Importance of Accounting and Auditing Standards

The assignment emphasizes the significance of adhering to accounting and auditing standards for organizations. It highlights how these standards contribute to accurate financial reporting, stakeholder evaluation, and economic stability. The document stresses the importance of transparent reporting practices, ethical considerations, and the role of auditors in verifying financial statements.

AUDITING

Ansell Ltd
Executive Summary
There have been glaring examples of corporate failures in the past that has to lead to immense
losses for the investors and eroded the wealth. Some of the scams were so prominent that
their examples are still recalled. The downfall of ABC, HIH, Satyam scam, Lehman Brothers
disturbed the corporate world. The failures generated on account of management failure and
failure on account of the auditors. Moreover, it highlighted the shortfall in the corporate
governance procedure. The present study revolves around the company name Ancell Limited.
ASA 701 came into existence as a result of the financial crisis. This standard was a huge
landmark as it provides benefits to the shareholder and knows the company in which they
desire to invest. The report commences with the introduction of the company followed by the
discussion on ASA 315 and its connection with the audit report.
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Contents
Introduction...........................................................................................................................................3
ASA 701 & its relationship with audit report.........................................................................................3
ASA 315 & its relationship with audit report.........................................................................................3
Important points that were of major importance while conducting the audit and that could have
been disclosed by the auditors in the auditor report as Key Audit Matters:.........................................4
Recommendation..................................................................................................................................6
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8
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Ansell Ltd
Introduction
For the purpose of the report, Ancell Limited is selected that is a pioneer in giving health, as
well as safety solution along with different products. The main operation of the company is
in designing, manufacturing, as well as the development of a huge range of products that lead
to the safeguard of the body (Ansell Limited, 2016). The company has provided adequate
disclosures in its annual report that requires immense research in order to avoid any negative
showcase on the company. Furthermore, the auditors has not provide the Key Audit Matter
in the Audit report that is now needed to disclosed in tune to ASA 701 that is Communicating
Key Audit Matter in the Independent Auditors Report, as well as ASA 315 that is
Identification, as well as Assessment of the Risk of Material Misstatement through
knowledge of the Entity and its environment.
ASA 701 & its relationship with audit report
ASA 701 Auditing Standard – ASA 701 came into existence chiefly for the need of financial
reporting that ends on 15 December 2016. The introduction of this auditing standard was to
assess the audit matter is important and when assessed, the communication should happen
with an opinion that is not biased on the key matters and linked to the firm’s management
that needs to be audited. The main aim of this communication resides in the fact that it leads
to transparency in the financial statements that are audited and help the user of the financial
statement to have a thorough look into the matter that can have an impact on the user's result.
This can be properly explained with the help of Lehman Brother example where the use of
ASA 701 can prevent the material fact concealment. The material facts are critical as it has a
strong impact on the users and other related parties. Key Audit matters can be described as
those matters that require a proper attention of the auditor when the financial statements need
to be audited (Eccles & Krzus, 2014). To consider such matter, it is the need of the hour that
the auditor should spot the matter that is vulnerable to material misstatement, high level of
uncertainty, etc.
The auditor of listed companies is now required to disclose such matter in the audit report
that according to their opinion is of major importance in the audit of the financial report of
the present year. All these matters, as well as event, needs to be mentioned that were
disclosed to the auditor till the audit gets completed and even those that were not needed to
be disclosed (Eccles & Krzus, 2014). Disclosures are important criteria and in the event of
such not disclosed then it can hamper the proper management of the company that might
create a rift in the process of decision making.
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Ansell Ltd
ASA 315 & its relationship with audit report
ASA 315 – Identification and Assessment of the Risks of Material Misstatement through
knowledge of the Entity and Environment
The auditing standard highlights that the audit should be of high competency so that any risks
can be traced at the very beginning. This will lead to avoidance of the material misstatement
in the financial statement. The presence of material statement hampers the normal progress of
the company. It needs to be noted that the happening of such might occur as a result of fraud,
error or mistakes that are not intentional in nature (Matthew, 2015). The auditor needs to
report such happening after a proper understanding and evaluation of the entity, as well as
environment. Moreover, the internal control needs to be ascertained and reported by the
auditors as they put huge emphasis on the company’s working.
Important points that were of major importance while conducting the
audit and that could have been disclosed by the auditors in the
auditor report as Key Audit Matters:
In comparison to the year 2015, the aggregate sales have declined by 4.4% that has caused
the EBIT to report a negative trend amounting to 3.5%. Further, the company’s EPS have
also decreased that is a significant concern. Such lower trend of sales is because of
translations in currency as the company pursues major international exposure. Besides,
overall profits have declined because of enhancement in administrative, general, and selling
expenses in comparison to enhancement in sales figures. Moreover, there were inappropriate
results in the company’s medical segment wherein it encountered manufacturing issues in
Malaysia and Melaka facilities with sales depreciated by 8%. In contrast to this, the sexual
wellness segment witnessed growth by 3%. Nevertheless, only the operating cash flows of
the company witnessed significant growth by 24% (Ansell Limited, 2016).
The auditors have failed to disclose various relevant matters that might have arisen after the
termination of the financial period, which can impact the affairs and activities of the entire
Group, its outcomes, and overall condition. It is the duty of the auditor to present or reflect a
true and fair view of the company’s activities and affairs. For instance, issue of dividend to
the shareholders of the company (Holland & Lane, 2012). Nonetheless, the company had
come up with many plans and strategies like the assurance of international class standards of
safety that can be continuously monitored and the same can be easily implemented at every
fresh procured site. In addition to this, such preparedness included installation of fire
prevention plans at the acquired sites of Ansell and adoption of a complete audit of health,
safety, and the environment by the third parties (Ansell Limited, 2016). In order to ensure
complete safety, Ansell can make insurance of its strategic partnerships, intangible assets,
plant and machinery, and significant agreements as well. Further, it is the duty of Ansell to
acquire intellectual property rights of all its findings and papers so that they cannot be
compromised. However, the auditors failed to identify any such material risk in the audit
report. As the auditor was incapable of identifying any deficiency, an inappropriate financial
statement will be reflected that can play a key role in affecting the decision-making ability of
the entire organization (Ruhnke & Schmidt, 2014).
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Ansell Ltd
Ansell takes major steps in assuring health and safety of its workers that includes monitoring
of their safety graphs that is conducted by the Risk Committee. The company attained a score
of 61% in cultural survey and engagement of 16000 employees that is at par with the
international ranking (Ansell Limited, 2016). The auditors have also proved themselves
incapable of reporting deficiencies or fatalities in the Thailand manufacturing facility that
incurred in May 2016. The company also took steps to assist the families of the dead and it
also endeavored to find the main cause of the occurrence of the incident.
Due to the high volatility of international markets, the Group is expected to encounter
massive variations in foreign exchange rates together with their impact on earnings in US
dollars. Moreover, almost half of the expenses of the Group are in currencies instead of US
Dollars. The company entirely relies on the quality of the product and it must ensure their
investment in quality checks by implementing the best team so that they can continuously
monitor and supervise the same. Furthermore, the Group majorly depends upon their setup of
Information Technology and any type of failure, ineffectiveness, and disruption of such setup
is a major disappointment to the goodwill and overall affairs. The auditor has again proved
himself incapable of recognizing the same as a material audit risk in the financial statements
of the company. Ansell is an international company that is pursuing enormous
diversifications and investments that also includes huge target sales and production figures.
This can result in the incapability of the company to react efficiently to all the grave scenarios
keeping in thought all the political and cultural affairs taking place in various countries in a
timely fashion (Messier, 2013).
Since the company is a manufacturing one, it has to encounter enormous arrangement of
plant and machinery that are running both on the manual and automatic basis. Further, the
company must attempt to maintain an environment equipped with safety strategies because
human lives are constantly at risk owing to several unknown reasons (Messier, 2013). This
can assist in identifying any casualty so that any loss of life or asset can be immediately
prevented. Such risk has also not been recognized in the audit report by the auditors. The
Group has employed new directors and experienced highly-qualified personnel who pursues
perspective for new investments and procurement that is a good indicator of it (Ansell
Limited, 2016). Even though the sources of finance for such investments are not adequately
explained by the company, yet such enormous investments must be appropriately backed up
by capitalization of markets and aggregate borrowings.
Overall, if such matters are not made clear at the time of facilitating such investments, it
might become troublesome for the company. Nonetheless, all these concerns and matters
must be adequately and effectively addressed by the auditor of the company as relevant or
key matters of the audit. These must form part of the company’s audit report in order to
enable better decision-making (Tepalagul & Lin, 2015).
The Group has a thorough remuneration policy like LTI, STI, and FAR for its employees that
comprise of various incentive and remuneration plans. Such levels are framed to retain,
maintain, and attract the best range of employees and to offer them share in the growth of
company in the way of stock options and shares. This also comprises of both equity and cash
awards (Ansell Limited, 2016). Further, in terms of CSR and HRM, the company also makes
way to maintain best standards that can offer the society assistance in terms of pollution
control, mitigation of natural disasters, and employment facilities. This involves a huge
amount of expenses but the auditor has failed to mention the advantages and disadvantages of
such strategy in their audit report. Further, the risk of foreign currency translation has also not
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Ansell Ltd
been provided in the auditor’s report, which is believed to be a relevant factor in
ascertainment of company’s final profits (Moroney & Trotman, 2016).
It must be noted that the aforesaid factors are of relevant importance to the stakeholders of
the company and the same must have been accommodated in the auditor’s report in the form
of key audit matters. Therefore, to address such scenarios of non-disclosure, ASA 701 has
been introduced for the audited financial reports that requires disclosure of key audit matters
and steps facilitated by auditors to record such issues together with their impact on financial
and non-financial segment of the company (Christensen, 2011). Further, the aggregate
costing associated with the aforesaid situations and the projections or plans of the company
must also be taken into account by the auditor. The reason behind such undertaking can be
attributed to the fact that there may be no overstatement or understatement of costs in the
financial statements. This risk may result in a material misstatement in the financial statement
level, and the auditor must disclose and assess such risks so that misstatements can be
immediately mitigated (Ghandar & Tsahuridu, 2014). Such disclosure must be based on the
significant accounting standard ASA 315.
Recommendation
The audit report must be an exact copy of the non-financial and financial health of the
company so that the stakeholders can evaluate the company’s exact position. Further, the
company’s transparency is a significant consideration when it comes to the procedure of
financial reporting. Thus, it is crucial for the company that the statutory and internal auditor
must possess a sharp mind presence so that every affair corresponds perfectly with the
required standards. Overall, a proper guidance of a moral system must be in place so that
corporate governance and ethics are properly addressed.
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Ansell Ltd
Conclusion
From the study, it is clear that organization must adhere to the regulations of accounting that
need to be implemented. The standards help in the assessment of the influence of every
financial matter that is required to be implemented when the financial statements are prepared
and can lead to an immense problem for an economy of a country if not managed with a
proper clarity. Therefore, it is required that the companies do such reporting that helps the
stakeholders to assess the position of the organization. Further, the financial statements
should highlight the correct position of the company and hence, it is highly needed that
accounting, as well as auditing standards, needs to be followed precisely. The auditor plays a
pivotal role in providing a true and fair view of the books of the accounts. In short, the
auditor must comply with the auditing standards so that the real position of the organization
is reflected. The auditor must understand the potential and scope of work
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Ansell Ltd
References
Ansell Limited 2016, Ansell Limited Annual report & accounts. [online] Available at:
<http://www.ansell.com/-/media/Corporate/MainWebsite/About/Investor-Center/Annual-
Report-2016/Annual-Report-to-Shareholders-2016.ashx?la=en
Christensen, J., 2011. Good analytical research. European Accounting Review, 20(1), pp. 41-
51
Eccles, R.G.. and Krzus, M.P., 2014. The integrated reporting movement: Meaning,
momentum, motives, and materiality. John Wiley & Sons.
Ghandar, A., and Tsahuridu, E., 2013. The Auditing Handbook 2013. Australia: Pearson.
Holland, K., and Lane, J., 2012. Perceived auditor independence and audit firm fees.
Accounting and Business Research. 42(2), pp. 115-141.
Moroney, R., and Trotman, K.T., 2016. Differences in Auditors' Materiality Assessments
When Auditing Financial Statements and Sustainability Reports. Contemporary Accounting
Research, 33(2), pp.551-575.
Ruhnke, K., and Schmidt, M., 2014. Misstatements in financial statements: The relationship
between inherent and control risk factors and audit adjustments. Auditing: A Journal of
Practice & Theory, 33(4), pp.247-269.
Tepalagul, N., and Lin, L., 2015. Auditor Independence and Audit Quality A Literature
Review. Journal of Accounting, Auditing & Finance, 30(1), pp. 101-121.
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