Auditing and Financial Reporting of BHP Billiton Ltd

The assignment discusses the importance of auditing in ascertaining the real financial position of a company. It examines the auditing process of BHP Billiton Ltd and Group, highlighting their compliance with audit standards governed by AASB and UK regulations. The document also explores the role of auditors in ensuring the accuracy and reliability of financial reports, including their responsibilities to investigate and report on material weaknesses and errors. The summary concludes that the true financials are prepared by the organisation, and in the audit process done, the auditor is of view that Group and Company's financial statements are of true nature.

Audit, Assurance and
Compliance

Executive Summary
Audit and compliance is one of the vital aspect in clarifying financial position of
company. BHP Billiton Ltd engaged in mining sector has been reviewed by auditor for the year
ended 30 June 2017. Full auditor's analysis is being explained and it reflects that responsibilities
are effectively met by auditor and financials are giving true and fair view of company and group.
Furthermore, professional accounting and auditing standards are followed by firm and auditor for
reflecting valuable information for intended users.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Auditor Independence Report.............................................................................................1
2. Non-audit services..............................................................................................................1
3. Analysis of Auditor’s remuneration in tabular form with percentage change...................1
4. Key Audit Matters..............................................................................................................3
5. Audit Committee................................................................................................................5
6. Audit Opinion.....................................................................................................................6
7. Directors’ and Management’s responsibilities distinguish from Auditor’s responsibilities in
financial report........................................................................................................................6
8. Material subsequent events.................................................................................................7
9. Effectiveness of material information reported by Auditor...............................................7
10. Non-disclosure of material information in effective way for intended users...................7
11. Asking follow-up questions to Auditor at an AGM.........................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Auditing and assurance are quite significant in business. Present report deals with BHP
Billiton Ltd and Group which is an ASX listed company engaged in mining, metals and
petroleum. Complete audit sections have been reviewed from annual report for the year ended 30
June 2017. Audit Committee with roles is described along with key audit matters. Moreover,
material information and effectiveness of it is provided. Hence, auditor's section is reviewed of
company in effective manner. Report will consider analysis of Auditor's review of company and
whether it has complied with independence requirement or not.
1. Auditor Independence Report
BHP Billiton Ltd's Auditor has complied with independence requirements which is
reflected in the declaration made by auditor himself. The Auditor says that there are no
contraventions with regards to independence. Auditor's requirements has been made as governed
by Australian Corporations Act 2001 with relating to audit. No contraventions have been made
of any professional code of conduct. The declaration is made under Section 307 C of Australian
Corporations Act 2001.
2. Non-audit services
The non-audit services were being undertaken by external auditor of BHP Billiton Ltd
which includes amount paid for non-audit services. Provisions were effectively met with
approval within procedure implemented in Policy on Provision of Audit and Other Services on
behalf of external auditor (Doan and McKie, 2017). The advice imparted by Risk and Audit
Committee (RAC) has been taken into consideration by Directors and have formed perspective
that provision made for such type of services are compatible with general standards of
independence of auditors and nature of non-audit services implies clearly that independence of
auditor was not obligated or compromised.
3. Analysis of Auditor’s remuneration in tabular form with percentage change
Auditor's Remuneration of BHP Billiton Ltd
Particulars 2016 2015 Inc/Dec % Change 2017 2016 Inc/Dec % Change
Fees payable to BHP
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Billiton Group's
Auditors (assurance
services)
Audit of Annual
report 3.126 4.299 -1.173 -27.29% 3.381 3.126 0.255 8.16%
Auditing joint
ventures, subsidiaries
and associates 7.715 11.185 -3.47 -31.02% 7.04 7.715 -0.675 -8.75%
Auditing assurance
services 3.493 5.377 -1.884 -35.04% 3.597 3.493 0.104 2.98%
Assurance services
(other) 1.508 1.557 -0.049 -3.15% 1.849 1.508 0.341 22.61%
Total 15.842 22.418 -6.576 -29.33% 15.867 15.842 0.025 0.16%
Fees payable to BHP
Billiton Group's
Auditors (other
services)
Corporate finance
(other services) 0.276 6.871 -6.595 -95.98% 0.042 0.276 -0.234 -84.78%
All other services 0.815 1.093 -0.278 -25.43% 0.589 0.815 -0.226 -27.73%
Total other services 1.091 7.964 -6.873 -86.30% 0.631 1.091 -0.46 -42.16%
Total Fees paid to
Auditors 16.933 30.382 -13.449 -44.27% 16.498 16.933 -0.435 -2.57%
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It can be interpreted from the above percentage change table that audit fees payable to
KPMG and KPMG affiliates have undergone change. Audit of annual report were 4.299 in 2015
which lead to decrease in next year by 27.29 % in 2016. However, it increased by 8.16 % in
2017 as it maximised to 3.381 (US$ million). Total assurance services were 22.418 in 2015 year
reduced to 15.842 in 2016 having 29.33 % decrease which elevated to 0.16 % and reached to
15.867 in recent year. On the other hand, other services apart from assurance services have also
gone down. In all, total fees paid to auditors were 30.382 (US$ million) in 2015 decreased to
44.27 % and reached to 16.933 and further it minimised by 2.57 % and fees reached 16.498 in
2017.
4. Key Audit Matters
It can be defined as those matters which have much impact on overall audit strategy and
significant professional judgement needs to be carried out. Moreover, procedures of how these
matters were being resolved in audit made by auditor. These are as follows-
Asset valuation:
The carrying value of assets has been influenced by volatility in prices of products. Asset
valuation was key audit matter because balance's size were collectively 72 % of Total assets of
company and Group. Material weakness was found in Onshore US assets in 2016 and control
was taken. Procedures undertaken-
 To test controls over valuing BHP Billiton Ltd and Group's PPE and intangible assets in
order to assess impairment of assets. Remediation of controls were made in relation to
priory attained material weaknesses.
 Assessing forecast of items prices into impairment testing of organisation having
inclusion of market data available to it.
 Assessing accuracy of mine plans and budgets by taking into account operating and
capital expenses of future.
The results show that valuation of PPE, intangible assets are acceptable from point of view of
auditor.
Taxation
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BHP Billiton Ltd has been operating in various countries each having its own taxation
schemes (Annual Report of BHP Billiton Ltd. 2017). It includes royalties, corporation tax,
production based tax and employment taxes. Audit Procedures were as follows-
 Testing controls relating to tax and tax related transactions.
 Tax specialists in Australia, Chile and US were approached considering Group's
obligations of tax. Meetings were done on matters related to tax and similar rulings were
attained for assessing tax liability.
 Consistency in relation to assumptions were used by estimating provisions such as tax
exposures including in Australia, Chile and US and potential outcomes have been arrived.
Comparisons were made with public statements assumptions.
 Adequacy of disclosures were assessed with regards to tax matters.
Results were being attained to be acceptable of tax provisioning and disclosures of the same.
Samarco-
Samarco dam failure was made and complex accounting judgements were accomplished.
Losses were $0.3 billion and contingent liability disclosure was made. It was required to be
determined because of size of potential claims, uncertainty degree was high, level of judgements
when assessing legal claims and obligations. Procedures undertaken was:
 Accounting disclosures which are associated with dam failure.
 Evaluating whether there is existence of legal obligations under Samarco shareholders’
agreement or Brazilian law and determining that these are disclosed in financials or not
with due accounting standards.
 Assumptions with regards to provision made by BHP Billiton Brazil of potential funding
obligations. It includes assessment of cash flows, discount rate, foreign exchange rates
and division's ability to meet obligations.
 To instruct Auditor of Samarco and evaluating outcome of process and relevant
obligations required under framework and preliminary agreements.
 Assessment of legal proceedings disclosing liabilities and obligations of Group.
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Results are acceptable by considering provisioning level and disclosures.
Provisions related to closure and rehabilitation-
The nature of operations are made and organisation has liabilities for closing, restoring or
rehabilitate its sites. It was key audit matter as BHP Billiton Ltd and Group's size is large enough
and management estimation with regards to timing of future costs and cash flows. Procedures
were as follows:
 To test key controls of estimating closure and provisioning of rehabilitation.
 Working with specialists for assessment of estimates of reserves and production profile of
the same.
 Legislative requirements were taken into account in relation to remuneration structure
and reporting lines.
 Risk free rates were applied evaluating economic assumptions for calculating net present
value of provisions.
Results were acceptable regarding provisioning and rehabilitating level.
5. Audit Committee
Yes, there is an audit committee of BHP Billiton Ltd named as RAC governing various
rules and regulations to impart when preparing financial reports. There are four non-executive
directors such as Lindsay Maxsted (Chairman), Malcolm Broomhead, Anita Frew and Wayne
Murdy. Yes, Audit Committee Charter is present in company. Main role of is to assist the Board
in carrying out decisions made by CEO and for gaining assurance with regards to progress of
accomplishing corporate objectives within limits imposed by the Board (Boolaky and
Soobaroyen, 2017).
Responsibilities
The responsibilities of RAC are discharged by seeking integrity of organisation's
financial statement, appointing, performance and remuneration of External Auditor and process
of audit. Another responsibility is to make effective systems and risk management and internal
control. To oversee plans, objectivity and overall strategic performance and leadership of
Internal Audit function and to assess integrity of internal audit procedure. Further, to oversee,
capital management, funding, management planning and related matters.
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Functions
The Committee examines that fair practices that have been followed by preparation of
fair, balanced and understandable financial statements. Long-term assets carrying value were
judged by RAC and examined impairment triggers for goodwill. Main considerations were
geological complexity, expected productions and volume, indicator governing fair value of asset
of long-term nature. Closure and rehabilitation provisions has been examined by RAC and
international review of closure cost and amount of future expenses are being analysed (Davies
and Aston, 2017).
6. Audit Opinion
In opinion of Auditor, BHP Billiton Ltd have been fully audited for the year ended 30
June 2017. The opinion discloses that financial statements prepared give fair view of Group's
affairs up to a major extent. The consolidated financials have been produced in accordance to
IFRS. Moreover, in KPMG UK's opinion, UK accounting standards which also includes FRS
101 Reduced Disclosure Framework and Article 4 of the IAS Regulation has been complied
with. KPMG Australia's opinion, true and fair view of financials are reflected and complying
with AAS (Australian Accounting Standards) and Australia Corporations Regulations 2001.
7. Directors’ and Management’s responsibilities distinguish from Auditor’s responsibilities in
financial report
Directors and Management's Responsibilities
The directors are responsible for making or preparing financials which represents true
and fair view of organisation's affairs in the best possible manner. All frameworks of accounting
professional bodies should be followed and director has the responsibility for keeping in mind
the same. Another duty is to implement necessary internal control so as to enable preparation of
true and fair view statements (Craig, Smieliauskas and Amernic, 2017). Moreover, they are
responsible for making error free statements, material misstatements should also be ignored. On
the other hand, to assess entire BHP Billiton Ltd and Group's ability to continue business for
long-run reflected by taking into account going concern concept. It includes disclosing the
material matters, related to going concern or either intend to liquidate company or stop
operations or have no option but to discharge business operations.
Auditor’s responsibilities
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The responsibility of auditor is to obtain the assurance that financial statements are error
free from fraud, misstatement or irregularities. Assurance is not a type of guarantee that will be
made in audits conducted according to Australian Auditing Standards will detect misstatement, if
it exists. Frauds, irregularities or errors may arise and could influence users of financial
information quite effectively and decision-making can also be impacted. Override of statements,
misrepresentations or omissions made intentionally may affect decision-making. Moreover, it is
required that auditor must present work in according to fairness of consolidated financials and
furthermore, strict compliance with AASB (Auditing and Assurance Standard Board) should be
adhered to. Thus, Director's and Management's responsibilities quite differ from that of Auditor's
responsibilities in the financial report.
8. Material subsequent events
Yes, there were subsequent events being analysed in 2017. On 17 August 2017, BHP
Billiton Ltd made an announcement that Board had make approval of investment $2.5 billion for
developing Spence Growth Option which includes copper concentrator construction extending
Spence useful life for 50 years. While, on 22 August, 2017, multiple currency bond repurchase
plan having global cap of $2.5 billion in next five years. Moreover, increased value of global cap
to $2.9 billion is expected in forthcoming years. On the same day, further announcement was
made with regards to Onshore US assets as Management and Board of Directors have made a
decision that Onshore US assets should be stopped as major benefits are not being imparted from
it. The above various statements have no impact on financials of 30 June, 2017.
9. Effectiveness of material information reported by Auditor
The material information has been effectively met by Company's Auditor. It can be
reflected from materiality for audit of consolidated financials set at $400 million in 2017 ($330
million) in 2016. It can be analysed that increase in profitability because products prices were
increased in the same year. Materiality has been assessed by taking previous three year average
group profit before tax. In audit, it was identified that excess amount of $20 million implies for
material misstatement. Moreover, misstatements have been believed that they are reported on
normal qualitative grounds.
On the other hand, it is disclosed in financial report for the year ended 30 June, 2017 that
important components being located in Australia, Singapore, Brazil, US and Chile were being
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fully audited and specific audit procedures focusing on risk were taken into account. Moreover,
audit process was followed by taking into consideration all the aspects such as periodical visits to
sites, reviewing audit work papers and inter-office reporting were made in order to attain
financials fairness with respect to affairs of company in the best possible manner.
10. Non-disclosure of material information in effective way for intended users
Non-disclosure of information can have effect on the company if it is not listed in annual
report and intended users may not be able to make decisions. In report of BHP Billiton Ltd, it can
be found out that gas and oil reserves are unaudited and may impact on financials up to a high
extent. Reserves' estimates tend to change year after year as assumptions made for such reserves
and geological data produced may not happen and undergoes change. This can impact users of
financial information such as carrying amount of assets may be influenced because of change in
production levels. Moreover, depreciation and amortisation charged in Profit & Loss statement
may change as they are determined on a basis of units of production.
Removal of expenses already recorded on Statement of Financial Position may also
change because of change in ratios (Hay, Stewart and Botica Redmayne 2017). Site restoration,
decommissioning and provisions related to environment may undergo change in estimation of
expectations with relation to cost of activities. Carrying amount of deferred tax assets can also
change due to likely recovery of benefits of tax. Reserves and resources may require estimation
of quality and quantity of reserves on the basis of size, shape and depth of oil and gas reservoirs.
Hence, absence of such information may affect decision-making of intended users and as a
result, it is required that information should be fully audited and disclosure should also be made.
11. Asking follow-up questions to Auditor at an AGM
The questions are listed below-
 Did you discuss relevant matters with Internal Audit Committee on behalf of
investigations made? If so, what was the result then?
 Do you made regular site visits to understand internal and external affairs of company
and reported the audit matters thereof?
 Did you analyse any vital deficiencies being found in Audit Committee and other
material weaknesses?
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 Are there any relevant items you find on error side and are unadjusted because of your
opinion that accounting carried out was wrong but with it management have not agreed
with you?
CONCLUSION
Hereby, it can be concluded that auditing is a vital part in ascertaining real financial
position of firm in prescribed manner. BHP Billiton Ltd and Group have been consistently
following all norms and procedures relating to audit and complying with audit standards
governed by AASB and UK regulations in its division of UK. Hence, material information and
independence auditor report has been disclosed reporting true financials for the year. The
outcome that can be generated from report is that, true financials are prepared by organisation
and in audit process done, auditor is of view that Group and Company's financial statements are
of true nature.
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REFERENCES
Books and Journals
Boolaky, P. K. and Soobaroyen, T., 2017. Adoption of International Standards on Auditing
(ISA): Do Institutional Factors Matter?. International Journal of Auditing. 21(1). pp.59-81.
Craig, R., Smieliauskas, W. and Amernic, J., 2017. Estimation uncertainty and the IASB's
proposed conceptual framework. Australian Accounting Review. 27(1). pp.112-114.
Davies, M. and Aston, J., 2017. Auditing fundamentals. Pearson Higher Ed.
Doan, M. A. and McKie, D., 2017. Financial investigations: Auditing research accounts of
communication in business, investor relations, and public relations (1994–2016). Public
Relations Review. 43(2). pp.306-313.
Hay, D., Stewart, J. and Botica Redmayne, N., 2017. The Role of Auditing in Corporate
Governance in Australia and New Zealand: A Research Synthesis. Australian Accounting
Review. 27(4). pp.457-479.
Online
Annual Report of BHP Billiton Ltd. 2017. [PDF] Available Through:
<https://www.bhp.com/-/media/documents/investors/annual-reports/2017/
bhpannualreport2017.pdf>
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