Auditing and Assurance

This report provides an overview of auditing and assurance, including its value in economic decision-making. It discusses the Lehman Brothers case and the significance of the new auditing standard ASA 701. The report also examines key audit matters in the mining industry.

Running head: Auditing and Assurance
Auditing and Assurance
Name of the Student
Name of the University
Author Note

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Auditing and Assurance
Executive Summary
The report concludes about the auditing and how it can make a value to the economic
decision of the user. It also shows a brief description about the Lehman Brothers case and
also the importance of the new standard. It also suggest about the detail of ASA 701. It also
contain an details of the key audit matter of the company under the mining industry.

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Table of Contents
Introduction................................................................................................................................4
ASA 701: Rationales..................................................................................................................5
ASA 701: Explanation...............................................................................................................7
KAMs of the Australian Mining Industry..................................................................................7
Downer Edi Limited...............................................................................................................7
BHP Group Limited...............................................................................................................8
Evolution Mining Limited......................................................................................................8
Newcrest Mining Limited......................................................................................................9
Whiteheaven Coal..................................................................................................................9
Conclusion and Recommendations..........................................................................................10
Reference..................................................................................................................................11

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Introduction
The company issue its financial statement for the user then it will able to know how
the company is performing its business in the market. The user does not able to know
whether the company is giving the real value of its asset or not so for the consideration the
need of the auditing process has come as this process help the user to know whether the
company have given sufficient and correct information or not (Azim 2013). Auditing process
is been carried by the external person name as auditor who check all the financial statement
of the company and gives its opinion that whether the financial statement are showing true
and fair view or not (Barton and Bruder 2014). It can be said auditor carry many process in
the company then it able to get better picture of the company financial position and also the
audited balance sheet serves as a confident of the public upon the company. As seen in the
recent times then auditor has lost its respect in the public and no one is ready to feel safe by
reading the audited balance sheet of the company. This is because of many business has
collapse in the recent years and also for such a big loss to the money of public. It is been
seen by the regulation and due to these the need of the new auditing standard have taken
place as it will help the auditor to carry audit process more easily and also it will help them to
gain back the confidence of the public upon the audit profession (Carson, Zhang and Fargher
2014). Australian Accounting Standard Board have issued new standard then will able get
back the public respect upon the validity of the standards. The standard which is been is
issued is ASA 701 as it contain details about the matters of “Communicating Key Audit
Matters in the Independent Auditor’s Report. It contains an paragraph which have been able
to remove many regulation and also ASA501 standard which was in regards of the going
concern concept of the company. The report show about how the auditing standard have
came in the picture of accounting and also what are the points which are been listed in the
standard. It also consist of the key audit matters which are been seen in the financial reporting

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of the company as it help the user to know what was the thinking of the auditor in related to
these matters (DeFond and Zhang 2014). It contain the key audit matters of the company
doing business in mining industry.
ASA 701: Rationales
As per the case of the Lehman Brothers it can be said that the downfall was due to the
auditor of the company. As the auditor didn’t able to know the risk which was associated in
the business of the company and due to these the downfall of the company have occur. It was
known that the Lehman Brothers management was already involve in some weird and
doubtful stuff which can affect the financial position of the company (Furnham and Gunter
2015). As per the case of the Lehman Brothers it is seen that they have used Repo rate to
overvalue the asset of the company so that it will able to show the financial position of the
company more good than what is it in real. By the use of the Repo rate it able to show an
increase of $50 billion in the financial reporting of the company (Griffiths 2016). The
auditing process is been carried by the auditor is all the levels of the management and it able
to know that the company is having such kind of fraud but still the auditor of the company
gave Lehman Brothers an Unqualified Report which proves that there is no material
misstatement in the company and its financial statement are showing true and fair view of the
company. It also become one of the big reason in regards of the downfall of the Lehman
Brothers Business and also for the crisis which happen in the year 2008 (Knechel, and
Salterio 2016).
This are reason which let the Australian Accounting Standard Board to come up with
the new standard so it is because the ASA 701 come in the picture of the auditor. ASA 701 it
contain a paragraph which states some regulation and rules which the auditor should follow
while doing the audit of the company financial statements (Kumar and Sharma 2015). The
auditor should carry audit of the company for a specific purpose and for a specific time

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period. This type of the rules were not there at the time of the Lehman Brothers case. The
rules are made so that it will able to clear and minimize the gap of the auditing process which
took place after the Lehman Brothers case. The auditor carries auditing process and find
some information which the auditor thing is a risk fact so that should be disclosed by the
auditor in its audit report as it is been mention in ASA 701. The information which the
auditor put in the report help it to make more clear audit process and as a result it able to give
a better opinion upon the financial statement of the company. This kind of reporting system
was not been there at the time of Lehman Brothers case. The auditor should also do upon the
estimation and judgement which is been done by the company in regards of the accounting
policy. So this should be recorded in the report as this rules was also not there at the time of
the Lehman Brothers case. So due to lack of such provision only the downfall of the Lehman
Brothers took place as the auditor not disclose any material risks which was there in the
business of the company. So as the auditing is been done by the auditor so they lost their
respect in the eyes of the public. So due to all these reason the need of the new accounting
standard have came as it will help the auditor to provide better information to the financial
users of the company (Peytcheva, Wright and Majoor 2014).
In the case of Lehman Brothers case the auditor by caring its audit process still unable
to get the process capability of the company in related to the business future needs. The going
concern not always true as the company can get a huge loss in the short span timing as it is
been seen in the case of the Lehman Brothers and also the financial crisis which took place in
2008 (Power and Gendron 2015). So the company got some much amount of loss in short
period time that it make the downfall of the business so it is very hard to know the concept of
the going concern in regards of the business of the company. So as because of this reason the
new standard came as it imposed restriction upon such concept so that the economy does not
have to see again such kind of the downfall no financial crisis should not be come in the

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future years. So this standard does not take into consideration about the going concern
concept as it should be available to the company in regards of the business risk of the
company. So as per this rules and regulation the auditor will able to stop in future any
collapse as the Lehman Brother case (William Jr, Glover and Prawitt 2016).
ASA 701: Explanation
The auditor can able to provide a more detail audit report to the financial user with the
help of ASA 701. The standard is governed by IAASB (Xu et al., 2013). This standard
creates a chain between the key audit matters of the company and the auditor report of the
company. It creates a link in between the both analysis of the company. The rules which are
been given in ASA 701 are shown below:
 Help in providing details of the key audit matters of the company
 Detailed explanation in regards of the key audit matters of the company
 Built a line of communication between auditor report and key audit matter of the
company (Zakari 2013).
 Help the company to know about the process of key audit matters
 Improvement related to the documentation of the company information
 It specific about the content of the key audit matters of the company.
KAMs of the Australian Mining Industry
The report is upon the company related to the mining industry which are been listed in
Australian Stock Exchange. It contains an analysis of the different company key audit matters
and how the auditor has shown them in the annual report of the company.
Downer Edi Limited
The company annual report has contained a paragraph related to the key audit matters.
As per the auditor the key audit matters in the company are related to recognition of the

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revenue, valuation related to the goodwill and also takes into consideration of the adjustment
in AASB 15 and also the entities acquisitions (Downergroup.com. 2019). The first part of the
key audit matter contain about the judgement and estimation which is been found a bit
complex to the auditor. Sampling and other methods are been used by the auditor in respect
of the matter which the auditor took as a risk matter. CGU method is been used by the auditor
in regards of the valuation of the goodwill. It also carry many types of procedure in related to
the impairment structure of the goodwill, it also checked the accuracy of the company with
regards to the budget forecasting, decision regarding the impairment process and also took
many other process in to the audit procedure. The company have used complex method in
regards of the acquisition, size regarding the same and also about the finalizing method of
process (Zhang, Yang and Appelbaum 2015). The company has just adopted this process so it
is been consider an risk matter for the company by the auditor.
BHP Group Limited
The annual report of the company suggests that the company had two key audit
matters as per the auditor. The key audit matter of the company is related to the allocation
and demonstration of the Onshore Us assets, closure and rehabilitation of the provision and
also the estimation in regard of the asset (Bhp.com. 2019). It was consider by the auditor that
the process which is been used by the company is not appropriate and also the method which
the company have used in regards of the reduction of the corporate income is not fair and
true. The auditor have carry its audit process in related to above mention points and also have
checked the assertion which the company have taken in regards of the contingent liabilities.
Evolution Mining Limited
The annual report show that the company have two key audit matters as per the
auditor of the company. The key audit matters in the company are the process of the
valuation which was used in the case of Mungari and Cowal and the process of calculation

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which the company have used related to the asset carrying value. The case is been treated as
an key audit matter as it hold most of the part of the company (Evolutionmining.com.au.
2019). The auditor is not able to know or get the judgements which the company has taken
related to the matter and size and amount of the mine development. It have carry many types
of the process in the company so that it able to know more about the matters which it is been
listed above. It also check the matters of the judgement which was taken by the company in
regards of the CGU impairment charges. The auditor also checks the impairment indicator of
the company so it can able to gather many more information of the company impairment
value.
Newcrest Mining Limited
The annual report suggests that there are some key audit matters in the company as
per the auditor of the company (Newcrest.com.au. 2019). The key audit matter of the
company is taxation scheme, mine rehabilitation provision and carrying process of the non-
current asset. It have carry all the audit procedure related to the company key audit matters so
that it can bale to know that whether the company have any impairment charges in the
financial reporting or not. The auditor also carry many process to check the tax effects in the
company and also the complex estimation which then company have taken in regards of the
indicator of the impairment of the company.
Whiteheaven Coal
The annual report of the company suggests that there are several key audit matters in
the company as per the auditor of the company. The key audit matter of the company is
closure provision and rehabilitation of the mine and impairment related to the plant, property
and equipment (Whitehavencoal.com.au. 2019). As this matter have most affects in the
financial statement so that it the reason the auditor have taken it as key audit matter. The
auditor have carry process so that it can able to evaluate the judgement and the estimation

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which the company have taken in regards of the impairment of the asset. It checks whether
the company have follow all the rules and regulation related to the accounting policy or not.
It can be seen that the auditor have carry all the process to find the risk in the
company it had carry many procedure in regards of ASA 701. It check the assumption in
regards with the company financial statement, it also check the internal management of the
company. The auditor of the company has followed all the regulation of ASA 701 for finding
the risk in the business of the company.
Conclusion and Recommendations
It concludes as the audit which is been carry upon the company financial statement as
it check whether the financial statement are showing true and fair view or not. The auditor
carries many types of the procedure so that it able to judge the risk associated with the
company or not. The discussion which is been given above shows that the due to collapse of
the business house, the auditor have lost all their respect in the eyes of the public. So due to
these the Australian Accounting Standard Board comes up with the new accounting standard
ASA 701 as this help the auditor to give more detail explanation in regards of the company
business risk and also how the company is able to overcome those matter which is been listed
by the auditor in the annual report. Some recommendation to the auditors as:
 Audit should perform all the procedure so that it able to assess the risk and able to
record the same in the financial statement of the company
 It should give a detail explanation of the all the important matters in the auditor report
and should form its opinion upon those matter.
 The auditor should follow the standard ASA 701 and should carry its audit process
and should give its audit report upon the basic of ASA 701.

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Reference
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