Audit, Assurance and Compliance: Key Responsibilities and Matters

This report discusses the key responsibilities and matters concerned with performing auditing work efficiently and effectively. It includes the role and functions of the auditor, composition of the audit committee, and independent auditors report to the members. Key audit matters such as divestment of Onshore US assets, Samrco dam, taxation control, and asset valuation and closure and rehabilitation provision are also discussed.

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Audit, Assurance and Compliance

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Executive Summary
In the early accounting framework more emphasis has been placed on providing the relevant
information to the users of financial reports and as a result auditors have been appointed in
order to ensure the compliance of the same. With the advancement of auditing profession
there has been made a significant push of improving the quality of reporting by an auditor of
the company. There are various legal and professional requirements that must be fulfilled by
the auditor in order to perform the work efficiently and effectively. The compliances will
require considering IAASB and AUASB in the profession.

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Introduction
The purpose of the report is to identify the key responsibilities and matters concerned with
performing the auditing work efficiently and effectively. For this purpose one of the top
operating companies of Australia has been considered BHP billion limited whichis a global
resource company and has been dealing in various energy resources. The independent
auditors report together with the remuneration report will be taken into consideration and the
specific audit matters will be identified in order to discuss the same in this report. The role
and functionso the auditor together with the composition of the audit committee will be
discussed in this report.

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Auditor’s Independence Declaration
The auditors have made the declaration of independence under Section 307C of the
Australian Corporation Act 2001 and have stated all their responsibilities and duties in regard
to maintaining the independence for same. The auditors of BHP Billion have declared that in
the best of their knowledge there have been no contravention or noncompliance of the
independencerequirements of the auditors as stated in Australian Corporations Act 2001 and
also there has been no contravention in regard to code of ethics which shall be followed by
the auditors. The declarations have been made in respect of the entity itself and all other
subsidiaryentities which are controlled by BHP Billion Limited. This shows that the auditor
has complied with the independence requirements of the Act. As per the independentauditors,
report presented in the annual report the auditors KPMG has denotedthemselves in relation to
the responsibilities and reporting obligations of the company to be complied with Australia
responsibilities and obligations (BHP Billiton, 2018).
Non-Audit services performed by the Auditor
Yes there were somenon auditservices provided by the external auditors of BHP Billion
Limited for which approval were taken in accordance whichis in agreement with the policy
set out for performing the non-audit services by the external auditor. There are has been no
auditservices performed by the auditorwhich are excluded from the policy covered. The
directors are of the view and have ensured that the services performed are in accordance with
the general standard of independence and the nature is such that the independence if
auditorshave not been compromised. There are certain types of external services provided by
the auditor which have benperformed only after the prior approval of RAC and the other
services have not been performed (BHP Billiton, 2018). The various pre approve services
includes:

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 Audit and audit related services – This is the work related with the agreed scope of
statutory audit of BHP Billion Limited together with the entities associated with the
company. The work will also include the work that is reasonably associatedwith the
audit work to be performed for a review of audit and logical extension of the audit
review. The RAC in its legal capability review and monitors the audit
serviceengagements and f required approves the necessary changes and modifications
required in terms and conditions, which are being recognized from changes in terms
and conditions (Kueppers, & Sullivan, 2010).
 Other assurance services – Tis will include the type of work that is outside the scope
associated with statutory audit but it will be consistentwith the role and responsibility
of external auditor. The work will be associated with the compliance or assurance
nature and will be placed in best performance levels.
 Other services – The work will include the advisory services, which will not
compromise the independence of the external auditor of the company (Kueppers, &
Sullivan, 2010).
Thus all of these services falls under the nature of services provided in relation to audit
engagement and does not affect the independence of the auditor in order to generate any
conflict of interest in this regard. Therefore, all of these services have been approved by
RACand has been taken in place in order to perform the audit work in company (Sirois, et.
al., 2018).
Auditors’ Remuneration:
The composition of remuneration of the auditors of the company is associated with
describing the structure of the remuneration and other salaries to be paid for their professional
engagement (Hartley, 2014). It can be established that the remuneration of theauditors of
thecompanyhas ben decided by the Board in their meeting and the remunerationhasbeen

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approved in the annual general meeting of the Board as required under the statutory
provisions. The Board and the auditcommittee will review the remuneration and the
necessary terms and conditions will be approved accordingly (Köhler, et. al., 2016)
Role, functions and composition of the Audit Committee
Yes there has been a risk and audit committee (RAC) established by the company including
the Non-Executivedirectors appointed in its composition. The non-executives directors who
are the members of RAC include Lindsay Maxsted, Terry Bowen, Malcolm, Anta Frew, and
Wayne Murdy. All of this non-executiveis independent as ensured by the company (Collier,
2015). Yes there has been a charter created by the Board in order to summarise the rules,
functions and responsibilities of the risk and audit committee established within the company
The roles of the audit committee includes the function of assisting the Board in monitoring
and reviewing the actions and various types of decisions of the CEO and the Group for
acquiring a related assurance that progress has been made for acquire the success and
purposes required in long run (Sirois, et. al., 2018).
The responsibilities of RAC include the following:
 Overseeing and ensuring the integrity of BHP Billion Limited financial statements
and the annualreport prepared.
 Overseeing and ensuring the appointment, performance and the associated
remuneration of external auditors and ensuring the integrity of externalauditing
process (Kim, 2016).
 Overseeing and ensuring the efficiency and effectiveness of the risk management
system in company and ensuring the internal control in place. This will also include
overseeing the objectivity and integrity of the internal audit function in relation to the
internal audit process.

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 Overseeing the process of capital management in relation to the company and its
associated entities (Köhler, et. al., 2016).
The roles and functions of the audit committee includes confirming the annual report as fair
and balanced and t should be understandable for the users to take the investing decision more
easily. The audit committee will ensure that the financial statementscomplywith the
requirements of SOX, capital allocation framework and other compliances required ensuring
its fairness and integrity (Fields, 2016). The audit committee will verify and check the
external auditor report and fees and the remuneration structure as prepared by the Board. The
function will be extended to review the internal control prevailing in thecompany and
ensuring that it is prevailing efficiently and effectively. The other governance matters
associated with the RAC are concerned with induction and training program and other
matters (Köhler, et. al., 2016).
Independent Auditors report to the members:
The auditors of thecompanyhas audited the consolidatedfinancialstatements of company for
the year ending 30 June 2018 which comprises of the statement of profit and loss, statement
of financial position and the statement of cash flows for thecompany. In the opinion
expressed by the auditors o company can be established that financial statements as presented
by the company gives a true and fair view in regard to the state of affairs concerned with the
company and its group entities, all the consolidated financial statements have been prepared
andpresented in accordance with the International Financial Reporting Framework (IFRS)
which has been adopted by the EU. The financialreports and statements as presented by
thecompany BHP Billion Limited are in accordance with the issued accounting standards and
policies, including the FRS 101 Reduced Disclosure Framework. The financialstatement is in
accordance with the requirements of the UK Companies Act 2006 and, as regards to the
Consolidated Financial Statements, Article 4 of the IAS Regulation. The company has also

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applied the provision of IFRS, which have been issue by IASB, and there is a true and fair
presentation has been made in the financial reports (Christensen, et. al., 2014).
The first key audit matter was valuation of Onshore US assets and its classification. It was
important as the assets was declared to be divested and this asset was key for financial
performance of the organisation. The judgement process for the assets was used as
“Discontinued operations”. The test control procedures used in the process was to determine
classification, presentation and valuation of Onshore US assets in context of impairment
charge (Lee, 2014).
Further, there was analysis of “Share purchase agreement”. The testing was done by
estimating the carrying value and comparing it with the recoverable amount of the assets and
further, cross examination of the asset was done with regard to discontinued assets. The
analysis of the amount for “held for sale” and “discontinued operations “in regard to the
accounting standard. The last analysis was that the carrying amount and other related
disclosures with respect to the asset was acceptable (Pavlova, 2017).
The second key audit matter was analysis of loss attributed towards dam failure. The total
amount attributed was US $0.6 billion. The Samarco dam was essential key audit matter as it
was essential to claim the legal status of the dam as claimed by BHP and further there was
also risk in estimation of the dam and there was assessment of legal claims made by BHP
Billiton (Christensen, et. al., 2014).
The testing control was associated with the accounting treatment and disclosures made for the
dam failure. The procedure included assessment of accounting standards as applicable.
Further, there was assessment of key assumptions made in the funding obligation. There was
assessment discount rate, foreign exchange rates and cash flows. There was further evaluation
of governance agreement, preliminary agreement, framework agreement and analysis of the
output of these agreements. The testing also include analysis of forecasted cash flows.

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Further, there was testing of contingent liabilities through assessment of legal documents,
assessment of legal personnel and analysis of external legal counsel. There is also analysis of
the legal proceeding against the group. The result of the analysis was that the provisions and
other disclosures was quite acceptable and it was in uniformity with the accounting standard
and legal framework (Christensen, et. al., 2014).
The third key audit matter was income tax expense and the contingent liability disclosure
with respect to the amount. The BHP group operates in number of countries and hence, has to
oblige with number of taxation regime. It has to comply with items such as tax, production
based tax, other resource and other employment related taxes. It was a key audit matter as
there was incorporation of US tax reform, which is quite complicated and requires high
specialisation. The testing control included assessment of accounting and tax disclosure
related matters. All the documents were investigated with regard to tax disputes and uncertain
tax obligations. There was also analysis of estimation of tax provisions, contingent liabilities,
across countries like Chile, United States and Australia. The main testing was in relation with
the US tax legislations and specialists were appointed to analyse the tax reforms and tax
accounting impact.
The next key audit matter is asset valuation. The asset of property, plant and equipment is
US $ 67.2 billion. The key audit matter in this was to analyse the impairment charges. There
was analysis of future cash flows through CGU. This is mainly done to evaluate the
recoverable amount. This was a key audit matter as the size of the asset was quite large and
to analyse the reasaboleness put in the group in its assessment (Petty, et .al., 2015).
The testing control included assessment of asset impairment and to make comparisons with
the market value. There was analysis of reserves estimates as made by the expert such as
considering experience, industry trend and methodology. There was also analysis through
discount rates, country specific risk rates, foreign exchange rate etc. Apart from this, lastly is

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to make sensitivity analysis. After, analysing, it was analysed that the carrying amount of the
key asset was acceptable and appropriate. The other key audit matter included closure and
rehabilitation provision. This matter was significant as it has significant size and is in relation
with the group financial position (Christensen, et. al., 2014).
As a third party person, it is analysed there is proper and accurate financial information was
presented in the annual report. It was analysed that all the disclosure was made in respect to
accounting standard and accounting framework.After analysing all the key audit matter such
as divestment of Onshore US assets, Samrco dam, taxation control, and asset valuation and
closure and rehabilitation provision. There were quite effectiveness in presentation of all the
accounting information (Smith, et. al., 2017).
There was in-depth detail and there is no such information was missing or under report and
the entire financial report was found to be provided in-depth detail and the accounting
information was in sync with the key audit matters.
Difference in directors and management responsibilities and subsequent events:
The management responsibilities incontext of financial statement and reports is concerned
with preparation and presentation of reports in an adequate manner and ensuring that the
statement are prepared after adopting a suitable framework of accounting and applying all the
policies and standards appropriately. Whereas the responsibility of the directors is to ensure
that the internal control is in place for preparing the finance statement and the true and fair
view has been maintained by the management (Weil, et. al., 2013).
By referring the note mentioned in the annual report for the year ending 2018 it can be
established that there were no subsequent events recognized other than those matters outlined
in the financialstatement of company.

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Conclusion:
This report has presented the authenticity and reliability of BHP Billiton annual reports and
disclosures with regard to financial performance and auditing matters. The company
director’s has adhered, complied with the entire key audit matters, and has adhered with the
Australian corporation act, 2001 and the accounting framework of IAASB and AUASB.
Further, the audit analysis presented that there is proper ascertainment of compliances and
that the auditors perform their services and the audit committee perform their function in
accordance with compliance. Lastly, the analysis of key audit matters such as dam failure, tax
obligations and divestment of onshore asset presented that the proper test control has been
conducted to ensure any significant risk. The overall conclusion made in this regard helps in
taking the important and critical decision of investing in the company. The decision related
with the same is associated with analysing the current financial position and performance of
company BHP Billion Limited which can be correctly assessed on the basis of audit report
provided.

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