Auditing and Assurance

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
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AUDITING AND ASSURANCE1
Table of Contents
Introduction................................................................................................................................2
Rationale for ASA 701:..............................................................................................................2
ASA 701: Explanation...............................................................................................................4
Key auditing matters of top ASX 100 Companies of Utilities Industry:...................................4
Carnegie Clean Energy Ltd:...................................................................................................5
AGL Energy Ltd:...................................................................................................................5
Ausnet Services Ltd:..............................................................................................................6
APA Group:...........................................................................................................................8
Conclusion and recommendations:............................................................................................9
References:...............................................................................................................................11

AUDITING AND ASSURANCE2
Introduction
Auditing is better regarded as the procedure of implementing check and assessing
books of accounts of an organization. Auditing is performed following the check on
inventory for all the departments of company and to examine all the documents of accounts.
Recently, the profession of audit has faced wide criticism for contributing to the downfall of
numerous large companies all across the world (Quick and Henrizi 2018). Because of the
rising criticism and concerns, the profession has also seen the adoption of newer standard for
accounting such as ASA 701 Communicating Key Audit Matters in the Independent Auditor’s
Report. However, there is also a revision made in current auditing standard namely ASA 570
Going Concern and other relevant standards.
The report aims to make an attempt to discuss regarding the main rationales regarding
the introduction of ASA 701. The report would also discuss the components of the standards
in the current report. The report would also make an attempt of determining the efficiency of
auditors in regard to the Key auditing matter (KAM) that are reported in the utilities
companies of the top 100 ASX listed mining company.
Rationale for ASA 701:
The decline of Lehman Brothers is viewed as the largest corporate downfall where the
auditors were mainly held responsible. In the event of Lehman Brothers failure, the
company’s management deliberately used the Repo instrument to strengthen their balance
sheet artificially to $50 billion (Raiborn et al. 2017). Even though the auditors of the
company knew about the ill-practice adopted by the management and they simply overlooked
as the noteworthy audit matte. The auditors provided the Lehman Brothers management with
the unqualified report. This is regarded as the main reason for the decline of the company and
contributed to the 2008 financial crisis.

AUDITING AND ASSURANCE3
The above stated two activities were accountable for the introduction of newer
auditing standard that was known as ASA 701. The new auditing standard was bought with
the purpose of imposing responsibilities and obligations on the auditors regarding important
matters such as transactions that lacked in the event of Lehman Brothers (Mat Zain, Zaman
and Mohamed 2015). Eliminating the gaps in auditing is the primary reason behind the
adoption of new auditing standards. Following the collapse of the Lehman Brothers under the
new auditing standard of ASA 701, the auditors are required to make disclosure of the
auditing matters that contains highest risks in the auditor’s report where the users of financial
statement can understand regarding the presence of risks (Farkas and Hirsch 2015).
In the event of Lehman Brothers, the auditors simply failed in assessing and analysing
the accounting judgements that were used by the management which eventually contributed
to audit failure (Knechel 2016). The introduction new auditing standard was mainly aimed at
placing the responsibilities on auditors to take into the account the assessment of
managements judgement, assumption and estimation under different features of the financial
reporting.
In addition to this, the Lehman Brothers auditors were failure in determining the
ability of the company to continue as the going concern and this was regarded as the main
error in audit of the business (Kassem and Higson 2016). The financial crisis of 2008 made it
evident that any small changes in the financial market can significantly contribute to the
going concern ability of the company. The changes in the financial market also contributed to
the downfall of Lehman Brothers and required appropriate measures to address the issue with
sufficient industry reformations. This led to the introduction of ASA 570 going concern and
the auditors are required to obtain better understanding of the audit evidences to examine the
material misstatements in financial reports because of the inadequate use of going concern