Auditing Theory and Practice

This research paper discusses the importance of independence in auditing and the role of auditors in A-Cap Resources Limited. It evaluates the compliance of the auditor with independence requirements, the presence of non-audit services, and the analysis of auditor's remuneration. It also discusses the evaluation of the audit committee and its various parts, key audit matters, and the responsibilities of directors, managers, and auditors for the preparation of financial statements.

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice

AUDITING THEORY AND PRACTICE
1. Executive Summary
A-Cap Resources Limited is a company, which deals with uranium and coal projects.
Financial statements are made so that the transactions can be done easily. It is important
for the auditor to intervene along with check the financial transactions so that any kind of
misstatements can be easily evaluated and assessed. This project initially explains the
company and its operations. Thus, the research paper revolves around the importance of
independence that the auditor requires so that impartial audit report is attained. After that,
the significant factors associated with the audit is assessed and evaluated so that proper
idea can be obtained relating to the significance that an auditor holds in a company. The
paper ultimately explains the responsibilities of directors, managers, and auditors for the
preparation of financial statements. Thus, the significance of the factor can be derived.

AUDITING THEORY AND PRACTICE
Table of Contents
1. Executive Summary...........................................................................................................................2
3. Introduction.......................................................................................................................................4
4. Discussion..........................................................................................................................................4
4.1. Auditor’s Compliance with Independence Requirements..........................................................4
4.2. Presence and Nature of Any Non-Audit Services........................................................................5
4.3. Analysis of Auditor’s Remuneration In Comparison To the Previous Years................................6
4.4. Related to the Key Audit Matters evaluation of the Audit Procedure........................................6
4.5. Evaluation of Audit committee and its Various Parts..................................................................8
4.6 Type of Audit Opinion................................................................................................................11
4.7. Differences of Auditor’s Responsibilities and Director and Management’s Responsibilities....11
4.8. Presence of any Material Subsequent Events in the Company.................................................12
4.9. Assessment of the Effectiveness of the Material Information..................................................12
4.10. Probability of Missing Any Material Information in the Provided Information.......................12
4.11. The follow-up questions to be asked to the Auditor...............................................................12
5. Conclusion.......................................................................................................................................13
References...........................................................................................................................................14
Bibliography.........................................................................................................................................16
6. Appendix..........................................................................................................................................17

AUDITING THEORY AND PRACTICE
3. Introduction
Assured services of the auditor play an important part in the company’s annual reports, as
they can significantly influence the financial records of the company. An auditor is an
individual, who has the right with respect to conduct audit of the overall financial
statements of a company, which, in turn, assures profits maximization and loss
minimization. In order to pursue an audit of the company, it is necessary for the auditor to
look into the company’s operations, identify the financial statements, which are probably
wrong, and evaluate any occurrences of important events after the preparation of financial
statements. This also includes trying-out whether the company’s internal controls are
efficient, write to the directors informing them about any issues, which are connected with
the audit and chalk out solutions in order to deal with them. It can be well evaluated the
significant role the auditor plays in a company (Gelman, Rosenberg & Freedman, 2018).
A-CAP Resources Limited is located in Botswana and is an ASX listed Resources Company. In
addition, it mainly operates in Botswana country in South Africa. The company has the
status of being funded well by its shareholders. Furthermore, the company majorly
concentrates on the uranium prospect. Moreover, the company also operates in coal
projects. The objective of the research paper is to assess along with summarize the assured
services that are provided by the auditor of A-CAP Resources Limited in the company’s
operations.
4. Discussion
4.1. Auditor’s Compliance with Independence Requirements
The independence declaration of the company’s auditor is observed in the 307C with
respect the Corporations Act 2001. This particular declaration is often perceived to be

AUDITING THEORY AND PRACTICE
developed by the director of the A-CAP Resources Limited along with its subsidiaries. It
states that there are no instances of infringement relate to the requirement for
independence of the auditor relating to the Corporations Act 2001, which is based on the
context of an audit. Moreover, it is also stated that there are no instances of contraventions
in any applied codes of professional conduct on the basis of audit (A-Cap, 2017).
Over the years, it has been observed that the independence requirements of the auditor
have become important while doing the audit. Additionally, the independence of the
auditor directly affects the quality of the audit. The quality of the audit directs towards their
action of uncovering the breach. In addition, it also helps in directing towards the report of
the breach. Thus, it does not require providence of immense importance to the auditor (Lin
& Tepalagul, n.d.). Thus, any kind of failure in providing the required independence to the
auditor will lead to less or minimal irregularities in the reports observed by the auditor. The
independence of the auditor directs towards the mental attitude in which all the issues,
which are found in the financial statements are reported by remaining unbiased. This also
focuses on seeking all the requirements that are necessary for the wrongs committed.
Hence, it can be understood that it is important for a company to provide the auditor with
the probable independence requirements (Patrick, Vitalis & Mdoom, 2017).
4.2. Presence and Nature of Any Non-Audit Services
Non-audit services signify those professional services, which are provided by a public
accountant during the auditing process that is being conducted within the company. It is
actually not at all connected to evaluate or audit of the financial statements of the
organization (Zhang, Hay & Holm, 2016). In this context, A-CAP Resources Limited provided

AUDITING THEORY AND PRACTICE
did not pay a specific fee to any kind of non-audit services to the external auditor, as
recorded in the year 2017.
4.3. Analysis of Auditor’s Remuneration In Comparison To the Previous Years
The analysis of remuneration report (refer to appendices, Fig 1), which has been obtained
from the company signifies the percentage change that has taken place between the years
2016 and 2017. The percentage change can be observed from the report is that there is a
difference of $ 879,225 with respect to two years, which explains the increased rate that has
been obtained in terms of remuneration (A-Cap, 2017).
4.4. Key Audit Matters Associated with of the Audit Procedure
Key Audit Matters (KAM) indicates issues, which are of high significance according to a
professional auditor. The inclusion of these matters in an audit report is highly essential to
the financial statements relating to the current period. KAM are chosen from those issues
that are communicated by the individual, who is in charge of the company (Arnold, 2017).
An auditor in order to determine the key audit matters has to bring some factors into
consideration. In this context, it is important to consider key areas, which are often
associated with higher risks or conditions of material misstatement. In addition, the factors
include important judgments of the auditor with respect to the specific areas of financial
statements. This, in turn, includes significant judgment of the management. Moreover, the
areas related to the accounting estimates are observed to be engaged in high risks and
uncertainty. Furthermore, observing the impact that had been initiated by the occurrences
of any kind of events or important transactions, which occurred. The final area is to evaluate
the process utilized for addressing the matter in the audit (Arnold, 2017). A-CAP Resources
Limited abides by the standards of Australian Auditing Standards to ensure that there are no

AUDITING THEORY AND PRACTICE
possibilities of material misstatements during the audit it is ensured that there is no
presence of it in the final audit report during the audit process. Misstatements in an audit
report can occur due to any kinds of errors or fraud. The most common form of
misstatements is material misstatements. It is observed that this type of error can influence
the economic decisions of the individuals with respect to financial report (A-Cap, 2017).
The company in its audit tries to execute professional judgment along with skepticism. It
also exercises other factors that involve the assessment and identification of the risks, which
are imposed due to the presence of material misstatements. The risks are considered to be
higher if the presence of misstatement is not detected as compared to the risks involved
with the occurrence of the error. Generally, the term fraud signifies forgery,
misinterpretations, omissions, override of the internal control, and collusion. In addition,
evaluation relating to the appropriateness of accounting policies has been implemented.
The audit also tends to check the justification of the accounting estimates, which are
provided by the directors of the company. Additionally, it tries to obtain a precise
understanding relating to the internal control, which is associated with audit so that an
audit procedure can be designed in accordance with the situation. However, all of these are
not performed or executed so that declaration can be made with respect to the company’s
control over its internal operations. Furthermore, the audit of the company evaluates the
overall structure, presentation, along with financial report’s content as well as the
disclosures. The audit of the company tends to check the financial report in order to
understand whether it represents all the underlying transactions and important events. This
has immense importance in the financial presentation. In addition, it acquires the necessary
audit evidence concerning the financial information relating to the activities that occurred in

AUDITING THEORY AND PRACTICE
the place within the company so that an opinion could be formed relating to the financial
report (A-Cap, 2017).
The Company’s audit report also provides a statement that verifies the fact that the
institution has abided by all the requirements of the auditor’s independence so that there
are no such issues raised against the issue. After informing the directors of the significant
matters, the most significant is determined for a current time period. This indicates the key
audit matters of the company. A-CAP Resources Limited describes the KAM in the report
presented by the auditors does not disclose it until and unless there is an order provided for
doing so. Another situation in which the key audit matters are not included in the report is
when the probable outcomes are adverse in comparison with the benefits provided to the
interest of the public (A-Cap, 2017).
4.5. Evaluation of Audit committee and its Various Parts
A-CAP Resources Limited does have an audit committee. In addition, there are non-
executive directors in the audit committee. This includes John Fisher-Stamp, Chenghu Zhu,
Michael Liu, Henry J. Stacpoole, and Jijing Niu (A-Cap, 2017). In addition, there is an audit
committee charter, which is engaged in designing the roles and responsibilities of the audit
members in a specific way.
Structure of the audit committee members involves a rule, which focuses on stating the
involvement of four members is board of the company. In addition, among all, three will be
independent directors. Among the four members, at least one has to bear the required
experience and qualification for providing proper guidance and insights at the time of crisis.
Occasionally, non-committee individuals could be invited in the meetings held by the
committee, only if it is considered apposite (A-Cap, 2018).

AUDITING THEORY AND PRACTICE
The roles of the audit committee involve many significant factors. The first role of the audit
committee members includes supervising along with assessing the integrity of the entity’s
financial report. In addition, they also involve in evaluating important financial reporting
judgments. In addition, the auditor committee also scrutinizes along with evaluates to
comply with respect Company’s whistleblower policy and Code of Conduct. Assessment of
the internal financial control as well risk management is also done by the audit committee.
Reviewing along with monitoring, and administering the functions of external audit includes
matters that concerns the appointment and salary, independence & non-audit services.
Additionally, the audit members are liable to perform other specific functions, which are
instructed by the Company’s Constitution and law or the board of the company (A-Cap,
2018).
The responsibilities, which are assigned to the audit committee members of the company,
are explained precisely below:
The responsibility of the members toward the internal controls and financial reporting
comprises properly evaluating annual, half-year, and even quarterly financial statements.
Secondly, reviewing the report presented by the external auditor is appropriate or not for
satiating the needs of the shareholder. This further includes scrutinizing the selection of the
management with respect to the accounting principles and policies. Furthermore, it also
considers the internal controls and Company’s policies and procedures so that financial risks
can be assessed (A-Cap, 2018).
In case of annual meeting with the auditor, the audit members of the committee remain
assigned with responsibilities. The first responsibility is to discuss the choices made by the
company with regard to the accounting methods and principles along with changes to be

AUDITING THEORY AND PRACTICE
recommended. The second responsibility includes discussion of any kind of disputes or
disagreements that are encountered by the management during the audit process. In this
context, the issues can be in terms of restrictions or right to use any required information.
Another essential responsibility of the members is to discuss the capability and potential of
the company’s capability for controlling the internal matters (A-Cap, 2018).
In case of the external auditor, the responsibility of the members involves scrutinizing the
overall procedure in the process of selection, rotation along with recruiting external auditor.
The members are also highly responsible for assessing the performance of the external
auditor. In addition, they also recommend the Board to either appoint or eliminate the
external auditor or to support the conditions in which he/she is working. In addition, they
are liable for confirming external auditor’s independence related to the non-audit services
of the company as well as fees (A-Cap, 2018).
Internal communications along with reporting is another dimension in which the audit
members of the company need to report, which is explained in the clause 5 relating to Audit
Committee Charter. Additionally, for ensuring that the board is all alert of the matter that
impacts the financial aspects of the company. Additionally, the audit members are also
engaged in updating the board regularly with the activities of the committee and provide
recommendations that are required (A-Cap, 2018). Another responsibility involves verifying
the committee’s membership on the basis of the Audit Committee Charter. It also focuses
on examining and accessing the action points and Audit committee charter. Additionally,
their role also comprises reviewing the independence relating to the committee members
on the basis of the Company’s policies, which engages in determining the independence of
directors. In addition, the audit members are also involved in developing and overseeing the

AUDITING THEORY AND PRACTICE
procedures related to the complaints or any kind of issues associated with the employee of
the Company. This may include auditing issues, inside accounting controls, accounting, and
violation of the organization’s code of Conduct (A-Cap, 2018).
4.6 Type of Audit Opinion
The directors of the company in its audit opinion declared that the financial statements are
based on the Corporations Act 2001. This includes complying with the accounting standards
of Australia along with Corporations Regulations 2001, which provides combined financial
position as on 31st December 2017. Moreover, the directors of the A-Cap Resources have
presented an opinion in the audit that the company is capable of paying off their debts as
and when required (A-Cap, 2017).
4.7. Differences of Auditor’s Responsibilities and Director and Management’s
Responsibilities
There are differences between the responsibilities of the management and the directors of
the company relating to its financial report. In addition, it is observed that directors are
legally accountable for filing the company’s annual return along with the account at the
right time. They are also liable for ensuring that the details of the company are updated.
Moreover, the information that is provided by him will be enlisted in a public register, which
will be viewed during the public inspection (Companies & Intellectual Property Commission,
2018). The responsibility of the manager in relation to the financial report is that they are
entirely liable for preparing based on the provided financial framework. In addition, the
directors are also responsible for evaluating the company’s ability for determining whether
the company can continue as an ongoing concern. In this context, the utilizing and disclosing
matters of the ongoing concerns are to be evaluated by the management alone. Finally, the

AUDITING THEORY AND PRACTICE
responsibility of the auditor is to conclude the overall suitability with respect to the ongoing
concern on the basis of accounting. Thus, this involves initiating the formation of the
financial statements. Moreover, through the audit, the auditor explains any kind of material
uncertainty that exists within the financial report. This might disrupt the ability of the
company as an ongoing concern (International Federation of Accountants, 2018).
4.8. Presence of any Material Subsequent Events in the Company
There have been no records relating to subsequent events within the organization (A-Cap,
2017).
4.9. Assessment of the Effectiveness of the Material Information
The material information, which has been provided by A-Cap Resources Limited Company, is
that preparing financial statements are conducted based on accruals and are entirely based
on the historical costs, which are verified when required for the measurement of financial
assets, non-current assets along with financial liabilities (A-Cap, 2017).
4.10. The probability of Missing Any Material Information in the Provided Information
The information that is provided by A-Cap Resource Limited includes all the significant
aspects, which are required for the audit. This helps identifying the fact that there is no
information that remained unexplained in the process (A-Cap, 2017).
4.11. The follow-up questions to be asked to the Auditor
i. Has audit’s scope altered from the past years? If yes, then in which specific areas?
ii. How will the Company’s risk be managed with respect to the financial accounting?
iii. What audit issues have been identified to have high risks and how will they be
solved? (BDO Canada LLP, 2015).

AUDITING THEORY AND PRACTICE
5. Conclusion
The auditors play important role in each company’s operation, as that it suggests the issues,
which are related to the financial statements of the organization. In A-CAP Resources
Limited’s annual reports, the company’s auditor has identified all the evidence that is
required for proper evaluation of the audit process. It has also presented details relating to
organization’s audit for describing the impact of KAM in its formation. Basically, without an
auditor, a company cannot sustain in the industry, which has been precisely explained by
the annual report of the company.

AUDITING THEORY AND PRACTICE
References
Gelman, Rosenberg & Freedman, 2018, What an auditor does and doesn’t do, Resources,
viewed 12 September 2018, <https://www.grfcpa.com/resource/auditor-responsibilities/>
Lin, L. & Tepalagul, N. K, No Date, ‘Auditor Independence and Audit Quality: A literature
review’. Boston University, pp. 1-54.
Patrick, Z. I.mVitalis, K & Mdoom, I., 2017, ‘Effect of auditor independence on audit quality:
A review of literature’. International Journal of Business and Management Invention, vol. 6,
iss. 3, pp. 51-59.
Zhang, Y., Hay, D. & Holm, C., 2016. ‘Non-audit services and auditor independence:
Norwegian evidence’. Cogent Business & Management, Vol. 3, No. 1215223, pp. 1-17.
Arnold, C., 2017, Auditor reporting standards implementation: Key Audit Matters, Auditor
Reporting Standards Implementation: Key Audit Matters, viewed 12 September 2018.
<https://www.ifac.org/global-knowledge-gateway/audit-assurance/discussion/auditor-
reporting-standards-implementation-key>
Bédard, J., Gonthier-Besacier, N. & Schatt, A., 2014, Costs and benefits of reporting Key Audit
Matters in the audit report: The French experience. In International Symposium on Audit
Research, viewed at 12 September 2018, <http://documents. escdijon.
eu/pdf/cig2014/ACTESDUCOLLOQUE/BEDARD_GONTHIER_BESACIER_SCHATT. pdf.>
A-Cap, 2018. Audit committee charter. A-Cap Resources Limited, viewed 13 September 2018
<https://acap.com.au/audit-committee-charter/>

AUDITING THEORY AND PRACTICE
A-Cap Resources LTD, 2016, ‘A-Cap Resources Limited and its controlled entities’. Half-Year
Repor, pp. 2-22.
International Federation of Accountants, 2018, ‘Auditor Reporting—management and
auditor responsibility statements,’ IAASB Main Agenda (September 2014), pp. 1-4.
A-Cap, 2017, ‘Report 2017’, A-Cap Resources Ltd, pp 2-64.
Companies & Intellectual Property Commission, 2018, Companies & Intellectual Property
Commission, Legislation, viewed 13 September, 2018 <http://www.cipc.co.za/index.php?
cID=590>
BDO Canada LLP, 2015, 10 essential questions you should ask your auditor, BDO, viewed 14
September 2018. <https://www.bdo.ca/getattachment/cfe83f3e-160e-4d12-8c72-
575462ecee99/attachment.aspx>

AUDITING THEORY AND PRACTICE
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AUDITING THEORY AND PRACTICE
6. Appendix
Long-term Benefits Post-employment benefits Share-based payments Total
Salary Fees Bonus Long service leave Superannuation Shares
Name Cash-settled Share Settled
$ $ $ $ $ $ $ $
30-Jun-17
A Shen 43,753 2,99,236 - 0 0 0 16,537 3,59,346
P Ingram 39,954 174, 499 - 0 0 3,796 2,07,785 4,26,034
P Thomson 4,21,948 - - 64,894 0 0 0 486, 842
H Stacpoole 5,708 - - 0 0 542 16,957 22,607
P Woolrich 5,708 7,619 - 0 0 542 16,357 30,226
J Fisher -Stamp 39,954 174, 499 - 0 0 3,796 2,01,810 4,20,059
M Liu 43,753 174, 564 - 0 0 0 1,98,570 4,16,887
JJ Niu 39,397 - - 0 0 0 0 39,397
CH Zhu 39,397 - - 0 0 0 0 39,397
Total 679, 572 830417 - 64,894 0 8,676 6,57,236 22,40,795
30-Jun-16
A Shen 25,000 0 0 0 0 0 20,740 45,740
P Ingram 23,192 1,03,949 1,02,366 0 0 2,203 20,740 252, 450
P Thomson 4,36,416 0 0 0 0 0 0 4,36,416
H Stacpoole 23,192 0 0 0 0 2203 20,740 46,135
P Woolrich 23,192 73,136 0 0 0 2,203 20,740 1,19,271
J Fisher Stamp 23,192 90,517 88,934 0 0 2,203 13,707 2,18,553
M Liu 24,775 86,478 86,243 0 0 0 13, 343 2,10,839
R Pelt 0 0 0 0 0 0 24, 318 24,318
R Lockwood 0 0 0 0 0 0 7,848 7,848
Total 578, 959 3,54,080 2,77,543 0 0 8,812 1,42,176 13,61,570
Short term Benefits
Consulting Fees
Figure 1: Remuneration Report
Source: (A-Cap, 2017)