Audit and Assurance: Key Matters and Responsibilities of Auditors

This article discusses the key audit matters and responsibilities of auditors in ensuring the accuracy and reliability of financial reports. It covers the independence declaration, non-audit services, remuneration, and role of auditors in reviewing key audit matters. The article also includes a case study of AGL Energy Limited.

AUDIT AND ASSURANCE

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Executive summary
The new audit program released after 2015 pertains to communicate key audit matters in the
independence report of Auditor. It includes the obligation of the auditor to communicate the
key audit matters with the report of judgment regarding the performance of financial report
especially for accuracy. The purpose of involving the key matter is to increase the value of
communication of auditors. This enables more transparency in the auditor`s work.

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Contents
Executive summary...............................................................................................................................1
Introduction...........................................................................................................................................3
Auditor’s Independence Declaration.....................................................................................................3
Independent auditor’s report..................................................................................................................4
Non-Audit services performed by the Auditor.......................................................................................4
Auditors’ remuneration..........................................................................................................................5
Director`s responsibility differs from auditor`s responsibility for financial reports...............................6
Functions of Auditor..............................................................................................................................7
Composition of the Audit Committee....................................................................................................7
Role of Auditor......................................................................................................................................7
Auditor`s responsibility related to financial report-...........................................................................7
Independent Auditors report to the members.........................................................................................8
Review all Key Audit Matters noted and the associated audit procedures.............................................9
Conclusion...........................................................................................................................................10
References...........................................................................................................................................11

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Introduction
These days, the role of transparency plays an important role in maintain trust among the
stakeholders. To meet this purpose, companies releases its Annual report and to check hoe far
these reports are reliable, company hires a team of auditors in order to keep a review over the
executive members. The report has detailed information of various relevant topics related to
auditor`s declaration, report of independent auditor, non-audit services delegated by auditors,
remuneration of Auditor, roles and responsibilities of auditor and finally review of auditor`s
report after analysing the annual reports. By delegating and communication the key audit
matters to the stakeholders and users of the annual reports, it help them in make an
appropriate investment decision. By communicating the annual reports, a user can apprehend
the diverse nature of the organisation. The below discussion brings out the analysis of
auditor`s report of AGL ENERGY LIMITED. The report answer what auditing aspect do the
company follows and what are the objectives of hiring independent auditors (Ajmi, and
Saudagaran, 2011).
Auditor’s Independence Declaration
The essential service commission prioritises the implication of retail audit program in the
company. The aim of the audit report is to provide commission and consumers of energy with
the independent assurance. These energy retail licensees have suitable system, policies, and
processes on the workplace. Moreover, the auditor should make assure that the company
complies with the necessary regulatory compliances and obligations. When the breaches on
part of the company occurs, the retail audit has to identify and compensate the breach.
Apart from this, the auditors has announced an unbiased and a clear opinion of the financial
situation of the AGL as per their knowledge and experience criteria. According to auditors of
the company, the financial statements are prepared by following proper accounting standards.

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The auditors have advised the company to improve its calculation methodology of assets and
liabilities and asked to resubmit the revised document as per the KPI. Auditors expect
independence during the audit. In addition to this, auditors experienced and embraced
independence delegated by directors (AGL, 2018).
Independent auditor’s report
While conducting the AGL`s audit, the auditors are complied to the independence
requirements of Corporation Act 2001. The independence policy has the details of the
procedures for the recruiting, appointing, and reviewing the independence of external auditor.
The audit and risk committee has conducted a tender process related to the provision of
external audit services. According to the independence policy, external auditor has prohibited
to provide any service that could hamper and threaten their independence through conflicts
and compliance role. As per the audit executed by the Australian auditing standards, these
auditors do not use their independence in a wrong way. Auditors exercise professional
evaluation and maintain professional scepticism during the whole audit (Auditing and
Assurance Standards Board, 2015).
Non-Audit services performed by the Auditor
As per the annual report of the AGL ENERGY LIMITED (2013), external auditors named
Deloitte touche tohmatsu provided the non-audit services to the company. Although, the
company has the formal policy for the provision of auditing services. Moreover, the directors
of the company are satisfied as the provision of $107000 of non-audit services are provided
by the external auditors (Deloitte, 2017). The policy and procedure reviewed by Audit and
Risk Management committee managed to conclude from the director`s side that the non-audit
services provided do not hamper independence requirement of external auditor in the
corporation Act. No executive member of the company is the part of Audit and risk

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committee. Some non-audit services provided by the auditor include tax planning,
consultancy services, system integration, advice related to wealth maximisation, consulting
related to insolvency case and the project that are not connected to the audit or review of an
company`s financial statements. The non-audit services do not affect the general principles
related to their independence is detailed in APES 110 code of conduct for the professional
accountants (Goh, Krishnan, and Li, 2013).
The auditors perform certain other services with addition to statutory obligation with taxation
advice in context to any collaboration or acquisition. The board has considered that non-audit
services delegated within a year by auditors with regards to written advices provided by
resolution of Audit and Governance Committee. The auditors act as an advocate to the
company and share the risk and rewards jointly. Details of the Audit and non-services
provided during the financial year 2016-2017-
Auditor 2016($) 2017($)
Audit services 414899 307675
Taxation compliance
services
57136 -
Taxation advisory services 15000 13390
Advisory and assurance
services
17346 120000
Total remuneration 504381 441065
Auditors’ remuneration
The remuneration report for company follows Section 300A of the corporation act, 2001. The
non-executive members of the company gets remuneration at a certain base fee. Moreover,

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when it is found that they are facing huge workload and more responsibilities by participating
in board committee. They also receive committee fee. The chairman of the committee tend to
attract high rated remuneration and several short and long-term incentives. Whereas, the
chairman of board receives no extra for operating and heading committees. The remuneration
to non-executive directors is $2.5 million every year and this amount is discussed and
approved by general meetings with shareholders (AGL`s Annual report, 2017). Auditor and
non-executive member`s fees follows the board`s advice from the independent advisers of
remuneration that include market comparison of amount paid to directors as a remuneration
in a comparator group of same sized companies.
Comparison table and percentage change in remuneration of Non-executive member-
Forms of payment Financial year
(2017)
Financial year
(2018)
Change Percentage
change
Cash fees 1980402 1922324 58078 2.93%
Superannuation 149527 143599 5928 3.96%
Total 2129929 2065923 64006 3%
To determine the changes in remuneration amount, 2017 is assumed as the base year. The
company has managed to reduce the remuneration from the year 2017 to 2018 (AGL`s
Annual report, 2017).
Director`s responsibility differs from auditor`s responsibility for financial reports
The directors are responsible to fulfil the obligation on the behalf of entity. The responsibility
of financial reporting occurs from the duty of ownership as director govern the organisation.
When a director exercises power or perform duty, he must exercise care, diligence, and skill.
Auditor`s responsibility begins when director`s responsibility gets over. Auditors conclude
appropriateness of management use of accounting principles. If an auditor concludes that a

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material uncertainty exists that are related to events and conditions that may impose
significant doubt on the ability of the company to maintain the financial statements (Chan and
Vasarhelyi, 2018).
Functions of Auditor
The primary function of establishing an Audit and Risk management committee by the board
is to assist the board of directors to fulfil, assist, and reflect the fair and reliable financial
reports to protect the interest of shareholders, customers, and employees. Despite these, it
protects the broader community through effective identification, monitoring, assessment, and
management of risks (CPA Australia, 2014).
The auditor make sure that notices sent to AGL`s shareholders related to financial reporting
comply with the guidelines issued by ASX. Shareholder has the right to submit written
questions to the auditor in context to conduct of audit and independence report. In addition to
this, shareholders are given an opportunity to ask some relevant question regarding the
conduct of audit and accounting policies followed by the organisation (Annual report, 2016).
Composition of the Audit Committee
Under the company`s charter, the composition of the audit and risk management committee
must be in such a manner at least three members where all of them should be independent
and non-executive directors. The charter ensures that all of the members of the audit
committee should have strong knowledge base of basic accounting and finance practises. The
committee comprises of five members named John Stanhope, Bruce Phillips, Les Hosking,
Belinda Hutchinson and Sandra McPhee. John is the chairperson of the committee who has
expertise in finance as a qualified accountant. Bruce Phillips and Les Hosking has worked in
energy sector before. Sandra McPhee was the director of the same company since 2006 and
has an extensive knowledge and experience of consumer-oriented businesses.

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Role of Auditor
Auditor`s responsibility related to financial report-
The role of auditor is to monitor the reliability of financial reporting and review the corporate
reporting according to the required applicable framework.
To analyse whether the book value of assets and the liabilities is accounted fairly or not
(Deumes et al., 2012).
Apart from the audit services, auditors also undertakes and delegates non-audit services to the
organisation. The audit and charter committee gives the advice on laws and compliance and
make familiar the remaining management staff about the new statutory regulations (Buckless,
Krawczyk, and Showalter, 2014).
To review how far the estimated policies and accounting judgements are applied to the
financial statements of the organisation.
Audit and risk committee recommend and recruit new independent auditors to work with the
internal auditing team.
Independent Auditors report to the members
AGL`s external auditors attend the annual general meeting. The auditors ensure that they not
only work for the organisation rather they represent the financial condition of the company to
the shareholders. An auditor is a trust holder, who set a link between organisation and
shareholders. Auditors identify the risk association of material misstatement of the financial
statements due to fraud (Auditing and Assurance Standards Board, 2013). Auditors perform
those audit procedures, which are responsive to risk to obtain and detect whether the audit
evidence is capable enough to provide a viewpoint to the shareholders. The risk occurred due
to error, forgery, misrepresentation, override of internal control audit, international omission,
and a fraud might involve collusion (George, Theofanis, and Konstantinos, 2015). External

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auditors obtain a understanding of internal auditors that control and relating it to audit in
order to design the procedures of audit which are appropriate in the certain situations.
However, not from the purpose of appreciating the opinion`s effectiveness of the group`s
internal control. Nevertheless, mainly for the purpose to provide a satisfaction to shareholders
(Auditing and Assurance Standards Board, 2015). Evaluation of the appropriateness of the
director`s statement to use the going concern feature of the business. While checking whether
appropriateness of director is through the accounting, audit service. To check whether there
exist a material uncertainty and how it to related to events and conditions that may cause
doubt on the group`s ability to manipulate the books of accounts (Chan, and Vasarhelyi,
2018).
Review all Key Audit Matters noted and the associated audit procedures
Since from 2015, international Auditing and Assurance standard board has been established
which has new requirements. From this time, the auditors of an Australian company was
obliged to report the key audit matters and auditors of all the company will have to make
important changes as per the guidelines in IAASB (essential services commission victoria,
2014).
The auditors have recommended that AGL ensure the methodology of calculation to be
accurate in future. The auditor has asked to resubmit the updated KPI data and save the
modified version of KPI data to support the submission. The auditor discovers a potential
weakness in managing the prices to the price comparator website (CPA Australia Ltd, 2018).
The scope of company`s auditor responded to these key Audit Matters-
The review was not only limited to understand the key control management but determined
the estimation of cost accrual. The key audit matters understand and challenge management’s
estimation regarding the volume and tariffs that are used in the distributing cost accruals. The

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audit committee agrees that the volume data that has been underlying in the calculation of
volumes into sales, purchases, and other systems (AGL Energy Limited, 2013). Moreover,
auditor compare the prices by individual distributor and tariff tables. Auditors play an
important role in assessing the appropriate AGL`s unbilled distribution cost. Apart from this,
auditors perform sensitivity analysis near the key drivers of long-term growth that is used to
forecast the cash flow and discount rate. More in depth analysis of auditor`s report reveals
that on February, 2016, AGL has admitted that it has adopted strategic decision that
production and exploration related to natural gas assets will be no longer a core operating
business of the company.
Audit procedure include indicator of impairment that company has utilised its valuation
experts to help the auditors in calculating some key assumption and their impact on carrying
value of assets. Some indicators to carry out impairment activities include forecasting of gas
prices, gas production capacity, discount rate, estimated cost of reintegration, various capital
expenditure estimates (Petraşcu, and Tieanu, 2014).
Conclusion
From the above discussion, it can be concluded that after going through the financial
statements of the AGL Energy Limited, Auditor`s performance tend to be perfect. The
auditors advice the company to change its calculation methodology. All the mandatory
information required by the stakeholders is clearly and concise mentioned. Rather using the
more technical terms, the auditors have provided the advantage to shareholders to ask the
questions regarding their independence or accounting principles. The report has a
comparative analysis of remuneration of current fiscal years 2017 and 2018. Undoubtedly,
the assessed material information helps the stakeholders to make their investment decision.
Auditor undertake the responsibility to undertake and increase the overall result and
efficiency by valuing effective retail audit program. There are such questions that are not

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answered by the auditors of the company. Moreover, after answering the questions, the
auditor also advice the company to use appropriate method of accounting principles.

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References
AGL Energy Limited, (2013) AGL Energy Limited 2013 Annual Report. [online] Available
on:
http://www.annualreports.com/HostedData/AnnualReportArchive/a/ASX_AGK.AX_2013.pd
f [Accessed on 20/09/18]
AGL, (2018) Annual report, (2018) [online] Available on:
https://www.agl.com.au/-/media/aglmedia/documents/about-agl/investors/annual-reports/
180809-2018annualreport1829055.pdf?
la=en&hash=E788FF0DAEEC20BB5C21C9C232396170880D78AE [Accessed on 20/09/18]
AGL`s Annual report, (2017) Annual report. [online] Available on:
http://agl2017.reportonline.com.au/sites/agl2017.reportonline.com.au/files/agl_ar_2017.pdf
Ajmi, A. J., and Saudagaran, S. (2011). Perceptions of Auditors and Financial-Statement
Users Regarding Auditor Independence in Bahrain. Managerial Auditing Journal, Vol. 26,
No. 2, pp. 130-160.
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Auditing and Assurance Standards Board (2013) Auditing Standard ASA 315 Identifying and
Assessing the Risks of Material Misstatement through Understanding the Entity and Its
Environment [online] Available from:
https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_A
SA_315.pdf [Accessed 14th September , 2018].

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Auditing and Assurance Standards Board (2015) Auditing Standard ASA 200 Overall
Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with
Australian Auditing Standards [online] Available from:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_200_Compiled_2015.pdf
[Accessed 14th September , 2018].
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Theory, 31(4), pp. 193-214.

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ESSENTIAL SERVICES COMMISSION VICTORIA, (2014) AGL AUDIT REPORT
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