Auditing and Assurance - Project Report

Running head: AUDITING AND ASSURANCE
AUDITING AND ASSURANCE
Name of the student
Name of the university
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EXECUTIVE SUMMARY
The project aims at evaluating the significant development made in the auditing standards and
the contribution of AUASB towards revising ISA 701 and ISA 570. The study represents the
importance of key audit matters in the independents auditors report. It represents the importance
of Going Concern in reporting standards of the independent auditor. The report takes example of
four companies from mining industry, listed under ASX in the top 100 list. The example of these
four companies is taken to show how ASA 701 and ASA 570 has been taken into account by the
independent auditors. It concludes that a separate section is utilized for giving importance to key
audit matters by the independent auditors and shows the significant aspects related to it.

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Table of Contents
1. INTRODUCTION....................................................................................................................3
2. DISCUSSION..............................................................................................................................3
2.1 REASONS BEHIND ISSUING ASA 701............................................................................3
2.2 REASONS BEHIND ISSUING ASA 570............................................................................4
2.3 COMPANIES UNDER MINING INDUSTRY....................................................................4
2.4 COMPARISION OF ASA 701 COMMUNICATING KAM IN THE INDEPENDENT
AUDITORS REPORT IN CONTEXT TO TRANSPARENCY BEFORE AND AFTER 2015.
.....................................................................................................................................................7
2.5 COMPARISION OF THE KEY AUDITOR METHOD BEFORE AND AFTER 2016 IN
THE COMPANIES.....................................................................................................................8
3. CONCLUSION..........................................................................................................................10
4. REFERENCES..........................................................................................................................11
5. APPENDIX................................................................................................................................13

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1. INTRODUCTION
Auditing and Assurance Standards Board (AUASB) is an independent entity of the
government of Australia which is responsible for the development and maintenance of the
standards of auditing and assurance. It enhances the flow and the quality of the audit (Suryanto,
Thalassinos & Thalassinos, 2017). Moreover, it is required to support the quality of the different
process of auditing and assurance while reviewing the financial reports. In addition, this board
aims to provide guidance to auditors as well as the providers of other services. The key audit
matters (KAM) as per this new standard ASA 701 of the above committee of the board is defined
as that additional information to users which are very useful in the audit report of the entity of
that relevant year (Ratzinger-Sakel & Theis, 2018).
2. DISCUSSION
2.1 REASONS BEHIND ISSUING ASA 701
As per International Auditing and Assurance Standards Board, the introductory part of
the ISA 701 reveals about the developments and improving the quality of the audit report
including certain features such as:
 Making the communication obligatory in the reports of auditing of the companies which are
listed.
 Providing the ways of describing the communication to the auditors.
 To authorize the auditors of the different entities to make opinion regarding the information
of communication which has to be included in the report of the auditor.

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 To identify the areas of the entity and those issues where immediate action of the auditor is
required.
The ASA 701 is designed to develop the auditing guidance that can help in focusing on
the welfare of the general public and can provide with best quality to the report. It also aims at
achieving the transparency about the reliability of the auditor by the investor so that they can
view the essential audit areas and keep an eye on how the auditors have dealt with such issues.
Another reason behind this is to help the people to make decision effortlessly. The new standard
has been introduced to comply with ISA 701 and so this has been started by the companies
(Iwanowic & Iwanowic, 2019).
2.2 REASONS BEHIND ISSUING ASA 570
Under the going concern, financial report is made by taking assumption that the company
is going to operate for an indefinite period. The ASA 570 talks about the duties of the auditor in
context of going concern concept. It helps in the preparation of audit report showing the
company’s chances of running operation in future smoothly (arson, 2016). The ISA 570 was
revised in the year 2015 to showcase more transparency in the auditor’s report. If management
wants to liquidate the company or ending its operation, these matters are specifically disclosed in
the financial report. When ISA 570 was revised, the going concerns became a basis of
accounting. The fundamentals of the standard relating to going concern remains unchanged in
the revised accounting standard too. The AUSB revises the ISA 570 as ASA 570. It has been
revised to include more transparency in the matters relating to going concern. ASA 570 improves
the quality of auditing. It gives clear requirements for the management to specify those matters
which are related to going concern.

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2.3 COMPANIES UNDER MINING INDUSTRY
EVOLUTION MINING LIMITED
As per the annual report of Evolution mining shows there is growth in demand of
Evolution as it is the metal used in industry worldwide. The share price of the company is going
up by for the last 2 years as the metal that the organization made is used for making machines.
PricewaterhouseCoopers is the auditing firm which acted as independent auditor for the
Evolution mining. The independent auditors report of the Evolution mining highlights the key
audit matters of the company which are:
 Exploration’s carrying value and asset valuation - The explored assets of the company were
34% of the total assets.
 Payments relating to share – shares which are backed by loan were significant expense for
the company as it includes 54% of the net loss.
The annual report of the Evolution mining is giving true and fair view as per independent
auditor’s report (Annual report 2019, 2019).

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NEWCREST MINING LIMITED
The Newcrest Mining recently acquired cheetah resources limited with its due diligence
principle and process which became a major issue for independent auditor to evaluate. The trend
in the share prices of the company is showing negative trend. It has gone down to (8-9) in the
year 2018.
Ernst and Young, the audit and assurance firm based in London worked as the
independent auditor for the Newcrest Mining.
The key audit matters disclosed in the independent auditor’s report of the company is
given below:

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The Newcrest Mining Group has sold performance rights to key managerial personnel for
paying the shares backed by loans. Payments related to shares always attract attention of
independent auditor as these are calculated on the basis of huge estimations.
The audit report prepared by Ernst and Young shows there is material misstatement in the
financial report. The independent auditing firm claims that it has not been provided all crucial
information by the directors. Auditor has asked for the clarification regarding misstatement and
if not provided in time, it would be disclosed to the public as well as per ASA (Annual report
2019, 2019).

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RIO TINTO LIMITED
PricewaterhouseCoopers being the auditing firm of the above company enacting as the
independent auditor (Annual report june 2019, 2019). The independent auditor report of the
company highlights the key audit matters (KAM) which are:
Exploration carrying value and valuation of the assets which are estimated for reduction
includes sufficient decisions regarding whether the group has capacity to work on the
expenditure. The group has shown that there is no measure of reduction during the year.

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The trends and issues relating to the company represents that the share price are marked
at 78% annually over last three years even though the balance sheet was weak. If the company
has not replaced its stock, there are chances of the increase in capital. The reason for such
statement is that the company has insufficient balance of cash over its liabilities.
The annual report prepared by the PricewaterhouseCoopers states that there is a material
misstatement in the report. It has been claimed that all the information has not been revealed by
the director. Therefore, clarification is needed for such misstatement and if not provided within
time, it would be disclosed to the public.

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BHP GROUP LIMITED
Klynveld Peat Marwick Goerdeler (KPMG) being the auditing firm of the above
company enacting as the independent auditor (Annual report june 2019, 2019). The independent
auditor report of the company highlights the key audit matters which are:

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Exploration carrying value and valuation of the assets are estimated for the reduction at
the time when there is a certainty regarding those exploration and valuation of assets which may
exceed the amount to be recovered.
The trends and issues relating to the company represents that the company is in growth
regarding their project in Australia. The organization has approved a budget of $ 3.12 million to
make fast development of the project.
The annual report prepared by the Klynveld Peat Marwick Goerdeler (KPMG) that
presents the existence of material misstatement in the report. It has been claimed by the audit
firm that all the information has not been revealed by the director. Therefore, proper clarification
is needed regarding such misstatement and if not provided within time, it would be disclosed to
the public.

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2.4 COMPARISION OF ASA 701 COMMUNICATING KAM IN THE
INDEPENDENT AUDITORS REPORT IN CONTEXT TO TRANSPARENCY
BEFORE AND AFTER 2015.
 The standard board issued ASA 701 in order to develop the auditing related guidance that
can get a clear picture regarding focusing on the welfare of the general public and can
provide best quality with a new extent to auditor’s report. According to International
Auditing and Assurance Standard Board, the standard of auditing obeys with ISA 701
communicating the additional information to users which are given by the auditors, as the
information are more significant while performing the audit of financial statement for the
relevant year.

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 The ASA 701 is different from the ISA 701 and is made to improve the quality of audit along
with the need to cope up with the law conditions of the respective country (Australia), where
the board has proposed the ideas to do so.
 The ASA 701 focuses on the responsibility of an auditor to deliver the information to the
users by guiding them to understand those matters which are useful in the audit of any
financial statement of the related year. It is meant to allocate the informed decision as to what
can be specified in the report of an audit along with the content of such information.
 The purpose of ASA 701 is to increase the deliverable amount of the report of an auditor
with a clarity about the audit that was done for that particular year. Providing the additional
information also helps the users to understand the core areas of the entity along with the
managerial decision taken place in the audited report.
2.5 COMPARISION OF THE KEY AUDITOR METHOD BEFORE AND AFTER
2016 IN THE COMPANIES.
 As per Howard Pratt, senior technical manager of AUASB, the objective of renewing the key
audit method is to share the important auditing information with the users of financial report.
 In 2016, the independent auditors of companies like Evolution Mining, Newcrest Mining,
King River Resources ltd and Winmar Resources ltd, have mentioned clearly the key audit
matters.
 After 2016, the auditors started giving valid reasons for selecting some of the matters as the
key audit matters. This practice can be clearly noticed in the independent auditors report
section within annual report of the companies.

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 The new accounting standard gives the right to independent auditor to hide some of the key
audit matters if the disclosure is against the interest of public. The auditor cannot use this
right if the aforesaid matters have already been disclosed by the company (Prasad. 2017).
 The new standard of key audit matters includes the important issues of going concern. Any
happening or event which is hampering company’s ability to continue for longer term as per
going concern concept (ASA 570), should be considered as the key audit matters by the
independent auditors. The auditors must validate these matters as per the concerned auditing
standards and report it accordingly. The auditor then supposed to give his report as adverse or
material uncertainty as per his research (Nwaobia Luke & Theophilus, 2016).
 Now, auditors use a separate section to report the matters related to Material Misstatement
related to Going Concern. Material Misstatement means the matters which shows there is
uncertainty for the company to continue its operation in long term.
 The auditor responsibility has been clarified in the new standard. The auditor is supposed to
assess the risk, evaluates the internal control matters and the matters related to going concern.
He should disclose each matter which comes under the rules and regulation of the standard
and the key audit matters relating to it.
 The auditor will include the matters in the documentation which required his major attention
to consider that if the matter is KAM or not. If he has not taken any key auditing matters or if
he hidden any key auditing matter, he should also include the same in the documentation.
3. CONCLUSION
Thus, from the above discussion it can be concluded that the new auditing standard ASA
701 providing the important matters, to users has been progressed all over the world. The reason
behind introducing this new standard has been elaborated and specified how it reveals the

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transparency about the reliability of the auditor by the investor. In addition, the burden or it can
be said the authority of work of the auditors has been added on but on the other hand it has
resulted in winning the trust of the people in the audited reports.
4. REFERENCES
Annual report 2019. (2019). Evolution Mining, pp.1-84. Available at:
http://www.Evolutionmining.com/wp-content/uploads/2019/09/TGN-190920-Annual-Report-
2019.pdf [Accessed 16 Jan. 2020].
annual report 2019. (2019). Newcrest Mining limited, pp.1-50. Available at:
https://www.asx.com.au/asxpdf/20190927/pdf/448ympqcqbfq83.pdf [Accessed 16 Jan. 2020].
Annual report june 2019. (2019). (pp. 1-51). Retrieved from
https://kingriverresources.com.au/wp-content/uploads/austocks/krr/
2019_09_06_KRR_06b8deccd2ebfeb930e6f59906c1b6bc.pdf
Annual report june 2019. (2019). (pp. 1-80). Retrieved from
https://www.asx.com.au/asxpdf/20190916/pdf/448ksn6hk07d0y.pdf
arson, E., Fargher, N. and Zhang, Y., 2016. Trends in auditor reporting in Australia: a synthesis
and opportunities for research. Australian Accounting Review, 26(3), pp.226-242.
Carson, E., Fargher, N. and Zhang, Y., 2016. Trends in auditor reporting in Australia: a synthesis
and opportunities for research. Australian Accounting Review, 26(3), pp.226-242.
Iwanowicz, T. and Iwanowicz, B., 2019. ISA 701 and Materiality Disclosure as Methods to
Minimize the Audit Expectation Gap. Journal of Risk and Financial Management, 12(4), p.161.

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Nwaobia, A.N., Luke, O. and Theophilus, A.A., 2016. The new auditors’ reporting standards and
the audit expectation gap. International Journal of Advanced Academic Research, 2(11), pp.118-
133.
Prasad, P. and Chand, P., 2017. The Changing Face of the Auditor's Report: Implications for
Suppliers and Users of Financial Statements. Australian Accounting Review, 27(4), pp.348-367.
Ratzinger-Sakel, N.V. and Theis, J., 2018. Does considering key audit matters affect auditor
judgment performance?
Suryanto, T., Thalassinos, E.J. and Thalassinos, I.E., 2017. Board Characteristics, Audit
Committee and Audit Quality: The Case of Indonesia. International Journal of Economics &
Business Administration, 5(3), pp.47-57.

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5. APPENDIX

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