Auditing Theory and Practice

This study explores the impact of various events on the audit process of Telstra. It discusses the adoption of big data, earning liquidation, corporate governance framework, and legal obligations. The study analyzes the risks associated with these events and their impact on the audit report. It also highlights the importance of ethical value and transparency in the audit process. The findings provide valuable insights for auditors and stakeholders.

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
Name of the Student:
Name of the University:
Author’s Note:

1
AUDITING THEORY AND PRACTICE
Executive Summary
The study has provided idea on the risk analysis through identifying 4 different events that
have occurred into the Telstra. These events are analysed to identify the effect of those events
on the audit process of the company. The study includes the identification of misconduct and
scope of misinterpretation of the financial information due to misstatement of the transaction.
This identifies the effect of the misconduct into the corporate governance on the audit
process. Lastly, the study explains the effect of material misstatement on the audit report and
the impact on the stakeholders.

2
AUDITING THEORY AND PRACTICE
Table of Contents
Introduction................................................................................................................................3
Discussion on four events and impact on the audit....................................................................3
Risk and impact..........................................................................................................................7
Conclusion..................................................................................................................................9
References................................................................................................................................10

3
AUDITING THEORY AND PRACTICE
Introduction
Auditing has been a process of recognising errors and rectifying them through making
changes into the accounting books. Therefore, audit is a systematic and independent
examination of books, accounts, statutory records, documents and vouchers of an
organization to ascertain how far the financial statements as well as non-financial disclosures
represent a true and fair view of the concern. The auditing has been done after formulating
the books of accounts and the financial statements. Hence Auditing can be identified as an
individual process. However, this process gets affected due to different activities that the
company undertakes or the events that happens with the company into a specified financial
period. Hence for the better understanding the study has identified 4 different events that has
put impact on the audit process of the Telstra and the risk that has generated from the events
and effect of the evidence mix for the planning of the audit of TELSTRA.
Discussion on four events and impact on the audit
1st event
Adoption of Big data process affecting audit process
In recent times the company has adopted big data process to maintain and analyse the
financial information of the company. This process has been integrated with the company’s
auditing process where the company became more effective in maintain the audit report. This
helps the company to make a faster audit report where the auditor access information more
easy and faster way. With the rapid growth of big data analytics across the world, the process
has helped the accounting process through reducing the mistakes in recording. As a result of
which this has helped the auditor to reduce the audit risk. This has transformed the audit
process for the company through maintaining a high quality audit report. While the
profession has long recognized the impact of data analysis on enhancing the quality and

4
AUDITING THEORY AND PRACTICE
relevance of the audit, mainstream use of this technique has been hampered due to a lack of
efficient technology solutions, problems with data capture and concerns about privacy.
However, recent technology advancements in big data and analytics are providing an
opportunity to the company to rethink the way in which an audit can be executed
(Telstra.com.au, 2019). Hence, in the recent time with the adoption of the Big data
technology the company has realised a transformation into their audit process. With the
adoption of the big data process the transformed audit would expand from sample based
testing to include the analysis of the entire financial information using higher audit evidences
and more relevant business insights. This process of analysis has enabled the auditor of the
company to identify better financial reporting, fraud, an operational risk and tailor their
approach to deliver more relevant audit (Cao, Chychyla and Stewart 2015). This has helped
the auditor to formulate more effective audit report through which the ethical value has been
enhanced. This has been expected by the company that from 2019 to 2024 the big data
process would enable the auditors to formulate a 100% accurate audit report where no
misstatement would take place (Openpr.com, 2019). Integrating the audit report with the Big
data process has helped the company to increase the effectiveness of the audit report for the
stakeholders.
2nd event
Earning liquidation affecting audit report
In the recent times this has been seen that the company has hit the 1.5 billion pay per
day on cash basis. This refers to the increase in the cash positioning for the company. The
company has realised a huge cash earning from selling of their property asset. This would
affect the dividend holders as the dividend holders are only interested in the cash dividend
(Chevalier et al., 2016). This refers to the increase in the liquidation position for the

5
AUDITING THEORY AND PRACTICE
company. Earning cash through selling the property assets has reduced the fixed assets
position for the company. This includes the reduction in the company’s valuation. However,
the total assets would remain high the company has earned a high profit through the cash
earing. With the change in position of the assets the company realises change in balance
sheet. This means this would affect the company’s audit report. However the decision has
been taken by the board to reduce the fixed assets through property selling to realise more
cash for the dividend holders (Li et al., 2017). With the change in company’s policies the
audit process gets affected. This affects the company’s financial report as a result of which
the auditor makes changes into their audit report. Hence, from this event this can be said that
the company’s financial decision affects the audit process of the company. This might
involve an adoption of the extensive audit process for a certain period of time. The change of
company’s profit earning agenda would affect the audit report as a result of which the audit
process gets affected (Fool.com.au, 2019).
3rd event
Corporate Governance framework in Telstra
The corporate governance refers to the principles that the company is following to
attain the sustainability into their business process. Hence, for the same reason Telstra also
follows a good corporate governance in order to attain sustainability (Al-Janadi et al., 2016).
The company believes in maintaining transparency and accountability into their audit
process. This has been recognised that, in recent times the company has adopted a new
governance framework where the corporate governance has been integrated with the audit
and risk committee, Remuneration committee and nomination committee. This has been done
to achieve an effective corporate governance for the stake holders of the company. The frame
work brings ethical value into the auditing which reduces the material misstatement in to the

6
AUDITING THEORY AND PRACTICE
financial reporting. The frame work provides structure into the audit report through
formulating strategy and business objective. This helps in formulating a transparent audit
report. The framework includes the formulation of the policies for the reporting criteria and
maintain the audit report. However, this also includes the record maintenance process where
the high ethical value has been given towards the maintenance of books of accounts. It
provides a great accountability into the audit framework and strengthens the audit framework
through generating ethical value into the audit report. Telstra management risk committee is
responsible of providing more detailed and timely insight and understanding of Telstra’s key
risks and controls. This has been also considered as the form of review and risk management
responsibilities. Here the committee is liable to report the review of the risk to the to the
board and audit risk committee. With the development of this committee this strengthens the
frame work to develop a fair audit report (Cannon and Bedard 2016). Also core to the
company’s framework are the activities that they have undertaken to monitor and review its
design and implementation. They conducts reviews and self-assessments of their framework
across the enterprise and reports the results to their management risk committee and the audit
& risk committee. With the development of the audit process the framework has modified the
audit process of the company. The framework has been designed and implemented to review
via “Three lines of defence accountability model” through involving the business operational
management and business as their audit function. Telstra’s management committee is an
internal audit forum where the internal loopholes has been reviewed by the committed. With
the development of this committee the company has achieved an effective internal audit
process where the misconduct has reduced to null (Ethical Boardroom, 2019).
4th event
Legal obligation effecting audit

7
AUDITING THEORY AND PRACTICE
The company has recently faced a legal obligation due to the 3rd party bill payment. In
this case this has been seen that the company has faced a legal issue with the DCB where the
DCB has been the marketing partner for the company. DCB has been with the responsibility
to market and receive payment through online. For the purpose of the digitalization the
company establishes a long term relationship with the DCB. However, with the breach of
ethical value the company has been into the lawsuit. DCB has been with the responsibility of
providing direct carrier billing service on behalf of the Telstra. However, the wrong
representation of the transaction report and changing unjustified charges from the consumer
has generated a wrong transaction record for the Telstra. With the generation of the wrong
transaction report this has affected the audit process (Cao et al., 2018). This results in wrong
interpretation of the transactional value and the actual payment. As the misstatement has been
done into the transaction record this has generated a misstatement into the financial
statement. This has resulted in misstatement into the audit report as well. As a result of which
the stakeholders gets reduced with their data interpretation opportunity. With the wrong
representation of the financial information the misinterpretation in financial report has been
done for a long time where the actual profit or performance could not be recognised. With the
misconduct into the process of transaction record this has generated risk into the audit
management process. For long period of time the audit process in the Telstra become
unethical till the date of law suit. However, with the recent implication of the transaction
management where the company has stopped managing transaction through the 3rd party
marketing agency has improved their audit report and audit quality (channelworld.in, 2019).
Risk and impact
1st event
The risk associated with the adoption of the big data is the understanding of the
implication of the big data. Auditors may not have the knowledge of accessing the system

8
AUDITING THEORY AND PRACTICE
which would generated an inability of using the process. The lack of knowledge would
enhance the possibility of material misstatement and enhances the possibility of wrong
interpretation of the information.
2nd event
With the sudden increase in liquidation this could generate a risk of company’s
valuation as the company losses more fixed assets compared to current assets. At the time of
valuing the company, the company would realise more liquidation position. On the other side
this would reduce the company’s economic value as a result of which the company would
lose the sustainability into the market. Along with that the auditor would find this difficult to
measure the company’s current value as the company will have more assets but the fixed
assets would represent a lower value (de Souza 2016).
3rd event
On one hand the corporate governance frame work helps in reducing the ethical
dilemma through generating an effective review system but on the other hand this generates
risk into audit management process. As the process fully dependent on the management risk
committee hence the whole responsibility lies on the committee experts. If the experts fails to
recognise any mistake or fails to attain a proper review and measurement process, this would
generate risk into the ethical representation of the audit report.
4th event
The risk has been analysed and associated with the 3rd party bill payment. Since, risk
has been realised due to the misstatement of the transaction value this has generated a wrong
representation of the audit report (Adams 2017). As a result of this Telstra’s audit report has
represented a wrong fair value of the transactions. Because of the misconduct, the audit report

9
AUDITING THEORY AND PRACTICE
has lost their ethical value and represented a misstated value to the stake holders for a longer
period of time.
Conclusion
The study has provided idea on the misconduct in audit which has generated risk into
the audit process. The study has undertaken an analysis of 4 events that have occurred into
Telstra during the period of 2018 to 2019. The analysis has helped the study to identify the
risk that has generated due to those events and analysed the impact of those risks on the
auditing. The study explains those risk from the point of view of audit risk and analysed the
impact of those risk on the auditing. The risks are being discussed depending on the
occurrence of the different events which has affected the audit report and the audit process
however the events are being analysed to identify their impact on the evidence mix for the
planning of the audit of TELSTRA.

10
AUDITING THEORY AND PRACTICE
References
Adams, C.A., 2017. Conceptualising the contemporary corporate value creation
process. Accounting, Auditing & Accountability Journal, 30(4), pp.906-931.
Al-Janadi, Y., Abdul Rahman, R. and Alazzani, A., 2016. Does government ownership affect
corporate governance and corporate disclosure? Evidence from Saudi Arabia. Managerial
Cannon, N.H. and Bedard, J.C., 2016. Auditing challenging fair value measurements:
Evidence from the field. The Accounting Review, 92(4), pp.81-114. Auditing
Journal, 31(8/9), pp.871-890.
Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement
audits. Accounting Horizons, 29(2), pp.423-429.
Cao, S., Cong, L.W. and Yang, B., 2018. Auditing and Blockchains: Pricing, Misstatements,
and Regulation. Misstatements, and Regulation (Oct 9, 2018).
channelworld.in (2019). TELSTRA FACES LEGAL CHALLENGE OVER DECISION SCRAP
THIRD PARTY BILLING. [online] channelworld.in. Available at:
https://www.channelworld.in/news/telstra-faces-legal-challenge-over-decision-scrap-third-
party-billing [Accessed 2 May 2019].
Chevalier, E., Vath, V.L., Scotti, S. and Roch, A., 2016. Optimal execution cost for
liquidation through a limit order market. International Journal of Theoretical and Applied
Finance, 19(01), p.1650004.
de Souza, S.R.S., 2016. Capital requirements, liquidity and financial stability: the case of
Brazil. Journal of Financial Stability, 25, pp.179-192.

11
AUDITING THEORY AND PRACTICE
Ethical Boardroom (2019). Ethical approach at Telstra | Ethical Boardroom. [online] Ethical
Boardroom. Available at: https://ethicalboardroom.com/ethical-approach-at-telstra/
[Accessed 2 May 2019].
Fool.com.au (2019). Is Telstra about to hit a $1.5 billion payday? | Motley Fool Australia.
[online] Fool.com.au. Available at: https://www.fool.com.au/2019/05/02/is-telstra-about-to-
hit-a-1-5-billion-payday/ [Accessed 2 May 2019].
Li, Y., Li, X., Xiang, E. and Djajadikerta, H., 2017. How does financial distress affect accrual
earnings management?. In The proceedings of 2nd Business Doctoral and Emerging Scholars
Conference (p. 130).
Openpr.com (2019). In-Memory Analytics Market Segmented by Component, deployment
model, enterprise size, industry vertical and geography (2019 to 2024) - openPR. [online]
Openpr.com. Available at: https://www.openpr.com/news/1695971/In-Memory-Analytics-
Market-Segmented-by-Component-deployment-model-enterprise-size-industry-vertical-and-
geography-2019-to-2024.html [Accessed 2 May 2019].
Telstra.com.au (2019). Telstra - Corporate Governance - Investors. [online] Telstra.com.au.
Available at: https://www.telstra.com.au/aboutus/investors/governance-at-telstra [Accessed 2
May 2019].

12
AUDITING THEORY AND PRACTICE