Analysis of ASA 701 and Key Auditing Matters in Telecommunications Industry

This report provides an analysis of ASA 701 and its use in the telecommunications industry. It discusses the key auditing matters and their impact on the industry. Case studies of two relevant companies are also included.

Running head: AUDITING.
AUDITING
Name of the Student
Name of the University
Author Note

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Executive Summary
The end of 2015 witnessed the introduction of a new standard named ASA 701, which was
related to the Key auditing matters. Since then, it has become the essential duty of the firm to
outline all the critical audit matters in their annual reports. This section of the report is
independently laid down by the different auditor firms present. The report describes an analysis
of the ASA 701 and its use. In addition to this, the case of two relevant companies in the
telecommunications industry in Australia has been undertaken, and an analysis of the same has
been done.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Analysis...........................................................................................................................................4
TPG Limited................................................................................................................................4
Telstra..........................................................................................................................................5
Recommendations............................................................................................................................7
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

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Introduction
In the field of Auditing, the critical audit matters are defined as matters which requires a
professional judgement of an auditor because they can be considered to be relevantly crucial for
the future success of the firm. The critical audit matters are generally detected from the
individual issues of a firm by the different parties who are charged for the overall management of
the firm. The primary aim of the report can be stated to be to identify the global importance of
the new Australian Board Standard, the ASA 701 (Altawalbeh and Alhajaya, 2019). The report
will be highlighting the overall Key Audit matters, which are generally existent in an
organisation and additionally outline how the different auditors would be required to deal with
the Key Auditing matters. Moreover, in line of this, the crucial points of the ASA 701 and the
various critical audit matters will be outlined by the different independent auditors (Carson,
Fargher and Zhang, 2016). The industry which has been primarily chosen for the report can be
stated to be the Telecommunications industry whereby the different companies and their manner
of dealing with the Key Auditing matters shall be outlined.
Discussion
As per the new standard, ASA 701, the Key Auditing Matters can be primarily
understood to be these matters which tend to hold utmost importance based on the personal
judgement which the auditor tends to undertake (Cosserat, and Rodda, 2004). The decision
which is being conducted by the auditor can be understood to be after the review of the overall
financial statements of the firm for a particular time frame. The auditors aim to identify the
fundamental auditing matters is to protect the organisation against any unseen circumstances.
The different highlights of the new standard can be mentioned to be as follows:
 The various Key Audit Matters are mostly mentioned in the different reports as listed by
the company so that the investors can gain an understanding of the same (Sheikh, 2019).
 It also seeks to enable the different auditors to inform the entity to take individual
decisions and ensure that the Key Audit matters are necessarily included in the various
reports of the firm (Knechel and Salterio ,2016).
 In addition to this, it also lies the prime duty of the Key auditors to consider the different
areas of risk, which tend to require additional assessment (Simunic, 1984). Moreover, the
management will be necessarily required to follow the guidance of the different auditors
as provided.
 Moreover, the documentation for the Auditing of the Key Auditing Matters will also be
required to be done effectively (Griffiths, 2016).
 All companies preparing their report after the period of 15th December 2016, would be
required to make their reports accordingly as per the new standard.
 The main focus of the firm must always like to ensure transparency in the overall
operations of the firm.
In line with the ASA 701, there exists another policy which can be named as the ASA 570
and provides adequate guidelines to the different auditors concerning the overall responsibilities
of the managers of a firm. Moreover, it guides them to follow the Going Concern basis, which
will then assist them in preparing their reports and financial statements accordingly (Groomer
and Murthy, 2018). The auditing standard has stated that when an auditor conducts the risk

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assessment, then they are required to guide the management concerning the overall capability of
the firm to undergo the particular concern.
According to Knechel and Salterio (2016), a popular case where the Auditing principles and
guidelines were adequately breached can be stated to be the case related to the issue of the
Lehman Brother downfall. The company filed for bankruptcy in the year 200, and since then, the
financial market has never been the same. Initially, the firm had $639 billion in assets and $620
billion in the debts. However, due to the lack of auditing procedure and overlooking in the
different processes, the auditors were unable to predict the ultimate downfall.
The Lehman brothers belonged to a humble background ultimately and grew up to be one of
the largest firms as present around the globe (Kachelmeier, Schmidt and Valentine, 2017). The
firm incurred its first loss when it got into the US housing acquisition, which initially went under
a boom period but later on suffered a considerable loss. It should have been the primary duty of
the different auditors to inform the firm about the ultimate loss which it would have suffered, but
as it was unable to do this, the Lehman Brothers suffered. (Köhler, Ratzinger-Sakel and Theis,
2016).
Analysis
The industry which has been selected for the investigation has been chosen as the
Telecommunications Industry (Sánchez-Medina, 2019). The telecommunications industry is one
of the most popular sectors as present in Australia, and this is the reason why the report plans to
undergo into an overall examination of how the firm tends to deal with the Key Audit matters
which are identified by the auditors. The two leading companies which will be analysed in the
given section can be stated to be the Telstra and the TPG Limited.
TPG Limited
The annual report of TPG mentions that the Key Auditing matters can be primarily
understood to be those matters which the different auditors provide utmost importance to. The
principal auditors form this perception on the overall report and form their overall opinion
regarding the same.The various issues identified are as follows:
Revenue IT System Processes and Controls ($2495 m)
The significant share of the group's revenue primarily relates to the provision of the
telecommunications services for the different consumers as present. These operations are mainly
managed by the IT Systems and related control aspects of the firm. The particular issue has been
taken up as the fundamental auditing matter because it requires a significant amount of audit
effort which arises from related risk arising from the different IT systems. The organisation has
a considerable amount of services which provides adequate operations to the various customers.
As the market for communications is considerably competitive, the different plans, as well as
functions of the firm, keep changing. The auditing team mentioned that the testing of these
factors would require complexity and requires IT specialists in the process.
The auditing team, as a solution to this, decided to work with the IT Specialists and took
the given steps to ensure success:
 The automatic and manual generated IT initiatives were analysed considerably to analyse
the overall billing systems and the multi-level subsystems. The different controls, as

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present with the firm like the programs and data along with the global operations of the
firm, were considerably tested (Vik and Walter, 2017).
 Moreover, the end to end reconciliation control also went a considerable review. The
significant journal entries went under a great test to examine the overall accuracy as well
as consistency of the books of an accountant.
 The system configuration also went under a critical test which helped to examine the
overall accuracy and checked the agreed rate charge plans in the system to find the
published rate card.
Carrying the value of Goodwill
The next matter which was primarily considered to be the Key Audit matter was the
Carrying Value of the Goodwill. The reason why the Carrying value of the Goodwill was
recognised as a Key Audit Matter is that the size of the Goodwill of the firm can be considered to
be $1911 million which can be considered to be a large amount and the tremendous asset of the
firm. In addition to this, the complexity of the Auditing forward-looking estimates the underlying
valuation models that are highly subject to the significant level of judgement. As the industry
operates in a considerably complex business environment, the market is very competitive, and in
line of this, there may be considerable risks associated with the business forecasts as well
(Tpg.com.au, 2019).
Hence, in line of this, the firm made use of recoverability assessments which comprised
of the critical assumptions relating to the Average Margin Per user and the service costs which
include of the overall market share of the group, pricing and related margins. In addition to this,
the discount rates are generally applied to the forecast cash flows as well as the different
assumptions underlying the overall growth of the firm (Tiron-Tudor et al. ,2018).
These matters are dealt with by the auditing teams by assessing the assumptions of the
forecast growth rates, terminal growth rates, AMPU and service costs, which also comprise of
the market share of the group. The auditing company compared the relevant data in valuation;
additionally, the comparison of forecasts for the new market and related market share. In
addition to this, an assessment of the price analysis and the sensitivity analysis also has to be
made. Moreover, the overall evaluation of the group's historical forecasting accuracy is also
required to be made.
The auditing team also engaged in essential initiatives which helped them to work with
the valued specialists, in addition to this, the firm also worked on qualitative as well as
quantitative disclosures about comparing the overall operation of the firm.
Telstra
The different Key Audit matters which could primarily be identified in the annual reports
of the firm can be stated to be as follows:
Revenue Recognition
The reason why the Revenue Recognition is understood to be a crucial Key Audit Matter
can be because accounting for the new products as well as the services requires multiple
arrangements, it accounts for Large Network Application Services, accounting for the NBN

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revenue under the revised agreement (Telstra.com.au, 2019). The accuracy and the completeness
of the amounts recorded as revenue can be considered to be comparatively very risky due to the
complexity of the billing system.
Hence, in order to ensure that the firm will be successfully able to attain overall success
in the long run, the auditors undertook considerable testing, evaluation, obtaining, as well as
ensuring significant future forecasts which will help them to assess a sample of the recorded
revenue and lastly also compared the historical results with that of the future. Hence, by
undertaking these initiatives, the firm will be able to understand the mannerism in which the
revenue is being recognised (Telstra.com.au, 2019).
Reliance on automated processes and controls
As the overall operations of the firm are hugely reliant on the IT systems, the given
scenario can be understood to be a critical audit matter because the complex IT environment
drives the different business processes. Additionally, the mix of manual and automated controls
help in carrying out the business operations; the multiple internal and outsourced support helps in
support arrangement, and in addition to this, the overall complexity of the billing systems are
related (Sirois, Bédard and Bera, 2018). The audit team is required to come up with a solution for
the particular scenario and needs to assess the manual as well as the automated controls relating
to the Information Technology system, and in line of this, they also evaluate the impact of the
audit on the policies so that they will be successfully able to identify the effects.
Impairment of Goodwill and tangible assets
As the industry in which the firm operates in can be stated to be highly dynamic, it can be
considered to be relatively crucial for the firm to ensure that, it is successfully able to check out
if there exists a physical impairment to the Goodwill. Hence, the particular issue is often
considered to be Key auditing matter because, as the problem involves significant judgement
regarding the overall operations of the firm.
The audit team to deal with the particular issue as present tends to evaluate the overall
calculations of the group concerning the impairment and in addition to this, the business will also
be able to carry out the indicator assessment to understand the indicators of impairment. The
reasonableness of the Board approved cash flow projections were also undertaken to determine
the overall cash flow forecasts.
Capitalisation and asset lives
The crucial next audit matter which a firm generally seeks to consider can be stated to be
the Capitalisation and asset lives. Various areas are present in the domain of the business, which
impacts the overall carrying value of the property. Hence, there lie various crucial decisions
which are required to be undertaken by the company like the decision related to the total expense
costs, the annual life review, and the timeliness of the transfer of the assets in the course of
construction.
The given Key Audit Matter was solved by assessing the effectiveness of the overall
Group controls over the disposal of assets, evaluation of capitalisation properties, assessment of
the appropriateness of asset lives and underlying the nature of the underlying costs capitalised.
AASB 15 Revenue

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The particular standard can be considered to be a comparatively new standard as it helps
in the disclosure of the expected financial impact. Moreover, as the products and services which
are offered by the firm can be understood to be comparatively very complex and hence, requires
considerable judgement concerning the same. The effectiveness of the key issues will be
undertaken, and the appropriateness of the overall methods used to determine the same will also
be disclosed.
Recommendations
Therefore, from the given analysis, the following aspects could be analysed, and the
recommendations based on the following issues could be rightfully determined:
 Auditing forms a considerate part of the organisation, and concerning this, if the firm
wants to ensure long term success then, the different financial statements and overall
operations of the firm need to be Auditing accordingly (Arens, Elder and Mark, 2012).
 Moreover, the critical audit matters can be considered to be a crucial part of the
workplace, and in line of this, the firm as present in the complex business environment
would be required to undertake the Key audit matters into consideration and they will
also be able to gain success (Arens et al., 2000).
 In addition to those, there should exist an internal audit committee which will assist the
external audit team in assisting them to perform well and ensure all their goals are
achieved.
 The firm is required to essentially cooperate with the external auditors to ensure success
with respect to the firm.
Conclusion
Hence, from the given analysis, it could be understood that Auditing tends to form a
crucial part of the organisation and if a firm aims to find considerable success in the long run,
then in such a case, the business would be required to ensure that it is successfully able to meet
with the different needs and continue the business operations with governance and transparency.
The new standard ASA 701 has been developed which outlines the Standard related to the Key
Audit Matters. The case of the telecommunications industry was undertaken whereby , the
critical audit matters were identified, and how the organisation deals with these matters was also
prescribed. It is understood that it lies the duty of the audit team to outline the different issues of
concern to the government but also helps them in overcoming these issues.

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