Evaluation of Enhanced Audit Reporting Requirements for Ainsworth Game Technology Limited

The report evaluates whether Ainsworth Game Technology Limited is complying with the enhanced audit reporting requirements. It analyzes the independence of auditors, non-audit services, reporting to shareholders, and key audit matters. The report also discusses the role of audit committee and auditors' remuneration. The company's compliance with the Corporations Act, 2001 and other regulations is also evaluated.

Audit Assurance and Compliance
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Executive Summary
The objective of this assignment is to evaluate whether the companies which are listed on the
stock exchange of Australia are complying with the new enhanced audit reporting requirements
or not. The company chosen for this purpose is Ainsworth Game Technology Limited, which
provides gaming solutions across the world.
The report analyses the extent to which enhanced audit reporting requirements have been
fulfilled such as independence of auditors and declaration of independence, types of non-audit
services provided, reporting to shareholders and reporting of key audit matters.
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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Background of the Report............................................................................................................4
Scope of the Project.....................................................................................................................4
Discussion........................................................................................................................................5
1) Auditor’s Independence Declaration................................................................................5
2) Independent auditor’s report.............................................................................................6
3) Non-Audit services performed by the Auditor.................................................................6
4) Auditors’ remuneration.....................................................................................................7
5) Role, functions and composition of the Audit Committee................................................8
6) Independent Auditors report to the members (shareholders)............................................9
7) Review all Key Audit Matters noted and the associated audit procedures.......................9
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Introduction
Background of the Report
The report is prepared to review and analyze the manner in which the companies listed on ASX
(Australian Stock Exchange) are complying with the Enhanced Auditor Reporting commenced in
the year 2016. For the purposes of this report, Ainsworth Game Technology Limited has been
selected, as it is listed on the stock exchange in Australia. It is a gaming solutions company.
Scope of the Project
The report is prepared with an objective to evaluate the implications of Enhanced Auditor
Reporting on the auditors, by going through the annual report of the selected company. By
incorporating these reporting standards, the company has ensured a greater amount of
transparency in responsibilities of auditors related to reporting. It will also help in getting
insights about the audit’s key areas and performance of the company in those areas.
The matter of enhanced audit reporting is discussed in this report in seven major headings. Those
matters include independence of auditor’s, independent auditor report, other services by auditor,
auditor’s remuneration, key audit matters, audit committee and reporting to shareholders.
Whether these matters have been mentioned in the audit report of the company or not, have been
discussed in detail. These all are required to be reported as per the new guidelines and audit
standards.
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Discussion
Ainsworth Game Technology was founded in the year 1995 with an objective to provide people
across the world with innovative and quality gaming solutions. It has its headquarters in
Australia and is listed on ASX. This company is most suitable to study the impact of the changed
auditor reporting requirements and the manner in which such changes in reporting have been
embraced by the auditors of the company. Following are the major points of discussion:
1) Auditor’s Independence Declaration
In Australia, the auditors of the company are governed by the Corporations Act, 2001 (Moroney
et al., 2012). As per the regulations of the act and other regulations, an auditor is required to
work independently from a company in which they are doing the audit (CAANZ (Chartered
Accountants Australia & New Zealand), 2016). There are many requirements that an auditor is
supposed to follow under many laws and regulations. Requirements are detailed as under:
 As per section 307C of the Corporations Act, 2001, an auditor is supposed to give a
declaration of his independence from the entity which is known as Auditor’s
Independence Declaration (Australian Government, 2001). Apart from section 307C, the
auditor must also follow Divisions 3, 4 and 5 of Part 2M.4 of the Corporations Act, 2011
(Wolters Kluwer, 2018; Tomasic et al., 2002).
 Auditors are also required to follow certain Code of Ethics formulated for professionals
provided under APEC 110 (Campbell & Houghton, 2005). For enhancing the quality of
the report, the Australian regulating authorities came forward with this regulation on
ethics. Now, the auditors are required to report on the ethical matters that are related to
the audit along with other ethical responsibilities, in addition to independence declaration
(Chartered Accountants (Australia-Newzealand), 2018).
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The auditors of Ainsworth Game Technology Limited have provided the declaration as per the
requirements of Corporations Act, 2001. The auditor’s report also specifies that they have
followed the ethical code of conduct as issued by the Accounting Professional & Ethical
Standards Board and, fulfilled all their ethical responsibilities (Ainsworth Game Technology
Limited, 2017). However, this information did not form the part of the declaration of
independence by auditor. Instead, it was mentioned in Independent auditor’s report.
2) Independent auditor’s report
An auditor is required to express his opinion on the financial statements of a company which has
appointed him as the auditor. There are different types of opinions that an auditor can express.
These opinions are unqualified opinion, qualified opinion, adverse opinion and giving a
disclaimer of opinion (Leung, 2009). The auditors of Ainsworth Game Technology Limited have
evaluated the financial statements of the year 2017 and opined that the company has diligently
followed the regulations and provisions of Corporations Act 2001 and hence, it is an unqualified
opinion.
3) Non-Audit services performed by the Auditor
One of the major causes that can hamper an auditor’s independence is the non- audit (or non-
assurance) services provided by him in addition to the statutory audits. There are a number of
aspects of independence of an auditor, one of which is the relationship between the client and
auditor (Houghton et al., 2010). Hence, it is essential for him to exercise significant judgment
prior to taking up any non-audit services in addition to the audit and determine in advance
whether such service is a threat to independence or not (Frankel, 2018). In the United States of
America, the provision of providing non-audit services by the same firm which is performing the
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audit for that client has been restricted by the Sarbanes Oxley Act. However, in Australia, these
services can still be provided along with audit services (Mitchell, 2018).
Various regulations have been brought in place regarding the provision of non- audit services by
the auditors of the company which involves, giving a written declaration in the audit report that
non -audit services have also been provided (Malaysian Accountancy Research and Education
Foundation, 2007). In case any situation arises which leads to conflict of interest, the auditors
must inform the authorities within the time specified.
As per the annual report of the company, the auditors have undertaken certain other services for
it, apart from the audit services. However, they have given the declaration that such services did
not impact the independence of the auditor. They also stated in the report that they have followed
the code of ethics issued by the relevant authority. In a separate section by the name Non- Audit
Services, they have mentioned the type of services they have performed as non- audit services.
The services provided by them include transaction support services and other regulatory audit
services (Ainsworth Game Technology Limited, 2017). Nature of such services is transaction
advisory and compliance services. Such services might have an impact on auditor’s
independence but a declaration has been provided by the auditors.
4) Auditors’ remuneration
The auditors of the company are given remuneration for the audit services provided by them to
the company. However, in Australia, the auditors are also permitted to perform non- audit
services such as assistance in accounting and investigation services related to due diligence
(Caanz (Chartered Accountants Australia & New Zealand), 2015).
The auditors of the Ainsworth Game Technology Limited performed both audit as well as non-
audit services for the company. Their remuneration is given in the table below:
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Particulars 2018 2017 Percentage Change
Audit or review of the financial report 260,000
255,00
0 2%
Other regulatory audit services 22500 35000 -36%
Other non- audit related services (In relation other
assurance, due diligence and taxation) 35451 36077 -2%
Total Remuneration 317,951
326,07
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(Ainsworth Game Technology Limited, 2017)
The above table depicts the percentage change in remuneration of the auditor from the year 2016
to the year 2017. There can be seen an increase of 2% in the audit fees or review of financial
report fees. However, the fees of regulatory and compliance related matters have been reduced
by 36%. The non- audit fees have also reduced to almost 2%. This shows that in the year 2017,
the remuneration of the auditors from both audit as well as non- audit fees has declined
significantly.
5) Role, functions and composition of the Audit Committee
One of the requirements as per the regulations framed with respect to ensuring quality of
financial statements is that, it must establish an audit committee (CAANZ (Chartered
Accountants Australia & New Zealand), 2016). This committee so framed plays the role of
assisting the board and its members in discharging their responsibilities with utmost care and due
diligence (Australian Institute of Company Directors, 2008). This due diligence is specifically
essential for the matters related to reporting and presentation of financial information (Arens et
al., 2016).
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Ainsworth Game Technology Limited also has framed an audit committee as per the
requirements of the Corporate Act, 2001 and other regulations. The committee consists of three
non-executive directors who are having the required knowledge and are also financially literate.
The audit committee is responsible for matters related to non-audit services and preparation and
evaluation of risk management framework (Ainsworth Game Technology Limited, 2017).
However, detailed information about audit committee could not be found in report and also was
not available on website.
6) Independent Auditors report to the members (shareholders)
All the companies are required to appoint an auditor so that they express their opinion on the
financial statements prepared by the management (Marks, 2016). Such opinion is framed based
on the findings during the audit. Such findings are reported in a report format to the shareholders
(Gay & Simnett, 2015). The auditors are responsible for the evaluation of the financial
statements and expressing their opinion thereon. On the contrary, management of the company
has the responsibility to prepare the financial statements by choosing sound accounting policies
(Media, 2015).
No subsequent event arose in the company that was having any significant impact on the
company.
7) Review all Key Audit Matters noted and the associated audit procedures
There are some new regulations that have been framed for the purpose of providing assistance to
auditors in reporting. These are termed as Enhanced Auditor Reporting Requirements. This
regulation requires that the auditors must report to the members of the company, regarding the
key audit matters that came to their notice during the audit of the financial statements (Gay &
Simnett, 2018). The key audit matters can be explained as those matters which according to the
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auditors were the most significant matters that must be reported in a separate section. Such
matters warrant separate and focused attention by the shareholders before they reach any
conclusion based on audited financial statements. As per the provisions, now, the auditors are
required to report on key audit matters and state the manner in which they approached and
evaluated such matters during the audit.
The auditors of Ainsworth Game Technology Limited reviewed the financial statements and
identified three significant key audit matters. These are as follows:
1. Revenue recognition
2. Recoverability of trade receivables
3. Carrying value of goodwill and intangible assets (Ainsworth Game Technology Limited,
2017).
These matters are summarized as under:
Revenue Recognition - The auditors of the company considered this as the key audit matter
because the company operates globally and has many revenue streams. This required the auditors
to put in a lot of effort to identify the main revenue streams that came from different geographic
locations and such difference in location came with difference in criteria of recognizing
revenues. Also, the auditors had to evaluate such global transactions that include revenues from
gaming royalties, sales of machine parts, revenue from rentals and other revenue streams. This
complexity and difference in revenue recognition criteria required involvement of several senior
members of the audit team to understand the complex transactions.
The auditors of the company applied test of control to evaluate the internal control system
regarding revenue recognition from various streams and test of details of balances to evaluate the
correctness of accounts.
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Recoverability of trade receivables - Another matter which was considered a key audit matter by
the auditors was related to recovery of trade receivables. Reason behind this is that owing to the
difference in geographical conditions of operations, the industry practices that are prevailing in
the market differ significantly from place to place. Furthermore, market conditions also differ.
Both of these conditions give rise to increased credit risk exposure and therefore, warranted more
audit focus. The major issue was that there was a difference in the terms of payment across
locations. This required the auditors to exercise a significant amount of judgment and also
scrutinize such transactions closely.
For this key audit matter, the auditors applied test of controls for evaluating the internal control
system applied by the management in such transactions. Also, they assessed the credit risk by
applying test of details of balances. To some extent, substantive procedures were also applied to
understand the pattern of credit risk.
Carrying value of goodwill and intangible assets - This is also considered as a key audit matter
by the auditors of the company, as the matter requires a great deal of judgment while evaluating
the assumptions taken by the management in this regard. The auditors developed a model of their
own to test the effectiveness of the assumptions taken. The models used by the company are
complex in nature and thus, this is a key audit matter.
The auditors applied analytical procedures and test of details of balances to verify the procedures
adopted by the management in this regard.
Conclusion
From the above analysis, it is clear that the auditors have taken utmost care about the regulations
specified in various laws regarding audit quality, independence of auditors and reporting of key
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audit matters. However, the information regarding the audit committee formation, roles and
functions is not clearly given by the company. It is not available in the report, neither it is
available on the website. Hence, it is suggested that the company must provide such information
to the members of the company.
References
Ainsworth Game Technology Limited, 2017. Annual Report. Ainsworth Game Technology
Limited.
Arens, A. et al., 2016. Auditing, Assurance Services and Ethics in Australia with ACL Access
Code Card. Pearson Education Australia.
Australian Government, 2001. Corporations Act 2001.
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Handbook 2015 New Zealand+auditing and Assurance Handbook 2015 New Zealand Wiley E-
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CAANZ (Chartered Accountants Australia & New Zealand), 2016. Auditing, Assurance and
Ethics Handbook 2016 Australia: Incorporating All the Standards as at 1 December 2015. John
Wiley & Sons.
Campbell, T. & Houghton, K.A., 2005. Ethics and Auditing. ANU E Press.
Chartered Accountants (Australia-Newzealand), 2018. Perspective.
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Quality (Classic Reprint). Fb&c Limited.
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Houghton, K.A., Jubb, C., Kend, M. & Ng, J., 2010. The Future of Audit: Keeping Capital
Markets Efficient. ANU E Press.
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Leung, P., 2009. Modern Auditing & Assurance Services. John Wiley & Sons Australia.
Malaysian Accountancy Research and Education Foundation, 2007. Impact of non-audit services
on auditor independence: an empiraical analysis. Malaysian Institute of Integrity.
Marks, N.D., 2016. Auditing That Matters. CreateSpace Independent Publishing Platform.
Media, B.L., 2015. CPA Australia Advanced Audit and Assurance: Passcards. BPP Learning
Media.
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services. [Online] Available at: https://rochford-group.com/independence-navigating-murky-
waters-audit-non-audit-services/ [Accessed 11 September 2018].
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307c-auditor-s-independence-declaration [Accessed 9 September 2018].
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