Auditing and Assurance - Assignment

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
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Executive Summary:
The assessment of the present report depicted with “ASA 701 Communicating Key Audit
Matters in the Independent Auditor’s Report”, as for the perspectives of mining organisations
like “Boral Limited, Amcor Limited, BlueScope Steel Limited and Newcrest Mining”. The
evaluation of financial statements and the disclosures made by the entities can be depicted
with significant aspects of users of the financial statements. As there has been no adherence
made by the entities with the ASA 701 rulings, their annual report cannot be declared as
feasible in nature. Moreover, this shows that there has been the presence of conformity to
ASA 315 which is followed by the auditors and the entities. Therefore, the use of ASA 315 is
seen to be prevalent among the companies.

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Table of Contents
1. Introduction:...........................................................................................................................3
2. Key audit matters (KAM):.....................................................................................................3
3. Methods of of identifying KAM:...........................................................................................3
4. Conceptualisation of Going concern:.....................................................................................3
5. Conceptualisation of cash flow:.............................................................................................4
6. Assessment related to the mining industry:...........................................................................4
7. Research extent and application:............................................................................................6
8. Conclusion and Recommendation..........................................................................................6
References..................................................................................................................................8

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1. Introduction:
The present report has exhibited critical assessment for the application of “ASA 701
Communicating Key Audit Matters (KAM) in the Independent Auditor’s Report”. The main
consideration has been considered in the mining industry with including the perspective of
companies such as “Boral Limited, Amcor Limited, Bluescope Steel Limited and Newcrest
Mining”. Based on the assessment of annual report of all the four companies the disclosure
on the “key audit matters in the independent audit report of the organisation” can be clearly
found. The several types of risk related to the material misstatement is directly considered in
accordance with “ASA 315”. Moreover, the various excerpts of the study have emphasised
on the actions which are necessary for the investors in having an overview of material
misstatement (Schaltegger et al. 2015).
Significant mandates of the global financial crisis have stated on the KAM
extrapolations included in the financial statement which are not disclose adequately. Post-
implementation of this standard, several accounting authorities in Australia has made it
compulsory for businesses to adhere to the regulations for reducing any scope of financial
crisis which can take place in the future. In addition to this, the accountability has revealed
the secondary materials supporting the independent audit reports. The nature of such
disclosure is mentioned as per the ASA 701, which has been conducive in holding real
financial conditions to the shareholders (Sneller, Bode and Klerkx 2017).
2. Key audit matters (KAM):
The main intention of the introduction of KAM is seen with increasing value of the
audit report which will allow the investors and other users in having a better overview for
rational and audit opinions. Despite of this, several audit opinions cannot be blindly relied
upon. This is due to the fact that, in many ways it lacks the information which is needed to
identify the considerable events happening in the organisation which might change the
materiality of the enterprise. Typically, there are four audit opinions which are identified with
“qualified opinion, unqualified opinion, disclaimer opinion and adverse opinion”.
Henceforth, the aforementioned categories are applicable to all the entities. It needs to be also
ensured that the audit opinions are delivered from the industrial perspective rather than
business. The inclusion of KAM is beneficial in making specific nature of audit opinion for
an organisation (Abhayawansa and Guthrie 2014).
3. Methods of of identifying KAM:
In course of any event which is acknowledged as KAM, it is seen to be dependent on
the judgement of auditors. During the evaluation of financial reports, it is probable that the
auditor may trace several significant incidents. In case the statements lack justification, the
various types of incidents will be deemed as the material misstatements and the same will be
included in KAM.
4. Conceptualisation of Going concern:
As per the rulings of ASA 570, the financial reports are prepared as further as
assumptions related to going concern and the same is estimated to continue in the upcoming
years with the operations of the company. The relevant business organisations are seen to

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prepare general purpose financial reports which are in compliance with going concern.
However, the only exception is in case the management decides to liquidate or cease
operations. In case the financial information is not provided as for the shareholders, it may
lead to significant nature of gap among the same. In several situations, the shareholders are
seen to look forward to the qualified audit reports and published data for verification of the
accuracy among the financial statements. It needs to be also discerned that ASA 570
emphasises on providing the KAM in the annual report which is beneficial in identifying the
material misstatements and the significant conditions which may pose doubt to the ability of
the organisation for operating as a going concern as stated in “Paragraph A1 of ASA 570
Going Concern”. The selected for organisations are not seem to include the KAM and
therefore critically evaluated as per the aforementioned sections (Muhammad and Scrimgeour
2014).
5. Conceptualisation of cash flow:
In case of any possibility of influencing the FCF at material level, it will be also
considered under the norms of KAM. For example, in case auditor believes that a short note
for contingent liability is capable of causing cash outflows, the same will be conveyed under
KAM.
6. Assessment related to the mining industry:
The evidence is of the excerpts associated to material misstatements have been
carefully scrutinised as per the latest annual report published by “Boral Limited, Amcor
Limited, Bluescope Steel Limited and Newcrest Mining”. The issues associated to financial
crisis can be clearly depicted in the financial statement however the companies did not make
the KAM disclosure in an adequate manner. In order to overcome the several types of the
issues, ASA 701 was introduced and it needs to be communicated in the relevant financial
statements of the company. Therefore, it is mandatory for the organisations to make the
relevant disclosures about the KAM in the annual report. Post-investigation of annual report
of the four companies in 2017, the risk factors which are inherent are in compliance with
ASA 315. The analysis of the future issues could be carried in such a manner that should be
conducive for material misstatements disclosure. Furthermore, the annual report will be
conducive in estimation of the issues which may interfere with the business activities. This
type of estimation will lead the investors for detection of any problem is taking place within
the organisation from beforehand (Taylor, Richardson and Taplin 2015).
The nondisclosure of material misstatement in several cases are argued to be raising
several questions on the unethical practices adopted by the companies. The critical assertions
of annual report have identified the risk factor which can be directly related to disclosure of
material misstatement and are in agreement with ASA 315 (Chiavacci et al. 2017). The
primary analysis consists of the following discourse:
Material misstatement areas having higher risk:
The evaluation of financial statement about the disclosure shows that the disclosures
made by the organisations could be presented to the financial statement users. As it can be
seen that there is compliance with the ASA 701 rulings, the annual report can be depicted as
feasible in nature. Moreover, it shows the adherence to the ASA 315 which has been duly
followed by the auditors and the companies. Therefore, the use of ASA 315 has enabled all
the entities to detect key material misstatements. Despite of this, the four organisations have
made difficult disclosure on carrying value and exploration of energy. Henceforth, it has been

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able to identify the impairment indicators for evaluating assets thereby testing the key control
of management. The budget associated to the future expenses is depicted with the ongoing
exploration (Schäffer, Mahlendorf and Rehring 2014).
The four entities are for the discern to enforce certain accounting principles which
have been conducive in depiction of actual financial situation. Moreover, the entities have
been compliance with the ASA 701 by the disclosure of KAM in the audit report. In addition
to this, there can be several incidents can be clearly identified with the corporate scandals that
the auditors in the past have taken on ethical measures for representing a strong financial
health for their self-interest. Due to these factors there may be several questions raised
associated to the integrity of the audit report. It is important for the four business concerns to
understand the different types of business risks which are identified with material
misstatement. Moreover, it is also essential to evaluate the risk factors with the business
activities and business environment related to audit procedure. Post-critical analysis of the
statements based on top-down process, the four organisations are likely to suffer with absence
of participation from the staff for making necessary decisions. Henceforth, the forms are
needed to obtain the overview of business risk which might pose audit risk in future. Based
on this depiction is, auditors need to assimilate all the business procedures for gaining an
insight of actual risks leading to material misstatement (BoardMatters Quarterly 2014).
ASA 701 was implemented after the financial crisis which took place in 2007, which
further compiled the audit and assurance board in identifying non-ethical measures which
were carried out by the organisations by depiction of the financial statement. These unethical
measures have been represented with the inclusion of sound financial health of the
organisation in order to raise the value of share price. Therefore, the companies were able to
raise excess capital by misleading information. At the time of financial crisis, the business
corporations were identified to adopt several unscrupulous methods which finally led to the
collapse and the investors were not interested in investing in their portfolio. After this
incident, “the international economy and the financial solidity in the capital market were
taken aback”. Henceforth, it is evident that implementation of ASA 701 was mainly focused
to minimise the overall unethical practices and increase the transparency in financial
information (IAASB 2015).
Risks identified in accordance with ASA:
As per the statement of independent audit report of “Boral Limited, Amcor Limited,
BlueScope Steel Limited and Newcrest Mining”, the disclosures such as “impairment of non-
current assets” and treatments for this issue is depicted with considerable amendments in the
recoverable amounts along with differences among the actual operating cost and budgeted
cost. The main nature of the risk factors associated to auditing of “Boral Limited, Amcor
Limited, Bluescope Steel Limited and Newcrest Mining” have been taken into account with
the compliance of ASA 315 which is carried out by the audit and assurance board in
recognition of relevant audit risk. Additionally, ASA 315 states about the need to follow the
guidelines as per stated in “paragraphs A9 to A11 and A27 to A30”. Due to this, several
material misstatements can be identified on part of the auditors which can decrease the
overall risk of audit. Such a relevant interpretation will be conducive for the auditors in
predicting frauds which the four organisations might use to overstate their financial
statements. The depictions as per this context, clearly shows that frauds can be duly identified

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with ASA measures while the preparation of financial statements (Sirois, BBdard and Bera
2014).
It is to be for the discerned that financial statements of all the four organisations were
not in compliance with ASA 315, as the auditor had been inefficient in interpreting any
material misstatement inherited within the items. Moreover, the auditors are required to
follow “paragraphs in ASA 315 from A105 to A108”, which will be conducive in identifying
the material misstatement which will limit the overall financial stability among the
companies. Due to this, the auditors will have the scope of evaluating the overall viability of
entities by annual reports (Cordo and Fülöp 2015).
7. Research extent and application:
The various types of considerations based on annual report of as “Boral Limited,
Amcor Limited, BlueScope Steel Limited and Newcrest Mining” can be clearly stated that
the companies have complied with ASA 701. Due to these factors, the KAM has reduced the
overall audit risk among the organisations. The various extents of the audit risk can be duly
identified with the audit process which we are followed on part of the auditors. In this
particular consideration, special attention can be provided to the process of evaluating risk
involved in the operations of the business (Purcell, Francis and Clark 2014). During the initial
stage, the business risk is required to be analysed as per the business goal which are inherent
in the annual report of all the selected organisations. This has allowed in determining the
material misstatement which can lead to wrong interpretation of financial position and
performance of the organisations. Secondly, the approximations based on risk significance
have implied on the norms which needs to be complied on the part of auditors of the
company. Additionally, it is essential for the auditors in detecting the risks which may take
place in future leading to material misstatement. The companies need to also identify the risk
which may take place from such actions (Pop-Vasileva, Baird and Blair 2014).
The extracts taken from annual report of the entities, it can be clearly observed that
EY is the auditor for both Newcrest Mining and BlueScope Steel Ltd. On the other hand,
PwC is auditor for Amcor Ltd. The other entities have also added relevant section of KAM in
their annual report which has been conducive in providing the rationale for significant events
associated to the business matters. Despite of complying with the auditing standards, there
has been an unqualified audit opinion related to the financial stability and compatibility. The
rationale for this is due to the very nature of differences among the entities which can be
evaluated with the audit matters. For example, EY in its audit report for BlueScope Steel Ltd
has considered accounting for tax positions in the KAM (Durand, Limkriangkrai and Chai
2016). The significant recoverability items associated to the DTA is also a KAM due to its
financial significance which is $85 million among the consolidated tax group of Australia.
The audit report published by PwC for Amcor is identified with the impairment risk
consideration associated to the carrying value of the investments made in AMVIG for the
detection of the factors such as whether share prices are recoverable investment amount.
Finally, the audit report published by EY for the Newcrest Mining have shown several
disclosures for taxation policies related to the Indonesian subsidiaries taken from the tax
office of Indonesia with the applicable rate of income tax. It is for the seen to recover the
additional tax payment amounting to $ 96 million. All the significant amounts are taken into
consideration based on the additional estimations (Guthrie, Evans and Burritt 2014).

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8. Conclusion and Recommendation
The important assessment associated to ASA standards like “ASA 701, ASA 315 and
ISA 260” is depicted with significant importance for the organisations in terms of presenting
the relevant financial information. In addition to this, the compliance with ASA 701 and ASA
315 needs to be ensured for the operations which will be able to conform to the board about
audit assurance. In addition to this, companies like “Boral Limited, Amcor Limited,
BlueScope Steel Limited and Newcrest Mining” are needed to have an additional
understanding of appropriate standards and policies for presenting true and fair financial
reports. The information flow in terms of investors and auditors is depicted to be conducive
for obtaining insight of definite financial position of the entities which is crucial for
undertaking significant decisions about investment. Moreover, the annual report evaluations
have made several disclosures to the users of the financial statement. Furthermore, it signifies
the adherence to ASA 315 which is also followed with the parts on behalf of auditors and
entities. Therefore, ASA 315 have allowed the investors of the companies in tracing of
material misstatement risks which are prevalent in nature.

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