Audit and Assurance Report of ADX Energy Limited

This report presents the audit and assurance related matters related to an Australian entity named as ADX Energy Limited. The report covers discusses about the degree of independence exercised by the company’s auditor and it has been found that the auditors has independently provided the audit opinion on company’s financial performance.

Running Head: Audit, Assurance and Compliance
Auditing and Assurance

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Executive summary
This report presents the audit and assurance related matters related to an Australian entity
named as ADX Energy Limited. The company deals in oil, gases and metal exploration
operations. The report covers discusses about the degree of independence exercised by the
company’s auditor and it has been found that the auditors has independently provided the
audit opinion on company’s financial performance. Apart from providing the audit opinion,
the auditor has not provided any non-audit services to ADX Ltd. The report further provides
insights on the auditor’s remuneration in the last two years and discusses the key audit
matters (KAM) identified by them during the financial year. The auditor has reported cash
component as the KAM. Further, it has been observed that company has no audit committee.
The basic objective of appointment of auditor is to enable him to provide an opinion on
company’s financial statements and auditor has issued unqualified opinion about entity’s
financial statements. However, it is the responsibility of directors to prepare and present the
financial statements. Therefore, auditor cannot be expected to find all the misstatements
contained in the financial statements. Further, the report has identified certain subsequent
events which have occurred after balance sheet but before the approval of financial accounts
of company. After reviewing the audit report, it has been found that the auditor has
effectively disclosed the material information as relevant to the external stakeholders.

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Table of Contents
Executive summary...............................................................................................................................2
Introduction:..........................................................................................................................................5
Auditor’s Independence:........................................................................................................................5
Non-audit services by auditor:...............................................................................................................5
Auditor’s remuneration:........................................................................................................................6
Key audit matters reporting by auditor:.................................................................................................7
Audit Committee:..................................................................................................................................8
Auditor’s Opinion:.................................................................................................................................9
Difference in the responsibility of directors and auditors of the company in respect of annual reports: 9
Director’s Responsibility:................................................................................................................10
Auditor’s Responsibility:.................................................................................................................10
Subsequent Events:............................................................................................................................11
Disclosure of material information by auditor:....................................................................................12
Conclusion:..........................................................................................................................................13
References:..........................................................................................................................................14

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Introduction:
ADX Energy Limited is an Australian company which is listed on the Australian stock
exchange. ADX Limited is headquartered in Perth, Australia. The company operates within
the energy sector of Australian economy. It has been existence since 1987. It is engaged in
the business of oil as well as gas exploration. The company owns four oil and gas permits in
the North African and European Nation. Moreover, it owns interests in the gold and metal
properties in the Australian nation. This report presents the summary of audit report of the
company formulated by its auditor after reviewing the financial statements of the company.
Auditor’s Independence:
According to the audit report of ADX Energy, the auditors have completely complied with
the independence requirement of Corporations Act 2001. They are independent of the group
and have also followed the ethical requirements of Accounting Professional and Ethical
Standards Board's APES 110 Code of Ethics for Professional Accountants (ADX Energy.
2017). All the relevant standards which are applicable to the audit of financial report in
Australia are followed by the auditors of the company. Moreover, auditors confirmed that the
declaration of independence given to the directors would be in the same terms as it was given
at time of the audit report (ADX Energy. 2017).
As per the director’s report, a copy of auditor’s letter has been attached which confirms the
independence of the auditors. It contains the assurance to the alignment of provisions of
section 370C of the Corporations Act 2001.
Non-audit services by auditor:
Non-audit services are the one provided by the qualified accountant during the period of
conducting an audit and which are not related to the audit or the review of financial

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statements (Gray and Manson, 2007). Generally, it involves accounting and financial stuff
but is not connected to assurance. As ADX director’s report, there were no non-audit services
provided by the auditors during the last financial year (ADX Energy. 2017).
Auditor’s remuneration:
Auditor’s remuneration is the amount paid by the company to the professional and qualified
accountants or auditors for rendering their audit services. It is basically a fee paid to them in
exchange of performing audit of the company’s financial statements. The amount is fixed by
the directors and according to their remuneration policies (Millichamp, 2002). ADX has
prepared a full detailed report of its remuneration offered to its key management people and
auditors. It contains the policy of remunerating used by the directors and amount rewarded
along with various share based compensation methods.
The detail about the remuneration given to the auditors of ADX is provided in the Note 17 of
the annual report. It explains the amount given in the last two years to the auditors for
conducting the audit of ADX’s financial accounts. The remuneration and percentage change
in it is shown as follows:
2016 2017 % change Inc/Dec
Auditors' remuneration $28,000
$29,50
0 5.4% $1,500
(ADX Energy. 2017).
From the above table, it can be observed that the remuneration given to the auditors has
increased from $28,000 to $29,500 reflecting an increase of 5%. In terms of dollars, it has
increased by 1,500. This has been given to the auditors for auditing the financial statement

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and conducting an audit review for ADX Energy. No other services were provided and no
fees have been paid for the same (ADX Energy. 2017).
Key audit matters reporting by auditor:
Key audit matters are those matters which carries high significance in the audit of financial
report. According to the auditors’ professional judgement, these matters are very important to
be considered while conducting the audit of accounts and financials. They are been addressed
in whole detail and assist the auditors in making their opinion (Arens, Elder and Mark,
2012). As per the declaration of ADX’s auditors, they have explained all the key matters and
have not provided a separate opinion on the same. The key audit matters explained are as
follows:
 Cash
The amount of cash makes up to 92% of group’s total assets and is considered to be a
essential factor in the operating and exploration activities of the company. Though it is a
liquid asset and cannot be considered at high risk of misstatement but as it holds importance
in context of financial statements, it has to be reviewed properly. Cash is that factor which
can affect the strategy of the group as a whole in respect to the allocation of resources and
completing the audit. It has been reviewed by using following procedures:
 The documentation and assessment of processes and controls has been done that are
been used for recording cash transactions.
 Agreeing to the cash holdings to the confirmation of third party (ADX Energy. 2017).
Other audit procedure classified as test of controls is used to test the effectiveness of the
controls used by the entity to detect the material misstatements. It also includes analytical

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procedures which are based on the analysis conducted for the financial statements. The
auditors rely on the ratio analysis of the ADX to make their judgements. In addition, some
substantive procedures are also used which test the completeness, disclosure, existence and
valuation of the assets by providing a conclusive evidence. According to ADX’s auditors,
cash is the most significant item in company’s financial statements which has been properly
reviewed and is separately disclosed in key audit matters. They have collected evidences to
check the existence and validity of the cash balances. The same has been disclosed in their
audit reports (Knapp and Knapp, 2001).
Audit Committee:
According to the ASX CGC principle number four, all the listed companies should have an
audit committee comprising of three members. All of them should be non-executive directors
and majorly the independent ones. In case if the entity does not have such committee, it
needs to disclose procedures employed by it which safeguards the integrity of financial
reporting (ASX (2018). The corporate governance statement of ADX explains that the firm
does not have any audit committee. As the company is of limited size and have limited
operations and financial affairs, having a separate audit committee is not considered suitable
for ADX. However, it has listed down the accountability of management in the statement that
assures the integrity of reporting. It includes review of the statutory financial statements,
monitoring the compliance with accounting procedures and records, review of audit reports
and many others. All such details are properly disclosed and presented in the CG statement of
the company. As the company does not have any committee, there is no audit charter
explained in the report (ADX Energy. 2017).

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On a whole, ADX do comply with the requirements of all the ASX CGC principles and
discloses all the information related to the audit and assurance matters in its annual report as
well as in the statement of corporate governance.
Auditor’s Opinion:
Auditor’s opinion is a kind of feedback which is provided by the auditor after carrying out the
audit in relation to financial statements of the entity. The opinion provided by the auditor
does not judge the financial position of the business of the entity nor does it interpret the
financial data of the entity (Tsipouridou & Spathis, 2014). In general there are four types of
opinions provided by the auditors: Unqualified opinion, qualified opinion, adverse opinion
and disclaimer of opinion. In the present case of ADX Limited, the opinion provided by the
auditor of the company is an unqualified opinion. This has been identified from the
examination of annual report of the company for the year ended 2017. The audit opinion
section of the annual report contains a statement by where audit006Frs have declared that the
financial statements of the company are giving true and fair view of financial position of
ADX Group as at 31st December, 2017 as well as the financial performance for the year
ending on 31st December, 2017. The auditors have stated that the financial statements of the
company are prepared and presented in accordance with the Australian Corporations Act,
2001 as well as the Australian accounting standards. The auditors have stated that necessary
and sufficient audit evidences could be generated to form an audit opinion.
However, along with the clean report, the auditors of the company have disclosed few key
audit matters to drive the attention of the users of the annual report. Although these are those
matters where auditor has provided unqualified form of audit opinion but yet these matters

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requires significant attention of the readers so that they can clearly understand the impact of
such items on the entity’s financial performance.
Difference in the responsibility of directors and auditors of the
company in respect of annual reports:
Director’s Responsibility:
The responsibility of auditors and directors of the company totally differs with respect to the
financial reports of the company. The directors of the ADX Limited have the responsibility of
preparation of company’s financial statements as well as financial reports. They are
responsible for preparation of such financial reports that presents the true and fair view of its
financial position. The directors are responsible to comply with all the Australian accounting
standards and provisions of the Corporations Act, 2001 which are relevant and applicable to
the entity. Also, directors of the company have the pure responsibility to implement a system
of internal control which allows the true and fair view of financial statements by ensuring that
such financial statements are containing any material misstatements due to any kind of error
or fraud by or on the management of the company.
Auditor’s Responsibility:
While undertaking the preparation function of financial reports, it is the core responsibility of
the auditor to assess the ability of entire ADX Group to continue its functions as a going
concern. For this purpose, they are liable to disclose any matter which relates to the going
concern concept. Unless otherwise required, company’s directors are held with the
responsibility of preparing the financial statements on the basis of going concern assumption.
However, auditors are the external independent parties who are not involved in the internal
activities of the company and also they do not participate in the preparatory function of
financial statements as well financial reports. They are merely appointed in the company to

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provide a reasonable assurance about whether the financial statements of the company are
free from any sort material misstatements which could arise due to any frau or errors. The
auditors are responsible to provide an opinion on the truthfulness and fairness of financial
statements. Auditor of ADX Limited can issue any form of audit opinion whether it is
qualified opinion or unqualified opinion or the opinion disclaimer. Along with the audit
opinion auditors are also required to report any key audit matter so as to draw the attention of
users of audit report so that such information could influence their decision making process.
Reasonable assurance is the type of high level assurance which is acceptable by the readers.
However, the reasonable assurance of the auditor does not guarantee that audit engagement
carried by the auditor will always detect each type of errors or frauds since the basic objective
of audit is not to identify any material misstatements arising from any error or fraud in the
audit of financial statements. Even if the audit is carried with due diligence by complying all
the relevant accounting standards, it cannot be expected from the auditor that all the frauds
will be traced by him and all the errors will be identified and corrected by the auditor ((ADX
Energy. 2017).
Subsequent Events:
Yes there were certain events that occurred subsequently after the date on which financial
statements were prepared but before the date of auditor approval the financial statements
(Michels, 2017). These events are:
Issuance of shares:
On 2nd March, 2018: The amounts of these shares were accrued for the month of December
in 2017. Following transactions in respect of shares have been undertaken after the balance
sheet:

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 4330768 shares of the company were issued in pursuance to the director’s share plans
of ADX Limited. This plan was officially signed-off by company shareholders on 31st
May, 2017. These shares were issued to the directors of ADX in return of the amount
waived by them for $ 70100.
 1061537 shares were also issued to the company secretaries of ADX Ltd for the
remuneration waived by them for $ 13800.
 2562517 shares were issued by the company to its consultants for the advisory
services provided by them against their fees of $ 31841.
On 16th March, 2018:
 4380018 shares were issued by the company to its consultants for the advisory
services provided by them against their fees of $ 50000.
On 28th March, 2018:
The company had finalised the agreement with Reabold Resources Plc (Reabold) which was
announced by it on 4th of December, 2017. The agreement was entered into for the investment
of US $ 2 million in the subsidiary of ADX which is named as Danube Petroleum Limited.
The company has adjusted the figures of its share capital value in the exiting financial
statements for the year ended on 31st December, 2017.
There are no other subsequent events taken place in case of ADX Ltd which could
significantly affect the operations or results of the company or the ADX Group as a whole in
the upcoming financial years.

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Disclosure of material information by auditor:
The auditor of the company has disclosed the fact that the financial statements of the
company present true and fair view of its financial position. Along with that the auditor has
disclosed cash component of the company as the key audit matter as this information was
necessary to be communicated to the stakeholders of the company. Since, the external
stakeholders are not directly involved in the internal activities of the company but since the
cash balances of the company has significant impact on its financial position it is disclosed as
the separate matter in the audit report by the auditors. The cash balance of the group
comprises total of 92% of overall assets held by the company (in value) (ADX Energy.
2017).
Matters not reported by auditor:
The auditor must have also incorporated the share issuance information in the current year’s
key audit matters along with the information of dividends so as to draw the attention of
stakeholders towards company return generation capability.
Key questions to be asked from auditor at AGM:
 What procedures have been followed by auditor to check the appropriateness of
internal controls?
 Whether, the auditor has verified the physical cash balances and fixed assets for the
purpose of approving the balances of these assets?

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Conclusion:
Hence, cash has been considered as the key driver of company’s operations as well as
exploration activities. The information regarding cash had the greatest impact on the over
strategy as well as resource allocation planning of the company. This information is quite
significant to be communicated to the external stakeholders of the company. Hence, it can be
said that auditor has effectively communicated the material information to the stakeholders of
the company.

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References:
ADX Energy (2017). ANNUAL REPORT. [Online]. Available at:
http://adx-energy.com/documents/annual-report-december-2017.pdf [Accessed on:
20.09.2018]
ADX Energy (2017). Corporate Governance Statement. [Online]. Available at: http://adx-
energy.com/documents/corporate-governance-statement-2017.pdf [Accessed on: 20.09.2018]
Arens, A.A., Elder, R.J. and Mark, B., (2012). Auditing and assurance services: an
integrated approach. Boston: Prentice Hall.
ASX (2018). Corporate Governance Principles and Recommendations. [Online]. Available
at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-
3rd-edn.pdf [Accessed on: 20.09.2018]
Gray, I. and Manson, S. (2007). The audit process: principles, practice and cases. London:
Cengage learning EMEA.
Knapp, C.A. and Knapp, M.C. (2001). The effects of experience and explicit fraud risk
assessment in detecting fraud with analytical procedures. Accounting, Organizations and
Society, 26(1), pp.25-37.
Michels, J., 2017. Disclosure versus recognition: Inferences from subsequent events. Journal
of Accounting Research, 55(1), pp.3-34.
Millichamp, A.H. (2002). Auditing. USA: Cengage Learning Emea.
Tsipouridou, M. and Spathis, C. (2014), March. Audit opinion and earnings management:
Evidence from Greece. In Accounting Forum, 38 (1), pp. 38-54.