Key Audit Matters for Nine Entertainment Co. (NEC)

This article discusses the key audit matters for Nine Entertainment Co. (NEC) in the year 2019, including revenue recognition, tax impact, and fall in EBITDA. It also highlights additional key audit matters for the year 2018, such as trade and other receivables, program rights and inventories, revenue recognition, and valuation of property, plant, and equipment.

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
Key Audit Matters for Nine Entertainment Co. (NEC).............................................................2
References..................................................................................................................................7

2AUDITING AND ASSURANCE
Key Audit Matters for Nine Entertainment Co. (NEC)
Key Audit Matters for the year 2019
1. Revenue
Why Significant Audit Procedures for Address this Issue
On 21 February, 2019, NEC has reported
their group revenue at $709.8 million that is
lower than the same of the previous year. It
needs to be mentioned that the management
of NEC has used significant accounting
judgement for the recognition of their
business revenues and these judgements are
there in the company’s annual report. This
can create material impact on the income
statement of the company as there is scope
for showing increased amount of revenue in
manipulative manner. This can be
considered as a key audit matter due to the
large amount and the involvement of
significant judgments (NEC, Half-yearly
Report 2019).
The necessary audit procedures are as
follows:
 Assess whether the used revenue
recognition process is consistent
with the requirements of Australian
Accounting Standards
 Analysis and evaluation of the
internal control related to record and
recognize the revenues.
 Review and examination of the
general ledger of the company to
determine how revenue is recorded
by the management (auasb.gov.au,
2019).
2. Tax Impact
Why Significant Audit Procedures for Address this Issue
It can be seen from the six months result of
NEC that the company has reported $3.8
million as tax impact on specific items. In
this context, it needs to be mentioned that
taxation in NEC is a judgmental aspect as
the management of the company uses
certain judgments for ascertaining the
The necessary audit procedures are as
follows:
 Assessment of the fact that whether the
taxation operation of NEC is in line with
the regulations of Australian Taxation
System

3AUDITING AND ASSURANCE
likelihood of the future taxable profit.
Moreover, the recoverability of deferred tax
assets is also involved in this case. This
aspect indicates that there is large scope for
tax advantage by the management of the
company for showing less profit so that less
tax needs to be paid. This aspect can
materially affect the financial outcome of
the firm. In the presence of all of these
reason, this can be considered as a key audit
matter for the 2019 audit of NEC (NEC,
Half-yearly Report 2019).
 Analysis and evaluation of different
aspects of tax treatment done by the
management of NEC (assets.kpmg,
2019).
3. Fall in EBITDA
Why Significant Audit Procedures for Address this Issue
As per the six month financial results, there
is a 6% fall in the half-yearly EBITDA of
NEC and the amount is $11 million. This
can be considered as the outcome of the
reduction in cost offset. It needs to be
mentioned that this aspect involves certain
judgements of the management of the
company. This particular aspect can
materially affects the income statement of
the company and the management can take
many illegal advantages with this. In the
presence of these reasons, it can be
considered as a key audit matter for 2019
audit of NEC (NEC, Half-yearly Report
2019).
The necessary audit procedures are as
follows:
 Assess whether the overall financial
reporting of NEC is in accordance
with the regulations and standards of
Australian Accounting Standards
 Analysis and evaluation of the
internal control of the company
related to the determination of their
profitability (Sirois, Bédard & Bera,
2018).

4AUDITING AND ASSURANCE
Additional Key Audit Matters for the Year 2018
1. Trade and Other Receivable
Why Significant Audit Procedures for Address this Issue
It can be observed that NEC has reported
$134,470,000 as the total receivable for the
year 2018. The estimation as well as
recognition process of these receivables
involves significant judgment from the side
of the management. This aspect provides the
management of the company with the scope
to materially misstate the balance sheet by
manipulating the figures of receivables.
Since the value of receivables is large and it
involves significant judgements, it can be
considered as a key audit matter (NEC,
Annual report 2018).
The necessary audit procedures are as
follows:
 Assessing whether the recognition
process of receivables adopted by
the company is in line with the
Australian Accounting Standards
 Other processes involved in this
testing are tracing receivable reports
to general ledger, calculating the
receivable report total, investigating
reconciling items, matching invoices
to shipping logs, confirming
accounts receivable and others
(Bédard, Gonthier-Besacier &
Schatt, 2014).
2. Program Rights and Inventories
Why Significant Audit Procedures for Address this Issue
As per the annual report of NEC, total
current program rights and inventories
reported is $190,427,000. There are major
judgments, estimates and assumptions
involved in the process of recognizing and
recording their inventories. These judgment
provide the scope to the management to
illegally decrease the amount of revenue to
show better financial position of the
company in the balance sheet. Since the
The necessary audit procedures are as
follows:
 Assessing whether the inventory
valuation process adopted by NEC is
in line with the Australian
Accounting Standards
 Key audit procedures include cut off
analysis, observation of the physical
inventory counting process, testing
of the error-prone items in the

5AUDITING AND ASSURANCE
value of the inventories is huge and there is
major judgments involved, this can be
considered as a key audit matter (NEC,
Annual report 2018).
inventory, reconciliation of the
inventory count with the general
inventory and others (Köhler,
Ratzinger-Sakel & Theis, 2016).
3. Revenue Recognition
Why Significant Audit Procedures for Address this Issue
NEC has reported $1,318,410,000 as the
revenue from rendering services in the year.
It can be seen in Note 1.2 of the annual
report that the management of the company
has used certain judgments and assumptions
for the recognition of their business
revenue. For this, the managements get the
chance to illegally increase the revenue to
materially improve their financial
performance. The involvement of these
significant judgements in this revenue
recognition process makes this as a key
audit matter for the audit of the company
(NEC, Annual report 2018).
The necessary audit procedures are as
follows:
 Assessing whether the revenue
recognition process adopted by the
company is in line with the
Australian Accounting Standards
 The needed substantive audit
procedures for this are checking the
invoices for confirming sales,
assessing the completeness of the
revenue recognition process,
assessing the presence of frauds and
errors in the revenue recognition
process and others (Velte, 2018).
4. Valuation of Property, Plant and Equipment
Why Significant Audit Procedures for Address this Issue
It can be seen from the annual report of
NEC that the company has reported
$129,289,000 as the carrying value of
property, plant and equipment. At the same
time, it can also be seen from Note 2 that
the management of NEC has used certain
The necessary audit procedures are as
follows:
 Analysis of the fact that whether the
company has followed the
Australian Accounting Standards for
the valuation of their property, plant

6AUDITING AND ASSURANCE
judgments and assumptions for the
valuation of their property plant and
equipment. These judgements and
assumptions provide the scope for
manipulating the values of these assets so
that increased amounts can be shown in the
balance sheet to improve the financial
position. This huge value and the presence
of judgments makes this a key audit matter
(NEC, Annual report 2018).
and equipment
 Testing the existence, occurrence,
completeness, valuation and
classification of these assets (Köhler,
Ratzinger-Sakel & Theis, 2016).

7AUDITING AND ASSURANCE
References
Assets.kpmg. (2019). Key Audit Matters. Retrieved 10 April 2019, from
https://assets.kpmg/content/dam/kpmg/au/pdf/2017/key-audit-matters-auditor-report-
20-september-2017.pdf
Auasb.gov.au. (2019). Auditing Standard ASA 701 Communicating Key Audit Matters in the
Independent Auditor’s Report. Retrieved 10 April 2019, from
https://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf
Bédard, J., Gonthier-Besacier, N., & Schatt, A. (2014, January). Costs and benefits of
reporting Key Audit Matters in the audit report: The French experience.
In International Symposium on Audit Research. Available at: http://documents.
escdijon.
eu/pdf/cig2014/ACTESDUCOLLOQUE/BEDARD_GONTHIER_BESACIER_SCHAT
T. pdf.
Köhler, A., Ratzinger-Sakel, N. V., & Theis, J. (2016). The effects of key audit matters on the
auditor's report's communicative value: Experimental evidence from investment
professionals and non-professional investors. Available at SSRN 2838162.
Nine Entertainment Co. (2019). Annual Report 2018. Retrieved 10 April 2019, from
http://prod.static9.net.au/_/media/Network/NineEntertainmentCo/PDF-Downloads/
Annual-Report-FY-2018-Final.pdf
Nine Entertainment Co. (2019). NINE ENTERTAINMENT CO. H1 FY19 RESULTS.
Retrieved 10 April 2019, from
http://prod.static9.net.au/_/media/Network/NineEntertainmentCo/PDF-Downloads/
Annual-Report-FY-2018-Final.pdf

8AUDITING AND ASSURANCE
Sirois, L. P., Bédard, J., & Bera, P. (2018). The informational value of key audit matters in
the auditor's report: Evidence from an eye-tracking study. Accounting
Horizons, 32(2), 141-162.
Velte, P. (2018). Does gender diversity in the audit committee influence key audit matters'
readability in the audit report? UK evidence. Corporate social responsibility and
environmental management, 25(5), 748-755.