Auditing and Assurance | Assignment | Answers | Requirements

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student
Name of the University
Author’s Note

1AUDITING AND ASSURANCE
Table of Contents
Answer to Question 1........................................................................................................2
Requirement 1................................................................................................................2
Requirement 2................................................................................................................2
Requirement 3................................................................................................................3
Requirement 4................................................................................................................4
Requirement 5................................................................................................................4
Answer to Question 2........................................................................................................6
Requirement 1................................................................................................................6
Requirement 2................................................................................................................7
Requirement 3................................................................................................................8
References.......................................................................................................................10

2AUDITING AND ASSURANCE
Answer to Question 1
Requirement 1
KPMG is considered as one of the four ‘Big Four’ accounting firms operating in
Australia and it came to regulatory spotlight when Discovery Metals registered class
actions against it because of providing misleading advise. More specifically, the
accusation on KPMG was that it provided the failed junior miner Discovery Metals with
deceptive advice through inflating the value of the firm’s principles asset as much as
40% (afr.com, 2020). This misleading advice is associated with the Board of Discovery
Metals decision over a joint venture’s off-market takeover offer of buying shares at
$1.70 per share. The worth of Discovery Metals was $1.65 at that time. The Board of
Discovery Metals was advised by KPMG that the offer of $1.70 was not fair or
reasonable as the company’s fair market value at that time was between $1.74 and
$2.22. The advice of KPMG made the shareholders of Discovery Metals rejecting the
offer and the offer was rejected in the absence of adequate number of shareholder’s
vote (afr.com, 2020). After this incident, the share price of Discovery Metals fell to $0.34
and the company had to go into liquidation and there was nothing left in the company
for the shareholders. Due to the advice of KPMG to Discovery Metals, the Board raised
the value of the technical assets by 40% and KPMG failed in providing any justification
of applying such uplift. In case there was not any uplift of the value by 40%, the bid
would have been considered as reasonable for the shareholders. Litigation Capital
Management, an ASX-listed litigation funder, funded this class action against KPMG
(afr.com, 2020).
Requirement 2
There are three types of assurance can be seen in auditing; they are Absolute
assurance, Reasonable assurance and Limited assurance. Reasonable assurance is
considered as a high level of assurance associated with material misstatements. It
consists of the key understanding that there is the presence of remote possibility that
there will not be prevention or detection of material misstatements on a timely basis
(Knechel & Salterio, 2016). Limited form of assurance is provided when the auditors

3AUDITING AND ASSURANCE
believe that there is a material misstatement in the financial statements. Lastly, absolute
assurance is level of assurance where it is concluded by the auditor that there is no
material misstatement in the financial statements. It can be seen in the case of
Discovery Metals that KPMG was absolutely sure about their opinion that the fair market
value of Discovery Metals was between $1.74 and $2.22 and it indicates towards the
aspect that absolute assurance was provided to client by Discovery Metals (William Jr,
Glover & Prawitt, 2016).
The presence of two natures of evidence can be seen in auditing; they are
persuasive nature of evidence and conclusive nature of evidence. Conclusive nature of
evidence is considered as solid evidence that does not require any further proof or
enquiry as the evidence in itself is complete. It can be seen in the case of Discovery
Metals that KPMG firmly provided the advice to the Board and it did not mention any
negative possibility. It proves that conclusive nature of evidence was gathered by the
audit firm for providing this advice (Bumgarner & Vasarhelyi, 2015).
Requirement 3
In this particular case of KPMG and Discovery Metals, there are certain remedies
sought by the regulatory agencies. The first remedy is to have a reviewer for reviewing
the quality of both internal and external audit. This ensures maintaining effective audit
quality (Christensen et al., 2016). The second remedy is to support the findings of the
audit through acquiring the required audit evidence that is necessary to form the
appropriate audit opinion. This ensures that the expressed audit opinion is well
supported by appropriate audit evidences. The next remedy can be seen in the
identification of the root causes of findings from the own quality reviewers; and the
same needs to be reviewed by the audit regulatory inspector so that they can assess
the reasonableness and validation of the obtained audit evidence and developed audit
opinion. After that, the regulatory authorities require the audit firms to develop as well as
implement the required action plans in order to address the audit findings; at the same
time, the audit firm is needed to monitor as well as revise these action plans for
ensuring that they are effective (Cameran, Prencipe & Trombetta, 2016). This is
necessary for preparing the appropriate audit plan for providing the correct audit