Auditing & Assurance: Analysis of Key Audit Matters and ASA 701

This report analyses and examines key audit matter matters as per the newly derived accounting standard ASA 701 that further is responsible to communicate audit matters to the auditor’s independent report of auditors. The purpose is to check the relevance of ASA 701 in association in the context of ASX organization.

Auditing & Assurance
isha chuhan

Contents
Introduction............................................................................................................................................2
Case study of Lehman Brothers.............................................................................................................2
Explanation and analysis.......................................................................................................................3
ASA 701 ASX listed company..............................................................................................................4
Key audit procedures before and after 2016..........................................................................................7
Recommendation...................................................................................................................................8
Conclusion.............................................................................................................................................8
References............................................................................................................................................10

Introduction
This report analyses and examines key audit matter matters as per the newly derived
accounting standard ASA 701 that further is responsible to communicate audit matters to the
auditor’s independent report of auditors (Brunelli, 2018). The purpose is to check the relevance
of ASA 701 in association in the context of ASX organization. It is observed that accounting
standard was undertaken at the time of global crisis (Brunelli, 2018). Apart from this, this
report mainly considers the collapse of international company “Lehman Brothers.” This
financial crisis has led to the formation of several accounting standards (Brunelli, 2018).
This report communicates main audit matters in the report of the Auditor that ensures that
financial statements have been examined properly. Firstly, this report will elaborate ASA
570 the concept of going concern and further it will undertake the understanding of audit
risk and materiality concept of Newcrest Mining Corporation Group (Mustaffa, Sannusi,
Hasan, and Saad, 2017). The significance of materiality concept is checked through the
review of audit of the financial reports of Newcrest Mining Corporation Annual report.
Further, this report will examine the crucial standards related to ASX 100-registered
organisation. These companies are among largest mining companies, which operate at the
cross-border level (Mustaffa, Sannusi, Hasan, and Saad, 2017).
Case study of Lehman Brothers
This case is regarding the bankruptcy case that has been filed by Lehman Brothers in United
States. This disruptive scandal was the biggest scandal of that time. The scandal was due to
inadequate compliance of the process of material auditing. This report will further lead to the

development of some accounting standards (Chen, and Su, 2016). Filing the case will lead to
the liquidation of bankruptcy events, which further includes the events of economic
breakdown in the year 1930 especially when the conditions started getting worst. As per
Auditing and assurance standard board, ASA 701 has been used to establish certain
regulations that directly affect the auditing and communication the main audit matters as per
the auditor`s report. The characteristics of AASB are to monitor the legitimacy and validity
of main audit matters (Chen, and Su, 2016). For analyzing, the standards are further applied to
the ASX 100 companies in the mining sector, which is related high-risk area where it should
be disclosed in independent auditor`s report. There were many loopholes, which has created
as the inadequate internal auditing and inadequate auditing has been addressed (Chen, and Su,
2016).
Explanation and analysis
It has been reported that there is a need to save ASA 701 in Lehman Brothers. As per
accounting standard ASA701, the confidential data was exposed as per the situations in the
company. Lack of application of collapse of Lehman Brothers, the company had to face
bankruptcy (Chen, and Su, 2016). Lehman Brothers has allotted loan to US people but due to
financial crisis, the market downtrodden with capital market and people who took loan from
Lehman Brothers and could not get the same return value of their houses not even similar to
that sum in March 2007 (the great depression). The case was related to suppression and
communication level of the crucial facts that was not at all less than the financial worth of the
company (Knechel, 2016). Dodges led to the failure and collapse of the company. Therefore, it

is the obligation of the auditor in relevant to pay attention to the issues of blue steel limited as
this matter will help the company to file while making the financial statements.
ASA 701 ASX listed company
Introduction of the ASA 701 conducts an application of various explanatory materials in
regards to communicating the KAM (Key audit Matters) in the auditor`s report. The
introduction reflects to conform to enhancement to the auditor`s reporting as developed by
IAASB (international Auditing and Assurance standards board) (Fu, Carson, and Simnett,
2015). The key features of ASA 701 are to make it compulsory to communicate key audit
matters while undertaking the audit of the listed entities. It will undertake to access the areas
of high risk, crucial auditor`s analytical judgement by includes management judgements and
the impact of certain transactions (Hilton, Nelson, Tunnell, Marinov, and Dig, 2017). This
standard will be applied to the audit of the financial year according to the Corporation Act,
2001. In regards to the mining sector, it is seen that companies registered under ASX such as
Newcrest Mining Corporation recognises the involvement of high-risk areas. These matters
are disclosed in the independent report auditors. Further, as per the annual report of Alumina
limited, it is seen that it is important to undertake to report the key audit matters so there can
be internal transparency, which has to be considered in ASA 701 that is quite significant in
dealing with the transactions (Hilton, Nelson, Tunnell, Marinov, and Dig, 2017). It is observed that
there is a huge scope in regards to important judgment that are further related to
communication in order to assist to all the accounting estimates finally pertaining to
transparency into the organisation. It is quite visible while considering the functioning of
AASB standards, which is used to encounter and report transactions especially when relating

to fiscal deposits. BHP Billiton group efficiently complies with the functioning of AASB
standards with its main details (Hilton, Nelson, Tunnell, Marinov, and Dig, 2017).
Some concerning organisation of ASX, Fortescue metal limited efficiently reports key audit
matters in annual reports that has to be evaluated. Management efficiently answers in order
to disclose its audit matters with the compliance of ASA 701 by providing reliable data to the
users. The main objective is to communicate key audit matters so that there will be
probability to give worth to unrestrained worth for the auditor`s reports. It will result to
greater transparency with audit and promoting the value of communication through auditor’s
report that will lead to maintaining transparency regarding KAMs. ASA 701 enforces the
transparency by describing why it is important to undertake key audit matters.
From the independent reports of lluka resources especially when the auditors are influenced
to claim specific criteria driven out by financial statements for the current period. Auditors
can provide information and they can indicate that outcome of the procedure can comply
with the observations of the results that are related to key audit matters. Further, when
determining the KAMs in Incitec Pivot when the auditors take into consideration high risks
that at last pertains to misstatement of materials (Fu, Carson, and Simnett, 2015).
Orica limited reflects accounting estimates that are identified because they are of greater
relevancy with uncertainty with the effect of occurrence through audit and its important
transaction related to specific event in specific duration. Description of each KAM (key audit
matters) while reporting for the particular period is closely associated with disclosure in the
books of accounts (Fu, Carson, and Simnett, 2015). This disclosure lays the significance of
audit with how it has to be considered while addressing Key audit matters. For instance- Key

audit matters in OZ minerals consists of those transaction, which are closely associated with
the parties and their response towards them. Auditors often undertake to evaluate risk related
to the transactions. Auditors and management faces issues while passing critical judgments
that are further reliable while disclosing, presenting, valuing, and finding the transactions
(Marques, 2019).
As per the ICAEW (2018), any wrong disclosure of the statements will regard the uncertainty
that will be reported under the new clause of ASA 701 headed under material uncertainty. In
regards to ASX listed Newcrest Corporation, the company operates with greater transparency
because of company`s exceled professional judgments that are quite significant in the audit
of reporting of the financial statements in the current year. The company has formed and
addressed the performance of the process, which is designed to response various evaluations
and assessments of risks as per the material misstatement of the report (Marques, 2019).
The company undertakes transparency in the operations by evaluating the indicators of the
impairment and the impairment reversal transactions (Bumgarner, and Vasarhelyi, 2018). By
involving valuation specialist, the company examines reasonable cash flow projections and
its related values of its prescribed unmined resources, main macroeconomic assumptions,
and the exploration of potential used for the impairment model (Marques, 2019). The
company has used external and internal experts in order to avail mine planning,
metallurgical, and technological performance that could support the main impairment
models (Bumgarner, and Vasarhelyi, 2018). It is important to examine competence, and
objective of internal and external experts as per the information as stated by the inputs
utilised while information provided in impairment model and reasonable cash flows
modeling (Marques, 2019). The company conducts transparency in regards to main

assumption related to copper prices, foreign exchange rates, mine operating costs, capital
expenditures as performed especially when sensitivity examination is the main driver of the
cash flows (Bumgarner, and Vasarhelyi, 2018). The auditors undertake to crosscheck all the
amounts that are related to all the transactional events. Further, the internal and external
auditors check the adequacy of disclosures of all the related events and non-financial assets
(Simnett, Carson, and Vanstraelen, 2016).
Key audit procedures before and after 2016
To check the reliability and appropriateness of the transactions related to mine rehabilitation
provisions, under ASA 701, the company checks the reliability of assumptions according to
the closure plans and its cost estimates (Bumgarner, and Vasarhelyi, 2018). Further, it is
observed that after 2016, Auditor`s report issued and highlighted from the observations that
the number of corporate scandals has been increasing in the industry especially related to
transparency. After 2016, while conducting audits, the company has adopted early
requirements of ASA 701 so that it could communicate key audit matters (Hilton, Nelson,
Tunnell, Marinov, and Dig, 2017). ASX 100 companies applied KAM (key audit matters) as
these audit matters are significant to the attention while performing audit. Enhanced audit
reports after 2016 monitors what actually has to considered in the Key audit matters (Knechel,
2016). The elaboration of key audit matters has to be considered as it brings out whether audit
has been addressed properly or not. With the compliance of ASA701, it is seen that ASA 720
states that auditor`s responsibilities are not limited to financial information. It is also relevant
to both financial and non-financial transparent actions of the company. Further information
will be given in organization’s annual reports as per the industry (Knechel, 2016). This

framework was issued as new and revised by the IAASB (international Auditing and
Assurance standards Board) as it requires to provide more significant and transparent on the
mining companies that they have audited. The crucial nature of key audit matters depends on
the type of industry it operates in because the organisation operates differently while
recognizing the revenues as it is likely to be software usage in the telecommunication sector
(Knechel, 2016). Whereas, Newcrest Company will have to regard several licensing rights
because of particular as it can be difficult task to determine the significance of licensing that
prohibits employing child labor and complying as per the Labour Act. Finally, it will depend
on the cash flows of company (Michelon, Patten, and Romi, 2018).
Recommendation
It is mandatory to realize that it is the responsibility of auditors to prioritize the actual
conditions of the company with the assistance of financial reports by considering the
independent auditor`s report of mining sector. The main aim of auditor is to create huge
benefit to the external and internal stakeholders from all the perspectives through
transparency. This assessment will help the company to attain greater understanding of the
financial performance of the company. It is important to derive benefits from the
stakeholders so that it will be easy to understand the investment plan. Therefore, it is
mandatory to set several standards in auditing in such a way that organization can win utmost
trust among the stakeholders. Breakdown of Lehman Brothers clearly signify that there is an
underlying procedure of audit, which is quite important and should be regulated in each
organization.

Conclusion
At last, mandatory resources will have to be provided to certain regulatory bodies so that it
could encourage the internal auditors for effective checking and management of the
practices. These regulations and its relevant practices will further ensure the need of
preparation and it also ensures the significant exemplification that has to be gathered by the
auditors.

References
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