Audit and Assurance

This assessment discusses the provisions of ASA 701 and the importance of key audit matters in the annual reports of mining companies. It explores the rationale behind ASA 701 and the need for auditors to comment on key audit matters. The assessment also includes a discussion on the key audit matters identified in the annual reports of selected mining companies.

Running head: AUDIT AND ASSURANCE
Audit and Assurance
Name of Student
Name of University
Author’s Note

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AUDIT AND ASSURANCE
Executive Summary
The assessment would be dealing with the provisions which is stated under ASA 701 which
relates to improvement of the reporting framework of the business. The assessment would be
going in details on the rationale behind ASA 701 and why the auditors of a business needs to
comment on key audit matters which are identified from the annual report of the companies
which are selected for this assessment. The companies which are selected are from the mining
sector and appropriately follows all relevant accounting standards while preparing the financial
statements of the business. The assessment also includes discussion regarding the key audit
mattes which are included in the annual reports of the companies which are considered for the
purpose of audit.
Table of Contents

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Introduction......................................................................................................................................3
ASA 701: Rationales.......................................................................................................................3
Going Concern Principles................................................................................................................4
ASA 701: Explanation.....................................................................................................................5
KAMs of the Australian Mining Industry.......................................................................................6
BHP Group Limited.........................................................................................................................6
Downer Edi Limited........................................................................................................................7
Evolution Mining Limited...............................................................................................................7
Newcrest Mining Limited................................................................................................................8
Rio Tinto Limited............................................................................................................................9
Witchaven Coal...............................................................................................................................9
Conclusion and Recommendations................................................................................................10
Reference.......................................................................................................................................12

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AUDIT AND ASSURANCE
Introduction
Auditing is a process of checking and investigating the accounting books of the
organizations. It is done after checking of the inventory of the all the departments of the
company and to inspect that all the documentation of the recording standards (Kumar and
Sharma 2015). The auditor who performs the audit of the company goes through all the financial
statement of the company. In the last decade it is seen that the auditor has to face a large amount
of criticism for the involvement in the collapsing of big corporate house in the market. Against
the criticism which has impacted the auditor and the whole audit profession, some new standards
has been introduced in the form of ASA 701 Communicating Key Audit Matters in the
Independent Auditor’s Report (ASA 701). It replaces the existing guidelines of ASA 570 Going
Concern and many other regulations which deal with the regulations of the auditor while doing
audit. This report provides the discussion on the logical view of the auditing standard of ASA
701 and the related particular of the accounting standard (Peytcheva, Wright and Majoor 2014).
This report also explains the efficiency in Key Audit Matter (KAM) in the auditor’s report in the
mining companies who are listed Australian Stock Exchange (ASX).
ASA 701: Rationales
In the business failure of Lehman Brothers the auditor’s failure is taken into
consideration and it is said that it is one of the major reason for business failure. The
management of Lehman Brothers was involved in the malicious acts. The management of the
company uses Repo rate in falsely matter for the purpose of strengthen their company’s balance
sheet, which amounted to $50 billion. Auditor of the firm has full knowledge of this kind of
fraudulency but the auditor provided the unqualified report which is in favor of the organization

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(William Jr, Glover and Prawitt 2016). The report which was provided by the auditor of the
company became one of the vital reason for the decline of the firm and it also become the reason
for the financial crisis which happened in 2008.
There are two vital reasons due to which ASA 701 has been introduced in the auditing
system. The standard introduced in the form of ASA 701 has put some distinctive rules and
regulation imposed on the auditors which they have to follow while conducting the auditing with
any respective time in any respective time period. This was not present during the auditing
operations in the business of Lehman Brothers. The main motive behind such steps is to reduce
the audit gap after the case of Lehman Brothers. According to the standard introduced in the
form of ASA 701 the auditors has to reveal the information which might prove to be the highest
form of risk (Azim 2013). This information supposed to be mentioned in the auditor report. This
will help the auditor to take the concrete decisions after analyzing the financial statements. In the
case of Lehman Brothers, the auditor failed to provide the measurement of risk which was
associated with the company. The report also failed to show that the estimation which is made on
the accounting part of the company by the management. Thus this caused not only the downfall
of the Lehman Brothers company but it also tarnishes the reputation of the auditors and whole
audit profession. However, the new auditing standard has eradicated such problem and imposed
regulation on the auditor to reveal the information in his report regarding management’s
decision, assumptions made by the management and also the estimation which was taken by the
management of the company.

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Going Concern Principles
As per the provisions which is included in ASA 570, the auditor needed to assess the
financial statement of the business in order to identify whether there is any chance that material
misstatement in the financial records can affect the going concern principle of the business. The
auditor needs to report on the same in the financial records if the going concern principle is
appropriate for the business or not.
This us a flaw which can be taken into consideration from the side of auditor is that the
auditor has failed to recognize the capability of the firm to do business on future. From the past
experience of the financial crisis which took place in the year 2008 it is evident that the
companies might suffer a huge loss in quick succession. It will affect the going concern status of
the companies. This was the one of the major reasons for the demise of Lehman Brothers. So it
comes to utmost efficiency that a strong reform should be there which can prevent the companies
from such downfall. As per the revised ASA 570 Going Concern which states that the auditor
needs some decent evidence for the assessment of the material misstatement in the financial
statements, so that it can state the fact. This standard will stop the improper use of going concern
basis of accounting (Carson, Zhang and Fargher 2014). The presence of such kind of standard
will help to prevent same kind of issues which happened in the case of Lehman Brothers.
ASA 701: Explanation
Introduction of ASA 701 represents the AUASB’s commitment of improving the Quality
of auditor’s report which is under the governance of IAASB. The reasons for the introduction of
ASA 701 is to produce a communication line between the audit matters of the companies and the
auditor’s report which is released by the auditor after analyzing the financial statement of the

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company (Xu et al. 2013). There are some regulations which are introduced under the guidance
of ASA 701 are mentioned below:
- It communicates the auditor report and the major audit matters related with the company
which are listed with Australian Stock Exchange (ASX)
- This standard intervenes and creates the need of the major application and explanatory
material which will help to increase the communication betwwen the auditor’s report and
crucial audit matters.
- It also ascertain process for the crucial audit matters
- It helps the audit report by arranging the procedures of the key audit matters.
- It also sates the situations where the auditor did not need to go for the key audit matters.
- It helps the auditor to the audit for needed procedures for the documentation.
KAMs of the Australian Mining Industry
To analyses the auditor’s efficiency in respect to the main audit matters the minning
industry has been chooses from the Australian Stock Exchange (ASX) chooses from the top
listed 100 companies. The audit matters of the chosen companies are provided below:
BHP Group Limited
The audit matters of the company involves the valuation, allocation and demonstration of
Onshore US assets, Samarco, taxation, estimation of asset and closure and rehabilitation
provision. The auditors of the company consider this fact as the key matter for the auditing of
this company (Bhp.com. 2019). The issues include in the presence of audit matters prominent
judgments, compelling claims in the size, presence of the high degree of valuation uncertainty,

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the process of the company to assess the reasonableness of the applied judgments, reduction in
corporate income, and different aspects. The auditor has went for different procedures which
includes testing of the key control of the valuation of US Onshore assets, checking the
impairment charges, assessment of the presence of legal and constructive obligation related to
Samarco, assessing the completeness assertion related to contingent liabilities, assessing the
adequacy of taxation control environment, evaluation of the forecasted commodity prices and
other important factors which are very much necessary for the company.
Downer Edi Limited
The auditor has found considerable amount of audit matters which includes adjustment
made on the basis of AASB 15, revenue recognition, valuation of goodwill and acquisition of
entities (Downergroup.com. 2019). On the first part of the audit matter the auditor of the
company has provided his focus on the estimation type and judgments which are to be
considered to be complex. The auditor has adopted different audit procedures which include
related processes to the accounting of contacting revenue, sample testing, usage of data analytics
and much other process which are being adopted. While investigating for valuation of goodwill
the auditor has determined CGU, future revenue which is budgeted, discount rate and the
terminal growth rate. The procedure of the auditor which was included for the evaluation of
goodwill impairment structure, impairment determination process, accuracy in forecasting and
many others. The reason for considering the third aspect of the audit matters is that the
complexity involves in the acquisition, size of the acquisition, and finalizing the process. The
procedures are enhanced and newly created for the risks.

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Evolution Mining Limited
In respect to the audit matters the audit has considered two aspects which include
valuation of assets held in the case of Mungari and Cowal and calculating the asset’s carrying
value. As per the audit matters taken the first one holds the most importance. This is because the
auditor has find the involvement of subjective nature of judgement and assumptions, relative size
of Mine Development and property, the balance of plant and equipment in the balance sheet and
providing the judgement in the assessment of tax position of the company
(Evolutionmining.com.au. 2019). The procedure of audit in this scenario includes reading the
valuation report, assessing the competency and capabilities of the external values. As per the
second audit matters which was found by the auditor has provided the verdict on the
measurement of the significant judgments involves in the impairment charges related to CGU.
The audit procedures which has taken into consideration includes assessing the impairment
indicators and assessing the appropriateness of the impairment.
Newcrest Mining Limited
After analyzing the financial report and conducting audit in the company the auditor has
marked two audit matters which include the checking of the carrying value of the non-current
assets, taxation and mine rehabilitation provision. The auditor has conduct the investigation for
the purpose to see whether there are any impairment charges prevails or not, the effects of the
operation of the company in multiple tax jurisdiction in their income and the complexity in the
estimation of mine rehabilitation provision (Newcrest.com.au. 2019). The auditor has went
through the company’s assessment of the impairment indicators, the reasonableness of the cash
flow model of the company, evaluation of the tax provision of the company which also include
the tax receivable in each part of the financial statement, calculation of the mine rehabilitation

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provision of each mine and also weighed the economic assumption which may include discount
rate, inflation rate and many more.
Rio Tinto Limited
After analyzing the whole fact the auditor has considered in searching the key audit
matters. The audit matters which are being marked are impairment indicator, provision for close
down, restoration, obligations against environment and provision for enigmatic tax position. The
first audit matter which is being pin pointed by the auditor because the existence of impairment
is said to be judgmental which will result in the material misstatement (Riotinto.com. 2019). The
audit process will test the authentication of the process in which management identifies the CGU
and also the evaluation is made on the management of impairment indicators. As mentioned in
the second key audit matters mentioned by the auditor of the company are the calculation of the
provision needed for the approximate the importance as well as the timing in the future costs.
The audit procedures include the assessing the management process for reviewing the closure
position and detailed testing. For the purpose of the third audit matters mentioned by the auditor
includes management approach towards the uncertainty in tax positions and also checking the
calculation of the tax.
Witchaven Coal
The auditor of the company has pin pointed the two audit matters while performing the
audit of the company. The audit matters which included by the auditor are impairment for plant,
property and equipment and rehabilitation of mine and closure provision. The reasons for
considering the first key audit matter important is because this asset holds a considerable amount
of importance in the balance sheet of the financial statements of the company. It also includes the

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involvement of key judgments and the key assumptions made by the management of the
company which made the auditor to take into consideration in relation with the audit matters
(Whitehavencoal.com.au. 2019). The auditor of the company has gone for the checking whether
the impairment indicator has occurred as per Australian Accounting Standard, assessing the
appropriateness of CGU identification and many others. As per mentioned by the auditor the
second key matter includes the assessment of the involvement of important judgments and the
assumptions made on this matter have significant presence in the calculation of the provision.
The convenient auditing procedures include assessment of the review, approval of rehabilitation
provision and processes for recognition.
The above mentioned study it is evident that the auditors have taken every step or
assessment made by the auditor includes different procedures which are similar to the regulations
mentioned in ASA 701. While doing the audit the auditor has went for the selection of the audit
matters after considering the required aspect like estimation made in accordance with the
company, assumptions made by the company’s in making the financial statement and judments
which are made by the management of the company in differsnt aspect of the company which
might reflect the financial statement of the company. It is seen that the auditor has used every
kind of instruments which are mentioned in the standards for finding any kind of risks which
prevails in the company and may harm the company and the stakeholders of the company. The
efforts made by the auditor in respect of finding the audit key matters of the company which
provides the financial statements of the company and also the other additional financial
information and other details regarding the transactions which are very crucial for decision
making process.

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Conclusion and Recommendations
As per the discussion which is conducted in the above discussion reveals that the with the
failure of Lehman brothers and the crisis of 2008, new auditing standards were introduced in
order to reverse the situation and bring about transparency in the process of auditing. One such
introduction was reporting of key audit matters by the auditor which demonstrate the efficiency
of the auditor of the business. The following recommendations are suggested to the auditors:
 As per the provisions of ASA 701, the auditor needs to identify and report key audit
matters of the business. In order to identify the same, the auditor needs to apply proper
auditing procedures and standards so that material transactions can be recognised which
can come under key audit matters of the business (Zakari 2013). The auditor would look
for those transactions which are of material nature and any misstatement in the same can
affect the accuracy of the financial statements.
 The auditor is also recommended that proper disclosure needs to be provided regarding
the key audit matters in the financial statements of the business. This needs to include
important transactions and significant events which can affect the accuracy of the
financial statements of the business.
 The auditor of the business is expected to maintain professional scepticism while
identifying the key audit matters of the business.
 The auditor of the business needs to adhere with the principles and policies of ASA 701
for effective determination of the key audit matters. The same is helpful in effectively
communication of the key audit matters to the users of the financial statements.

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Reference
Azim, M.I., 2013. Independent Auditors Report: Australian Trends From 1996 to 2010. Journal
of Modern Accounting and Auditing, 9(3), p.356.
Bhp.com. 2019. Annual Report 2018. [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf [Accessed 14 May 2019].
Carson, E., Zhang, Y. and Fargher, N., 2014. Audit reports in Australia 2005-2013: a preliminary
analysis.
Downergroup.com. 2019. Annual Report 2018. [online] Available at:
https://www.downergroup.com/Content/cms/media/2018/PDF/AGM/DOW0041_Annual_Report
_2018_FA.pdf [Accessed 14 May 2019].
Evolutionmining.com.au. 2019. 2018 ANNUAL REPORT. [online] Available at:
https://evolutionmining.com.au/wp-content/uploads/2018/10/1858627.pdf [Accessed 14 May
2019].
Kumar, R. and Sharma, V., 2015. Auditing: Principles and practice. PHI Learning Pvt. Ltd..
Newcrest.com.au. 2019. 2018 ANNUAL REPORT. [online] Available at:
https://www.newcrest.com.au/media/annual_reports/Newcrest_Annual_Report_2018_1.pdf
[Accessed 14 May 2019].

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Peytcheva, M., Wright, A.M. and Majoor, B., 2014. The impact of principles-based versus rules-
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Research in Accounting, 26(2), pp.51-72.
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http://www.riotinto.com/documents/RT_2018_annual_report.pdf [Accessed 14 May 2019].
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http://www.whitehavencoal.com.au/wp-content/uploads/2018/09/WVN_224754_Annual-Report-
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Xu, Y., Carson, E., Fargher, N. and Jiang, L., 2013. Responses by Australian auditors to the
global financial crisis. Accounting & Finance, 53(1), pp.301-338.
Zakari, M., 2013. Accounting and Auditing in Developing Countries-Arab Countries. Journal of
Economics and Political Sciences, Tripoli University, 16(10), pp.1-27.