An Examination of Audit Quality and Assurance

The provided assignment details a thorough examination of audit quality and assurance, incorporating multiple research papers and articles from esteemed sources. It delves into the significance of auditor responsibility, management accountability, and the importance of integrated reporting for enhanced transparency. The discussion also encompasses the role of academic boards in university quality assurance, external quality audits, and the impact on university quality improvement. Furthermore, it touches upon risk-based auditing, system validation for security compliance, and global harmonization in radiation therapy clinical trials. This comprehensive review provides a nuanced understanding of audit quality and assurance, highlighting key findings and implications from various research studies.

Audit, Assurance and
Compliance

Executive Summary
Audit can be referred as an official examination of financial statements of enterprise in
order to ensure that all the records are accurate and transactions are represented fairly that
company claims to depict. Assurance audits concerns on substantiating to financial statements
but at the same time compliance audit emphasize on adherence to admissible regulations, laws
and technical standards. BHC Billiton Limited is an Anglo-Australian multinational company
which deals in petroleum, mining and metals sector. This report helps in analysing how
improved auditor reporting is being embraced in Australia. For this, various aspects are covered
in this report including Auditor's independent declaration and report, their remuneration, non-
audit services performed by auditor, roles, composition and functions of audit committee as
well as review of all key audit matters and associated procedures. All these components help in
analysing financial performance or position of BHC Billiton.

Table of Contents
Executive Summary..........................................................................................................................2
INTRODUCTION................................................................................................................................1
TASK.................................................................................................................................................1
Has the auditor complied with Independence requirements?..............................................1
Nature of non audit services provided by BHP Billiton Limited.............................................1
Analysis of Auditor's remuneration........................................................................................2
Key audit matters and their audit procedur...........................................................................3
Existence of Audit committee, non-executive directors, audit committee charter and main
points included in it................................................................................................................6
Type of audit opinion expressed............................................................................................7
How do management and director's responsibilities differs from auditor's responsibilities in
relation to financial report.....................................................................................................8
Existence of material subsequent events and the way they were treated...........................9
Assessment of effectiveness of material information reported by an auditor....................10
Whether any material information could be missing or not fully disclosed or explained in an
effective way for intended users..........................................................................................10
Follow up questions to ask the auditor at annual general meeting of firm.........................10
CONCLUSION..................................................................................................................................11
REFERENCES...................................................................................................................................12

INTRODUCTION
Audit is an independent and systematic examination of statutory records, books,
documents, accounts or financial statements of company to ensure that records are accurate
and fair representations of transactions that firm claim to show (Anderson and et. al., 2012). In
the present assignment, chosen organisation is BHP Billiton Limited which is an Anglo-
Australian multinational petroleum, mining and metals firm headquartered in Melbourne,
Australia. This report is based on how enhanced auditor reporting being embraced in Australia
under which various aspects are covered including Auditor's independent deceleration and
report, their remuneration, roles, composition and functions of audit committee, non-audit
services performed by auditor as well as review of all key audit matters and associated
procedures.
TASK
Topic: How is Enhanced Auditor Reporting being embraced in Australia?
Has the auditor complied with Independence requirements?
As per the lead auditor's independence declaration under section 307C of Australian
Corporations Act 2001, the auditor complied with independence requirements (Bepari and
Mollik, 2015). In the audit of BHP Billiton for financial year ended June 30, 2017, no
contraventions have been there about independence requirements of auditors as set out in
Australian Corporations Act, 2001 regarding the audit. There are no such contraventions related
with professional code of conduct.
Nature of non audit services provided by BHP Billiton Limited
The non audit services initiated by external auditor of BHP includes services which are
set out in note 36 'Auditor's remuneration' in section 5. All the non audit services provided by
firm were accepted according to the set out processes in policy on audit provision and external
auditor's additional services. Administrations which are excluded by audit are not carried out
(Bhensook and Senivongse, 2012). On the basis of advice that are provided through risk and
audit committee, a view have formed by directors that non audit services provision is well-
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matched with general independence standard for auditors. The nature of non-audit services is
non-compromised.
Analysis of Auditor's remuneration
Auditor’s remuneration
Year 2017
US$M
Year 2016
US$M
Difference
US$M
Change
percentag
e
Fees payable to Group’s auditors for
assurance services
Audit of Annual Report of Group 3.38 3.13 0.25 7.98%
Audit of joint ventures, subsidiaries and
associates
7.04 7.72 -0.68 -8.81%
Audit-related assurance services 3.6 3.49 0.11 3.15%
Other assurance services 1.85 1.51 0.34 22.52%
Total assurance services 15.87 15.84 0.03 0.19%
Fees payable to auditors of Group for other
services
Other services related to corporate finance 0.04 0.28 -0.24 -85.71%
All other services 0.59 0.82 -0.23 -28.05%
Total other services 0.63 1.09 -0.46 -42.20%
Total fees 16.5 16.93 -0.43 -2.54%
As per the above mentioned table, auditor's remuneration is categorised into 2 parts,
i.e., fees payble to group auditor for assurance service and for other service. Remuneration for
Total assurance services in year 2017 is US$ 15.87 and 15.84 in year 2016. The change
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difference percentage is 0.19%. Whereas, Remuneration for total other services is 0.63 in year
2017 and 1.09 in 2016 which is less by 2.54%.
Key audit matters and their audit procedur
Key audit matters involves those matters which were of most importance financial
statement audit for current year in professional judgement and involves the key assessed risks
related to material misstatement (Christensen, Glover and Wood, 2012). It includes those which
have great impact on: resource allocation in audit, overall audit strategy and directing the
efforts of participating team. Below defined are the matters of key audit of BHP Billiton Limited
which are as follows:
Asset valuation:
 Plant, equipment and property: US$80.5 billion (2016: US$84.0 billion)
 Impairment of property, goodwill, equipment and plant and other intangibles (pre-tax):
US$0.2 billion (2016: US$7.4 billion)
 Intangible assets: US$4.0 billion (2016: US$4.1 billion)
 Fixed Assets – Subsidiaries Investment of BHP Billiton Plc: US$3.1 billion (2016: US$3.1
billion)
The carrying value of asset portfolio has been influenced by sustained volatility in prices
of commodity. Due to size of balances and judgement level applied by BHP Billiton Limited in
assessing reasonableness of inputs utilized in evaluating group assessment of asset's
recoverable value, it was a matter of key audit.
Procedures included:
 Testing key controls on group's property valuation, plants, equipments and intangible
assets involves to identify asset impairment or reversals (Duncan, Pym and Whittington,
2013). Evaluations of control remediation regarding prior period material impotence
and testing of these are included in it.
 Assessing forecast prices of commodity incorporated in impairment testing involving
available market data comparison.
 Comparison of operating as well as future capital expenditure in which historical
accuracy of previous year mine budgets and plans.
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 Evaluation of objectivity and competency of experts who creates reserves estimates
utilized in valuations. Experience, professional qualification, remuneration structure, use
of industry accepted method etc. are considered.
 Work with valuation specialist for comparing key assumptions like discount rates, risk
rate, commodity prices, foreign exchange rate, inflation rate etc.
 Conducting sensitivity analysis on key assumptions (Eccles, Krzus and Watson, 2012).
 Assessment of potential financial implications of previous period control deficiencies. At last, impact of changes is assessed in asset valuation on carrying investments value in
balance sheet.
Results: Carrying amount of plant, equipment and property, investments, intangible
assets considered to be acceptable.
Taxation:
BHP Billiton Limited performs its operations in multiple nations and each one has its
own taxation regime. The nature of group activities triggers different taxation obligations
involving royalties, corporation tax, employment related and taxes based on production
(Griffiths, 2016). It was key audit matter because of application of taxation law to group affairs
that is highly specialize, inherently complex and needs judgement to be exercised by firm
regarding assessment of group's tax exposures estimation, contingent liabilities and associated
provisions.
Procedures included:
 Testing key controls regarding disclosure of and accounting for tax related matters and
transactions.
 Working with tax specialists in US, Chile and Australia to assess group's tax obligations.
Inquiries are made from management and externally and internally prepared
documentation is inspected to understand uncertain tax positions and current disputes.
 Evaluating the consistency of assumptions utilized in assessing contingent liabilities and
provisions for important tax exposures like estimated extent for possible litigation and
settlement outcomes. These assumptions are compared with public disclosures and
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statements made by group for consistency related to key audit matters (Kline and
Loving, International Business Machines Corp, 2012). Capability of group's disclosures are assessed in regards of tax and ongoing matters.
Results: Tax provisioning level as well as linked disclosures are considered to be
acceptable.
Samarco:
There are various complex disclosures and judgement of accounting made by firm
resulting from failure of Samarco dam. It involves determine claim's legal status made against
BHP and Samarco, extent of BHP Billiton Brasil Ltda’s legal obligation and contingent liabilities
disclosures associated with different claims and other situations that depicts exposure to BHP
and Samarco. It was a key matter because of significant potential claims size high estimation
uncertainty degree and judgement level needed to be applied by firm when evaluating legal
claims and obligations (Melidis and et. al., 2014).
Procedures included:
 Testing key controls on accounting and disclosures related to dam failure.
 Assessment of existing legal obligations under Brazilian law, Samarco shareholder's
agreement or due to public statements.
 Key assumptions are assessed utilized to identify the provisions recorded by firm
regarding its funding obligation. Activities defined in framework agreement are assessed
and are compared to cash flow forecasts. It involves assessment of anticipated cash flow
timings, amount, foreign exchange rates, discount rates and Samarco's ability to meet
obligations (Mock and et. al., 2012).
 Instructing auditor of Samarco and assessing the results of undertaken procedures in
relation to obligations needed under preliminary and framework agreement.
 Completeness of disclosures associated with contingent liabilities are assessed by
inspection of internal legal documentation, inspection of provided legal documentation
by external legislative counsel and inquiry of senior management and legal personnel. In
addition, auditors are instructed by firm to undertake procedures related to Samarco's
contingent liabilities and assessed their outcomes.
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 Evaluating that group's disclosure detailing important legal process disclose adequately
its potential liabilities.
Results: Provisioning level and related disclosures are considered to be acceptable.
Closure and rehabilitation provisions:
Given the nature of operations, firm incurs duties to close, rejuvenate and rehabilitate
its sites (Rowlands, 2013). Rehabilitation and closure actions are governed by mixture of group
policies and legislative necessities. These provisions was the important audit matter because of
significant size related to firm's financial position and judgement level applied by BHP Billiton
Limited in assessing quantum and timing estimates of future costs.
Procedures included:
 Testing key control over closure estimation and rehabilitation provisions.
 Working with specialists to evaluate the reasonableness of estimates and reserves
utilized by group in its rehabilitation and closure provisions based on expected
production profile and known reserves.
 Assessment of work of mine closure specialists in determining rehabilitation acts against
legal requirements and evaluating their likely time and cost. Business understanding and
methodologies are evaluated against industry practice (Shah and Nair, 2013). Evaluation of important economic assumptions utilized in calculation of rehabilitation
and closure provisions involving applied discount rate for calculating net present value
of foreign exchange rates and provisions utilized in translating future obligations.
Comparison is done against market observable data involving risk free rates.
Results: Level of rehabilitation and closure provisioning is considered to be satisfactory.
Existence of Audit committee, non-executive directors, audit committee charter and main
points included in it
Yes, there is an audit committee within organisation in which non-executive directors
are there including Lindsay Maxsted who is committee's financial expert, Wayne Murdy, Anita
Frew, Malcolm Broomhead and Shriti Vadera. Yes, there is an audit committee charter within
BHP Billiton Limited. The main points including in it are defined below:
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 The role of audit committee is to advice and support boards of BHP Billiton Limited in
matters that are set out in Terms of Reference. The risk and audit committee is
responsible for board and its performance (Turetken and et. al., 2012).
 Primarily, the committee acts as an advisory body. In providing recommendations to
board, risk and audit committee does not have the authority or power of board in
dealing with matters on which advice is provided, except where some powers are
particularly set out in terms of reference or is otherwise delegated by board.
 The responsibilities of committee are set out terms of reference and are involves
helping the board in supervising the integrity of annual report and financial reports of
BHP Billiton Limited, risk management and internal control system of group,
effectiveness of external and internal audit processes, system of group for compliance
with regulatory and legal requirements within responsibility area of committee as well
as funding and capital structure of group (Anderson and et. al., 2012).
 Operational effectiveness of risk and audit comittee significant structures and matters
are discussed at RAC meetings.
Type of audit opinion expressed
In audit, consolidated financial statements of BHP Billiton Limited was audited. The
opinions that was expressed by audit committee are as follows:
KPMG UK's on consolidated financial statements of firm:
 Financial accounts provides fair and true view of position of BHC Billiton Limited and its
affairs related to profit.
 Consolidated financial statements of company have been organized appropriately
according to International Financial Reporting Standards as adopted by EU.
 Financial statements of BHP Billiton Limited have been appropriately prepared
according to United Kingdom accounting standards, involving FRS 101 Reduced
Disclosure Framework (Bepari and Mollik, 2015). The financial reports of firm have been prepared according to United Kingdom
Companies Act, 2006 requirements, as regards to consolidated financial statements,
Article number 4 of IAS Regulation.
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KPMG UK's additional opinion regarding IFRSs as issued by International Accounting
Standards Board:
In auditor's opinion, firm is complying with legal requirement to implement IFRSs as
adopted by EU and has also applied IFRSs as issued by IASB. It depicts that consolidated
financial statements of BHP Billiton Limited have been appropriately prepared according to
IFRSs as issued by IASB.
KPMG Australia's opinion regarding consolidated financial statements:
The declaration of directors are in accordance with Australian Corporations Act 2001,
involving:
 Providing fair and true view of financial position of BHP Billiton Limited as at 30 June,
2017 as well as its performance of year ended on that date.
 Firm complying with Corporation Regulation 2001 and Australian Accounting Standard
(Bepari and Mollik, 2015).
How do management and director's responsibilities differs from auditor's responsibilities in
relation to financial report
In relation to financial report, the responsibility of management and directors are
differer form auditor's responsibility which can be understand by the below mentioned points:
Director's and management responsibility Auditor's responsibility
 Preparation of financial report is come
under the responsibility of
management of BHP Billiton Limited.
 The responsibility of management is to
adopt sound accounting policies as
well as develop and maintain internal
control among various things, process,
record and report transactions
consistent with assertions of
management embodied in financial
statements (Difference in auditor's and
 Auditor’s responsibility is to express
their opinion on financial statements of
BHP Billiton Limited.
 Auditors has the responsibility to
inquire management about
organisation, its financial reporting,
operations and known errors or fraud
to gain proper understanding about it.
 Auditor's knowledge regarding internal
control as well as matters regarding
transactions, liabilities, equity and
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management responsibility, 2018).
 Firm's transactions and related equity,
assets and liabilities are within the
management's direct knowledge and
control.
 Fair presentation of the financial
statements in accord with accepted
accounting principles is an integral and
implicit part of management
responsibility. They made changes to
source documents.
assets is limited to that gained by the
audit.
 The auditor may made suggestions
regarding the form of financial
statements or frame them in draft
them, in part on the basis of
information from management at the
time of audit performance. However,
their responsibility for financial
statement is confined to expression of
their opinion.
Existence of material subsequent events and the way they were treated
Yes, there are some material subsequent events within BHP Billiton Limited which are
defined as follows:
 On 17th August 2017, firm announce that BOD had approved US$2.5 Billion investment
for development of Spence growth option. It includes copper concentrator construction
that will extend life of Spence mine by over 50 years.
 On 22 August 2017, firm announce that BOD had approved repurchase plan of multi
currency bond of US$2.5 Billion. It will target 2021, 2022 and 2023 US $ denominated
notes, Euro notes of 2018, 2019 and 2020 and year 2024 Sterling denominated notes.
 On 22 August 2017, company announced that management and BOD have identified
that their onshore United State assets are non-core and the exit options to these assets
are actively being pursued.
There is no impact of these events on financial statement of firm.
Assessment of effectiveness of material information reported by an auditor
BHP Billiton Plc and BHP Billiton Limited merged on 29 June, 2001 by DLC structure
(Christensen, Glover and Wood, 2012). To effect this structure, Billiton Plc and BHP Limited
entered in following contractual agreement:
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 BHP Billiton DLC Structure Sharing Agreement
 BHP Billiton Limited Deed Poll Guarantee
 BHP Billiton Special Voting Shares Deed
 BHP Billiton Plc Deed Poll Guarantee
Deed poll guarantee is executed in other company's creditors favour. Under this, each
firm has definite some contractual duties of another organisation which means creditors are
entitled to get benefit of BHP Billiton plc and BHP Billiton Limited Deed Poll Guarantee to the
extent manageable, be placed in similar position as if relevant debts were owe by both firms on
combined basis.
Whether any material information could be missing or not fully disclosed or explained in an
effective way for intended users
No, there is no material information that could be missing or not fully disclosed or
explained by firm in an effective way for intended users. No contraventions are found of the
auditor's independence requirements and of any applicable professional code of conduct in
relation to audit (Duncan, Pym and Whittington, 2013).
Follow up questions to ask the auditor at annual general meeting of firm
The follow up questions that would be ask by stakeholders to Auditor at annual general
meeting of company includes:
 Does audit committee chair understand internal controls and complex accounting
matters?
 When is upcoming annual general meeting of BHP Billiton Limited is going to held?
 How is the notice regarding calling the annual general meeting published?
 Who made the decision regarding reappoint audit company and who perform number
of fee discussions with auditors this year?
 What does COSO stands for?
CONCLUSION
As per the above mentioned report, it has been concluded that audit, assurance and
compliance are essential services that are designed for the purpose of adding value to
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businesses and to ensure mitigation of compliance obligations. The main purpose of conducting
external or internal compliance audit is to evaluate overall effectiveness of compliance
protocols and practices of business. Various key audit matters are exist within organisation
including Asset valuation, Taxation, Samarco and Closure and rehabilitation provisions in which
numerous audit procedures are utilized. Responsibility of directors and management are
different from auditor's responsibility in relation to financial report as administration is
responsible for prepare financial reports whereas auditor express their opinion on those
statements.
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REFERENCES
Books and Journals
Anderson, U. L., Christ, M. H., Johnstone, K. M. and Rittenberg, L. E., 2012. A post-SOX
examination of factors associated with the size of internal audit functions. Accounting
Horizons. 26(2). pp.167-191.
Bepari, M. K. and Mollik, A. T., 2015. Effect of audit quality and accounting and finance
backgrounds of audit committee members on firms’ compliance with IFRS for goodwill
impairment testing. Journal of Applied Accounting Research. 16(2). pp.196-220.
Bhensook, N. and Senivongse, T., 2012, December. An assessment of security requirements
compliance of cloud providers. In Cloud Computing Technology and Science
(CloudCom), 2012 IEEE 4th International Conference on (pp. 520-525). IEEE.
Christensen, B. E., Glover, S. M. and Wood, D. A., 2012. Extreme estimation uncertainty in fair
value estimates: Implications for audit assurance. Auditing: A Journal of Practice &
Theory. 31(1). pp.127-146.
Duncan, B., Pym, D. J. and Whittington, M., 2013, December. Developing a conceptual
framework for cloud security assurance. In 2013 IEEE 5th International Conference on
Cloud Computing Technology and Science (CloudCom). Institute of Electrical and
Electronics Engineers (IEEE).
Eccles, R. G., Krzus, M. P. and Watson, L. A., 2012. Integrated reporting requires integrated
assurance.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Kline, C. N. and Loving, L. E., International Business Machines Corp, 2012. System, method and
program product for dynamically performing an audit and security compliance
validation in an operating environment. U.S. Patent 8,261,354.
Melidis, C. and et. al., 2014. Global harmonization of quality assurance naming conventions in
radiation therapy clinical trials. International Journal of Radiation Oncology* Biology*
Physics. 90(5). pp.1242-1249.
Mock, T. J. and et. al., 2012. The audit reporting model: Current research synthesis and
implications. Auditing: A Journal of Practice & Theory. 32(sp1). pp.323-351.
Rowlands, J., 2013. The symbolic role of academic boards in university academic quality
assurance. Quality in Higher Education. 19(2). pp.142-157.
Shah, M. and Nair, C. S. Eds., 2013. External Quality Audit: Has it Improved Quality Assurance in
Universities?. Elsevier.
Turetken, O., Elgammal, A., van den Heuvel, W. J. and Papazoglou, M. P., 2012. Capturing
compliance requirements: A pattern-based approach. IEEE software. 29(3). pp.28-36.
Online
Difference in auditor's and management responsibility, 2018. [Online]. Available through:
<https://pcaobus.org/Standards/Auditing/Pages/AU110.aspx>
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