Audit, Assurance and Compliance - Evaluating Compliance of Audit Provisions and Regulations

This report evaluates the compliance of various provisions and regulations related to audit of financial statements. It also studies enhanced audit reporting requirements followed by listed companies. The report discusses independence of an auditor and transparency in reporting. It covers non-audit services and remuneration.

Audit, Assurance and Compliance

Executive Summary
Evaluating the compliance of various provisions and regulations related to audit of financial
statements has been done in this report. In addition to this, enhanced audit reporting requirements
that have been followed by listed companies has also been studied. The company chosen for this
purpose is TPG Telecom Limited.
Discussion on independence of an auditor and how can the reporting be made more transparent
has been done in this report. Matters related to non-audit services and remuneration has also been
discussed.

Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Background of the Report............................................................................................................4
Scope of the Project.....................................................................................................................4
Conclusion...................................................................................................................................4
Discussion........................................................................................................................................4
1) Auditor’s Independence Declaration....................................................................................4
2) Independent auditor’s report.................................................................................................6
3) Non-Audit services performed by the Auditor.....................................................................7
4) Auditors’ Remuneration.......................................................................................................8
5) Role, functions and composition of the Audit Committee...................................................9
6) Independent Auditors report to the members (shareholders).............................................10
7) Review all Key Audit Matters noted and the associated audit procedures.........................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................13
Introduction
Background of the Report

One of the most essential aspects that an auditor is required to keep in mind is that the reporting
of the audit matters must be done cautiously. There are several laws that have been framed by the
regulatory authorities of different countries across the world. The auditors are required to
conduct audit based on such laws and regulations. Thus, this report analyses transparency in
reporting by the auditors.
Scope of the Project
This report discusses transparency in reporting through seven headings, which are, Independent
Auditor’s Report; Audit Committee; Non-audit services given by the auditor; Auditor’s
Remuneration; Auditor’s Independence Declaration; Independent Auditor’s Report to the
members of the company and; Key Audit Matters Review.
Conclusion
All the compliances have been followed. However, more clarity can be given on non audit
services performed and composition and role of audit committees
Discussion
1) Auditor’s Independence Declaration
In Australia, the auditors of the companies are required to follow the provisions specified in the
Corporations Act, 2001 (CCH Australia Limited, 2011). One of the major compliances that an
auditor is required to comply with is related to the independence of an auditor. An auditor is
supposed to act independently from the company in which he is performing the audit. This is
necessary as per the rules specified in the act and regulations prescribed by the professional
bodies. The auditing standards that have been issued also stress on independence of an auditor
and further require the auditor to act vigilantly and keeping away all sorts of biasness while
framing an audit opinion based on his audit (CAANZ, 2016). Opinion given by the auditors can

be considered as reliable only when he has declared himself independent from the company and
proved that there has been no personal interest while giving audit opinion.
In Australia, various laws have been framed for ensuring that the auditor remains independent
throughout the audit phase and such regulations have to be adhered to by all auditors. Laws
framed with respect to independence of an auditor include the following:
 The auditor is required to present a statement in the annual report of the company
declaring his independence from the company in which he is appointed as the auditor.
This requirement is to be fulfilled as per section 307C that of the Corporations Act, 2001.
. As per the provisions that have been framed in this section, an auditor of a company
must declare compulsorily that he is performing the audit independently from the
company. This particular information is required to be given in the Independence
Declaration by the auditor of the company. In addition to thus, various other provisions
have also been specified in this act. One of them is the Divisions 3, 4 and 5 of Part 2M.4
(Wolters Kluwer, 2018).
 Some other provisions have also been framed in addition to the Corporations Act, 2001,
which must be followed while performing the audit. One such standard is APES 110
which includes some ethical codes of conduct which apply to the auditors of an
organization. As per the standard, the auditor must declare his independence. In addition,
they must also state that they have been following ethics through the audit procedures. A
declaration of independence is required to inform shareholders and members of the
company that audit has been completed by discharging duties with utmost care and all the
ethical responsibilities have been fulfilled throughout the assignment (Australian
Government, 2018).

The audit of TPG Telecom Limited has been carried out by KPMG and they served as the lead
auditor of the company. The auditors have given a declaration of independence in the auditor’s
report attached with annual report of the company. This statement by the auditor’s states that
they have complied with the provisions of Corporation Act 2001 and also they have followed the
ethical code of conduct as has been mentioned in APES 110. They have also stated that there
have been no contraventions in both the requirements. As stated in the code of ethics, auditors
have been careful to apply them throughout the audit. The requirement to give a statement of
declaration is given under the Corporations Act, 2001. The declaration is given on page number
36 of the annual report (TPG Telecom Limited, 2017).
2) Independent auditor’s report
The main reason behind appointing an external auditor to audit the financial statements of a
company is finding out the performance of the company and also that the dealings of the
company are in line with the objectives of its formation. The auditors are required to express a
true and fair view on the financial statements and express an opinion based on such an audit.
Such an opinion is then read by members and shareholders of the company to evaluate whether
they must continue their investments in the company or not (Porter et al., 2014). Hence,
expression of opinion by the auditor is quite significant since all major decisions of members are
based on such an opinion. There are four types of opinion which an auditor can express, such as:
 Unqualified Opinion;
 Adverse Opinion
 Qualified Opinion; and
 Disclaimer of Opinion (Leung, 2009)

On the basis of the audit of financial statements, KPMG opined that the financial report of TPG
Telecom Limited is as per the provisions of the Corporations Act, 2001 and the financial
statements reflect a true and fair view of various dealings of the company. In addition to this, the
auditors have also opined that other compliance requirements such as Australian accounting
standards and Corporations Regulations, 2001 have also been followed. In other words, KPMG
has given an unqualified audit opinion on the financial statements of TPG Telecom Limited
(TPG Telecom Limited, 2017). The opinion so expressed is given on page number 92 of the
annual report.
3) Non-Audit services performed by the Auditor
Services which are accepted and performed by an auditor in addition to his acceptance of audit
and assurance services in the same company are called as non-audit services. However, there are
possibilities that the independence of an auditor might get affected because of such services. The
auditor might gain personal interests while performing non audit services which might create
some sort of biasness in his mind. Quality of audit might get negatively affected because of this.
Thus, non audit services have become significant to be assessed while evaluating independence
of an auditor (Frankel, 2018).
However, not all the countries across the world allow the auditors of the company to take up
these two tasks simultaneously. In other words, in such countries an auditor will not be able to
take up both audit work as well as non audit work. United States of America is an example of
this. Sarbanes and Oxley Act that has been framed by the authorities in the US, has prohibited
the auditors of the company to perform non audit services in the same company in which they
are giving assurance and audit services (Mitchell, 2018). In Australia, however, there is no such
provision that restricts the auditors, which means the auditors are permitted to perform as many

types of services as they want, provided they do not affect his independence. Such declaration is
required to be given in writing in the annual report of the company along with auditor’s report
(Clarke et al., 2016). Wherever an auditor feels that there might be a conflict of interest, he must
not accept such non audit services. This means onus to prove independence lies with auditor
(ASIC, 2018).
KPMG who are the auditors of TPG Telecom Limited have carried out some non-audit services
along with their audit and assurance services. However, the directors in their report have
specified that the audit and risk committee has personally been involved to evaluate that such
services have not in any manner affected independence of the auditor. Furthermore, the non audit
services have not in any way undermined principles set out in APES 110 has also been ensured.
The non audit services performed by KPMG in addition to audit services include performance of
certain taxation and other services. However, there is no mention of other services in detail in the
report (TPG Telecom Limited, 2017).
4) Auditors’ Remuneration
Remuneration to auditors is the fees paid to them for various audit as well as non audit services
performed by them (Caanz, 2015).
KPMG who were the lead auditors of TPG Telecom Limited have performed both services. In
the table below, the remuneration charged by them for 2017 and 2016 has been given along with
percentage increase or decrease.
(in $ '000)
Particulars 2017 2016 Percentage Change
Audit or review of the financial report 925 1,059 -13%
Other regulatory audit services 8 8 0%

Taxation and other services 120 119 1%
Total Remuneration 1,053 1,186
(TPG Telecom Limited, 2017)
From the above table, it can be seen that the fees of audit services has declined in 2017 by 13%
whereas the fees of non audit services has increased by 1%.
5) Role, functions and composition of the Audit Committee
The main purpose of forming an audit committee is to ensure that all the internal controls and the
laws and regulations that are applicable on the company are being complied with effectively
(CAANZ, 2016). All the listed companies in Australia are mandatorily required to frame audit
committees (Arens et al., 2016).
TPG Telecom Limited also has Audit and Risk Committee comprising of three non executive
directors. Not all the directors can be made a part of this committee.
The above figure shows the number of audit and risk committee meetings held. The function and
role of such committee is to ensure that the independence of auditors is not affected negatively
due to performance of non audit services. However the role, function and composition of
committee have not been given in the annual report clearly.

6) Independent Auditors report to the members (shareholders)
All the companies in Australia are required to address the report to the members of the company.
Such a report consists of audit findings and auditor’s opinion on financial statements (Gay &
Simnett, 2015). It is the responsibility of the auditors to express opinion on financial statements
of the company while the responsibility to prepare the financial statements lies with the
management (Knechel & Salterio, 2016). Furthermore, management is also responsible for
selecting appropriate policies for accounting (BPP Learning Media, 2015).
In addition to the opinion, the auditors are also required to mention any subsequent events. In
TPG Telecom Limited, two subsequent events have been reported which will have an impact in
next year. One is that the group has revised its debt financing agreements to finance its spectrum
commitments and also declared dividends as a subsequent event. This event occurred in
September, 2017 (TPG Telecom Limited, 2017).
7) Review all Key Audit Matters noted and the associated audit procedures
The major objective of all the auditors of the companies is to present the members as well as the
shareholders of the company with true and fair view of all the financial statements. However, the
authorities in the country felt the need for bringing about more transparency in the reporting
methods that are adopted by the auditors. Some new regulations called the enhanced auditor
reporting requirements are required to be followed by the auditors now (CPA Australia, 2018).
This requires stating and reporting separately on some matters which the auditors consider as key
matters for making decisions and evaluation purposes. All those matters which can have a
significant impact on the financial performance of a company and ultimately affect the members
are required to be brought to their notice. However, the auditors do not offer separate opinion on
such matters.

KPMG, the audit firm of the company, in their audit report to members have stated two key audit
areas, which include the following: Revenue Recognition Carrying Value of Goodwill
The auditors further have stated that it is as per their professional judgment that the above two
mentioned matters have been addressed by them as key audit matters. Detailed explanation is as
follows:
Revenue Recognition- The major revenue of the company comes from telecommunication
services provided by them to the customers. Their customers include individuals, wholesale
customers as well as corporate customers. The revenue from provision of telecommunication
services is considered to be key audit matter because of the large scale operations. Various
telecommunication services are offered to the customers that operate on various networks. Such
services are billed using systems which are highly automated and they also use various sub
systems in order to recognize revenue. All these factors required the auditors to appoint their
own IT team for the task and this enhanced the complexity of the audit. Furthermore, due to
pressure from competitors, the rates charged from customers are not consistent and thus, these
frequent price changes increases the number of audit data points.
KPMG applied Test of Controls to test the control procedures adopted by the management of
the company to bill revenue streams. The auditors also performed substantive test of details
and analytical procedures which included confirmation of revenue from major corporations
and also performing sample tests to check accuracy of bills generated.
Carrying value of Goodwill- The auditors have considered this as a key audit matter because of
the size of its asset and is the largest asset of the company. The matter required the auditors to

use a significant level of judgment to evaluate the estimates of carrying value of goodwill.
Furthermore, the industry in which the company is operating in has a huge impact of change in
technology. The forecasts are always at risk because of the constantly changing prices. The
auditors focused upon assessing the carrying amount of company’s goodwill by evaluating the
valuation models for specific cash generating unit. Discount rates and key assumptions taken by
the company in relation to forecasts were assessed by the auditors while evaluating the market
demand of the services. Several of the senior audit team members were involved in the process.
In order to test the key audit matter related to carrying value of goodwill, KPMG adopted
analytical procedures to compare demand forecasts against industry reports and evaluate the
data in various valuation models. The auditors also focused on evaluating methods of forecasting
accuracy. These are called as substantive test of details (Knowledge Equity, 2018). The
auditors also performed substantive tests as a part of substantive tests of details. This information
is specified on page number 94 of the annual report.
Conclusion
The objective or reviewing the audit report of TPG Telecom Limited was to ensure that the
auditors have keenly followed the provisions regarding audit or not. However, after reviewing it
appears that the auditors have complied with all the major laws and regulations. However,
information related to composition of audit and risk committee has not been provided in the
annual report. Hence, it is advised that the relevant information is given in such a manner that it
does not get lost amidst irrelevant information. However, a follow up question to the auditors is
about the type of non audit services performed by them. What exactly is meant by taxation and
‘other services’?

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