be given the more focus as
well as the priority. The ASA 570 is the statements which are prepared after the December, 2018
(Auditing and Assurance Standards Board, 2015).
Going Concern Concept Meaning:
This is the assumption which is concerned the accounting period. These are the reports which are
prepared so as to cease or liquidate the operations of the organization (Australian National Audit
Office, 2015). According to this assumption the assets as well as the liabilities of the
organization are recoded according to the entity basis and will be discharge or realize in the
business which is normal (Auditing and Assurance Standards Board, 2015).
Responsibility of Auditor for Going Concern:
The responsibility of the auditors is to maintain and manage the reports in accordance with that
of the accounting standards (Auditing and Assurance Standards Board, 2015). The going concern
concept is used so that the sufficient evidence can be provided of the going concern. The
responsibility of the auditor is also to maintain the sufficient amount of material (Gallizo and
Saladrigues, 2016).
Responsibility of the management:
The management is also responsible with that of the auditors. The management helps in ensuring
that the compliance of the going concern concept is maintained within the organization (Gallizo
and Saladrigues, 2016). The Australian Accounting Standards evaluates that the management
will help in ensuing that the ability is maintained within the organization for the maintenance of
the going concern (Auditing and Assurance Standards Board, 2015). The management also
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ensures that all the activities in the organization are maintained according to the rules and the
regulations which are prescribed in the policies of the organization.
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Going Concern Disclosure for ASA 570 of all Companies
Origin Energy Limited:
The going concern disclosure made the directors of the organization responsible for the
preparation of the financial reports that provides the clear and the fair view about the financial
statements according to the Australian accounting Standards and the Corporation Act 2001
(Origin Energy Limited, 2018). It also ensures to disclose all the matters which are related with
the going concern using the basis of the going concern of accounting until and unless they are
intended to liquidate with no realistic alternative (Origin Energy Limited, 2018). This also
enables the fair view material misstatement which have occurred to fraud and errors (Australian
National Audit Office, 2015).
Caltex Australia:
The going concern concept of the Caltex Limited is as follows:
The examination of the gathering of the companies is the controlled element which may help in
bringing down the physical exercises (KPMG, 2014). According to the ability of the company it
can be said that the company has the enough capacity so as to satisfy the hosting guide of the
capital or the openings of the diverse financing (Caltex Australia, 2018). So, the directors of the
company assume that the company should go on forever. The financial data of the organization
are also showing the actual results and the details. The budgets of the variables show the
possibility that the company will be meeting its duties and through this way the ordinary
business practices and the liabilities settlement according to the course of actions (Caltex
Australia, 2018).
Santos Limited:
While preparing the financial report the directors are responsible for the assessing the ability of
the company so that the maters which are related to the going concern can be evaluated. The
accounting policies of the organization and the reasonableness of the estimates of the accounting
and disclose all the matters related to the going concern are disclosed (Origin Energy Limited,
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2018). The going concern concept when applied in the orgaisation helps in maintaing the
effectiveness as well as the efficiency in the organizations so that the clear and the fair view can
be provided to the financial reports which will provide the actual results of the organization to
the shareholders (Origin Energy Limited, 2018).
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Recommendations
It can be recommended to the organization that they need to comply with the accounting
framework so that the activities of the organization can go according to the rules as well as the
regulations accordingly ((Gallizo and Saladrigues, 2016)). Therefore, it the company wants to
assess their accounting framework so ASA 701 should be applied which will provide them the
clear picture and will help in coordinating the activities by following the actual framework
(Australian National Audit Office, 2015). The accounting standard ASA 570 is also useful to the
organization as it will provide the idea to the auditors for the management of the misstatements
in the financial statements of the company. It is recommended that the company should
implement the going concern assumptions and the ASA 701 so that the effectiveness and the
efficiency can be maintained within the organization (Australian National Audit Office, 2015).
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Conclusion
From the above discussion it can be concluded that the ASA 701 and the ASA 507 is both
complained in the all the three companies so that the accountability of the organization can be
maintained. The report provided the clear view about the accounting standards and their
implications that can be provided in the organization. The fair and the true picture of the
estimation and the omission of the risk in provided in the financial transactions of the
organization. The all the matters of the compliance are provided in the annual reports of the
organization so that the actual performance can be evaluated and provided to the stakeholders so
that they can make the accurate financial decision.
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References
 Santos Limited, 2016. Annual Reports. [Online]. Santos Limited. Available at:
https://www.santos.com/media-centre/announcements/2017-annual-report/. [Accessed
On 24 May 2018]
 Origin Energy Limited, 2018. Full Year Results 2017. [Online]. Origin Energy Limited.
Available at: https://www.originenergy.com.au/about/investors-media/reports-and-
results/full-year-results-20170816.html. [Accessed On 24 May 2018]
 Caltex Australia, 2018. Annual Reports. [Online]. Caltex Australia. Available at:
http://microsites.caltex.com.au/annualreports/2017/. [Accessed On 24 May 2018]
 Auditing and Assurance Standards Board, 2015. Auditing Standard ASA 701
Communicating Key Audit Matters in the Independent Auditor’s Report. pp, 1-23.
(http://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf).
 Auditing and Assurance Standards Board, 2015. Auditing Standard ASA 570Going
concern. pp, 1-25.
(http://www.auasb.gov.au/admin/file/content102/c3/ASA_570_2015.pdf)
 Australian National Audit Office, 2015. Audits of the Financial Statements of Australian
Government Entities for the Period Ended 30 June 2015. Available at:
https://www.anao.gov.au/sites/g/files/net616/f/ANAO_Report_2015-2016_15.pdf
[Accessed on 24-may-2018]
 KPMG, 2014. FASB Issues Going Concern Standard. Available at:
https://www.kpmg.at/uploads/media/FN_DI14_47.pdf [Accessed on 23-may-2018]
 Gallizo, J.L. and Saladrigues, R., 2016. An analysis of determinants of going concern
audit opinion: Evidence from Spain stock exchange. Intangible Capital, 12(1).
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