Auditing Theory and Practice for CSR Limited

This report analyses the auditing characteristics of CSR Limited's financial statements, including compliance with auditor independence requirements, non-audit services, remuneration of auditor, key audit matters, audit committee, and responsibilities of directors, management, and auditors.

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

1AUDITING THEORY AND PRACTICE
Executive Summary:
This report has intended formulate the responsibilities along with roles of the auditor for
providing assurance the entire financial statements of the CSR Limited along with its control
on environment. Therefore, the annual report of 2018 is taken for differentiating audit
relating sections to cover auditing segments. In these segments contain valuable auditing
issues of the chosen company and these are tested further. This report can help a person to
gather information that can further help to judge the auditor’s quality.

2AUDITING THEORY AND PRACTICE
Table of Contents
Introduction:..............................................................................................................................3
Compliance with the auditor’s independence requirements:...................................................3
Services related to non-audit:....................................................................................................4
Analysis regarding remuneration of auditor:.............................................................................5
Key audit matters:......................................................................................................................5
Audit Committee:.......................................................................................................................8
Audit Option:..............................................................................................................................8
Different responsibilities among directors, management and auditors:..................................9
Events regarding material subsequent:.....................................................................................9
Effective assessment regarding material information:............................................................10
Material information under the category of missing, under-reported, not fully explained or
disclosed:..................................................................................................................................10
Some follow-up questions:......................................................................................................11
Conclusion:...............................................................................................................................11
References:...............................................................................................................................13

3AUDITING THEORY AND PRACTICE
Introduction:
The concept “auditing” implies a company’s object to investigate and analyse its
financial statements for receiving an accurate and fair record of transactions that are
claimed. Company stakeholders want this statement in a simple and clear format to
understand about the company’s financial activities (Viale, Gendron and Suddaby 2017).
Thus, it is essential for each auditor to develop the quality of company’s audit report, where
it can clearly represent all essential information of material aspects related to financial
statements. At present, audit committees have taken various initiatives to develop the
quality of audit report for any company (Cohen, Krishnamoorthy and Wright 2017). Hence,
this report intends to observe and analyse current audit report of any company, based on
different auditing characteristic related to financial statement. For this, the report has
selected CSR Limited, which is an Australian industrial company that chiefly produce
building products (Csr.com.au. 2018). Deloitte has conducted the auditing activities of CSR
Limited in the year 2018.
Compliance with the auditor’s independence requirements:
The 2018 annual report of CSR Limited has stated that no member of Deloitte’s
audit group had played important role for auditing the financial statement of CSR Limited in
2017 and this has happened due to a declaration based on “Section 342A of the
Corporation Act 2001”. Moreover, Deloitte did not involve any of its employees for
conducting the business operation of this company (Li, Raman, Sun and Wu 2017). Deloitte
also has collected entire requirements that are mentioned under “Section 307C of the
Corporations Act 2001” stating about following issues:
 For conducting audit operations of CSR Limited all applicable codes regarding
professional conduct are practiced

4AUDITING THEORY AND PRACTICE
 For independence requirements, the auditor does not experience any controversy to
perform audit
Services related to non-audit:
In 2018, CSR Annual Report has mentioned that the company has received two
different forms of non-audit services from Deloitte considering sustainability as well as
assurance service regarding carbon along with other advisory and assurance services
(Garcia-Blandon et al. 2017). For these two forms of non-audit services, Deloitte has
received respectively $77108 and $9000 from CSR Limited and these two amount of
payments has accounted 10.40 percent of the auditor’s entire remuneration. Instead of this,
both the organization and the auditor assure sufficient compliances for giving and obtaining
the services related to non-audit.
The Risk and Audit Committee provides a written advice, based on which it can be
said that Deloitte has successfully provided non-audit services to the directors of CSR
Limited. This is because Deloitte has followed the general standard of independence, which
is implemented as a part of the Corporation Act 2001 for their auditors. Moreover, directors
of CSR Limited have confirmed that these non-audit services have not considered self-work
review of the auditor to undertake their management decisions. In addition to this, the
auditors with before mentioned standard provide such non-audit services depending
through the non-comprising services with some independent requirements relating to
service nature, amounts materiality and developed process to observe independence of
auditors (Mock, Ragothaman and Srivastava 2018). Moreover, Deloitte has considered
entire rules as well as regulations relating to corporate governance regarding the non-audit
services. Thus, through considering above discussed concepts, it can be said that
independence of auditor is essential to consider.

5AUDITING THEORY AND PRACTICE
Analysis regarding remuneration of auditor:
Table 1: Remuneration given to Deloitte in 2017 and 2018
Source: (Csr.com.au. 2018)
According to table 1, it can be said that the service payments of auditors based on
financial statements review considers the Australian business process of CSR Limited. During
the year 2018, it can be seen that the company has reduced its payments for financial
statements review or audit to Deloitte by 5.89 percent compare to the last year (Csr.com.au.
2018). The non-audit services consider sustainability along with assurance services based on
carbon and others as well as advisory services. Moreover, an increment in sustainability
along with assurance services related to carbon can be observed in the present year by
32.94 percent. On the contrary, a considerable decline can be seen in advisory as well as
assurance services by 77.83 percent during the present year and consequently the total
remuneration of auditor of CSR Limited has reduced by 6.64 percent in 2018.
Key audit matters:
The key audit matters consider various important aspects for conducting audit as
well as financial reports of a business organisation. This can be explained in the context of
CSR Limited (Segal 2017). The annual report of this company in 2018 has discussed about
two key audit matters and their detailed procedures of auditing for the purpose of
minimisation and categorisation can be described as follows:

6AUDITING THEORY AND PRACTICE
Asset Valuation:
According to the CSR Limited annual report of 2018, the company possesses goodwill
amount worth $ 98.1 million while the amount of other intangible assets is $ 45.8 million.
Moreover, the amount of property, plant along with equipment accounts as $ 834 million
and these asset balances consider a number of cash generating units (Sneller, Bode and
Klerkx 2017). For doing impairment analysis of these asset balances, the company needs to
do considerable judgement including important assumptions, such as discount tasks,
inflation, growth rates, calculation regarding changes of business cycle and estimation
related to future cash flows. The management body of CSR Limited has formulated an
assessment of impairment trigger to detect cash generating units that are considered for
further impairment (Fang et al. 2018). Moreover, it is observed that the unit of Viridian cash
generation requires more impairment evaluation. The chief reason is that this cash-
generating unit has fetched minimum return on capital employed (No and Vasarhelyi 2017).
It is considered as a key audit matter for the judgement related with the future cash flows
estimation along with selecting assumptions.
To deal with this key audit matter, the procedure of CSR Limited management has
been analysed by Deloitte for ascertain the cash generating units that can help for further
impairment assessment. Hence, the auditor has obtained some important close view
regarding the consistency on segmental report, financial performance of each year,
conditions of external market as well as allocation of goodwill to every cash-generating unit
of the organisation’s impairment testing (Kowaleski, Mayhew and Tegeler 2018). In addition
this, the auditor has done critical dissection of the impairment model methodology and
takes assumptions though considering various relevant factors. Moreover, sampling testing

7AUDITING THEORY AND PRACTICE
is adopted to check the mathematical accuracy within the models of cash flows. At the end,
Deloitte has analysed pertinent disclosures’ suitability in the organisation’s financial reports.
Provision regarding product liability:
CSR Limited has identified a liability provision worth $289 million as of 31st March
2018. The provision is associated with the disclosed while near future claims is related with
asbestos. Based on the advice of the external experts, this provision is determined. The
manager of this company has appointed those external experts in USA and Australia. For
this provision, significant judgement is required to set the probability and amounts of future
claims (Kelton and Montague 2018). In addition to this, the assumption relating to
movements of foreign exchange rate and discount rate have influenced the estimation of
provision significantly. Moreover, due to complexity and size, these assumptions vary and
for this, Deloitte has taken provision of product liability through a key audit matter.
To deal with this issue, Deloitte has analysed the independence and expertise of the
external experts along with the suitability of methodology and assumptions that are used in
the reports. This analysis assesses effectiveness of the methodology that is used for
calculating provision along with benchmark of the discount rates as well as contrast of
claims of historical experience for utilising assumptions to project future claims. In addition
to this, for correcting consideration along with claims exclusion associated with asbestos,
Deloitte has conducted sample testing in the database of liability of the management
(Fernandez Feijoo, Romero and Ruiz 2018)‐ . This essential for the audit related procedure as
the provision has formulated on the basis of reports. In addition to this, the auditor asks
about the internal and external legal counsel related to the organisation and also about the
external exerts. Finally, for understanding about the suitability of the pertinent disclosures
related to financial reports, Deloitte has conducted the analysis.

8AUDITING THEORY AND PRACTICE
Audit Committee:
Based on CSR Limited annual report on present year, company’s board of directors
has formed Risk and Audit Committee. The chief focus of this committee is to analysis
various procedures and policies associated with internal control to protect the business
assets along with liabilities and integrity maintenance of financial report (Erasmus and
Coetzee 2018). The company has non-executive directors performing under the Risk and
Audit Committee that include John Gillam, Mike Ihlein, Penny Winn and Matthew Quinn.
The committee analyses the procedures of integrity assurance related to financial report,
influential dynamics assessment to realise the commercial income and framework review
associated with the management of audit risk. Instead of this, from CSR Limited annual
report of recent year, no evidence has been found for the charter of audit committee.
Audit Option:
According to the report of independent auditor of CSR Limited, it can be said that the
company has built the remuneration report with the help of “Section 300A of the
Corporations Act 2001” (Qu, Percy, Stewart and Hu 2018). The auditor has assured that CSR
Limited’s financial reports do not consider material misstatements and for this, it has
delivered accurate financial health of the company in the market. In addition to this, the
auditor has opined that the company has formed and represented various financial reports
for meeting the regulations of the “International Financial Reporting Standards (IFRS)”,
“Australian Accounting Standards Board (AASB)” and “International Accounting Standards
Board (IASB)”. Therefore, after conducting audit on the financial statements as well as
relevant notes regarding accounts of thee company, it can be stated that Deloitte has
represented some unqualified option of audit opinion.

9AUDITING THEORY AND PRACTICE
Different responsibilities among directors, management and auditors:
From the annual report of CSR Limited in 2018, it can be opined that some specific
differences have been observed in a developing as well as presenting financial reports,
regarding the responsibilities of director, management and auditors. Directors require
analysing regarding the company’s capability to continue further and this is an increasing
concern of accounting (Libby, Rennekamp and Seybert 2015). In addition to this, the
directors along with management take responsibilities for formulating the financial report
through complying with the existing regulations along with accounting standards of
Australian company. However, the auditors, on the contrary, play different responsibilities,
which the directors as well as the management do not follow.
In this context, it can be mentioned that the auditors play significant role to provide
effective assurance depending on the fact that the company’s financial statements have
material misstatements due to the fraud, error or other issues for which opinion of auditor
is essential (DeZoort and Harrison 2018). Following points can help to know some other
responsibilities of the auditor of Deloitte:
 Recognising and detecting risks that may arise due to material misstatements
 Discussing the correctness of accounting policy
 Understanding the internal control concept
 Information assessment as well as financial statement representation
 Collecting adequate information related to audit evidence
 Inferring the appropriateness based on accounting used by the directors
Events regarding material subsequent:
The annual report of CSR Limited, published in 2018, has considered two material
subsequent events. One event describes about the selling of excess land of the Horsey Park.

10AUDITING THEORY AND PRACTICE
In New South Wales, the organisation has declared this event on 3rd April 2018. A settlement
depending on income statement is predicted to come in April 2019 (Csr.com.au. 2018). The
company, based on selling terms, can identify around $30 million income that can be
obtained before imposition of tax in the income statement for a period that ends on 30 th
March 2019.
Moreover, the second material subsequent is the dividend declaration for the CSR
Limited. On 3r July 2018, the specified company, which has declared fully-franked dividend
accounting 13.5 percent for each share contributes to the dividend by $68.1 million. On the
part of CSR Limited, this part of dividend is going to be provided.
Effective assessment regarding material information:
Depending on the third party’s point of view, the report can state that the auditor of
Deloitte has analysed the chosen company’s material information appropriately and
effectively. Deloitte has disclosed two chief audit matters related to CSR Limited along with
necessary steps for reducing these matters (Herda and Lavelle 2014). In addition this, the
auditor has analysed some important principles as well as regulations that can be found in
the Corporation ct 2001, Australian Auditing Standard and APEC 110 and others. Through
considering all aspects, the paper can state that the auditor of Deloitte is more effective at
the time of dealing for obtaining the information regarding material information in the CSR
Limited’s financial reports.
Material information under the category of missing, under-reported, not fully explained or
disclosed:
Based on the current year’s annual report of CSR Limited, it can be stated that
Deloitte’s audit group has considered sufficient explanation as well as disclosure of
important information to confront CSR Limited’s material factors. The annual report has

11AUDITING THEORY AND PRACTICE
considered various material aspects as well as other information, which in turn can result in
risk of material misstatement of the financial reporting related with the organisation (Mašek
et al. 2018.). Hence, it can be stated clearly that the auditor has not provided any specific
reporting or deleted any material information based on material aspects.
Some follow-up questions:
The auditor can be asked for various procedures of auditing during the annual
general meeting. The auditor is responsible for reviewing financial statement of CSR Limited.
Deloitte, the auditor of CSR Limited, have experienced some questions depending on
various aspects. For instance, discussion about accounting issues or auditing with
management, scope regarding planned audit, find out activities or subsidiaries that may not
be audited to represent operational risks or financial one. Moreover, some questions are
asked on effectiveness of audit scope of Deloitte to recognise material errors, material
deficiencies and fraud in international control or illicit act (Louwers et al.2015.). Moreover,
question has been formed to know about any external auditor of CSR Limited. Issues of the
management for controlling essential business process have also become important to
know.
Conclusion:
The above discussion has pointed out that for maintaining the ethics at higher level
focusing on the Australian auditing standard, the non-audit services are given. The auditor
of Deloitte has done essential conformance to the APES 110, “Corporation Act 2001”, IASB
and IFRS along with other accounting standards. This independence may be maintained at
the time of audit on financial statements related to CSR Limited. Through evaluating
remuneration of auditor of CSR Limited, it can be said that the entire remuneration has
been reduced by 6.64 percent in present year. The auditor has successfully disclosed entire

12AUDITING THEORY AND PRACTICE
material information that are analysed in the 2018 annual report of CSR Limited. Moreover,
any other information regarding evaluation is missed. Moreover, the report has recognised
two key audit matters that are recognised in CSR Limited. Hence, at the end, it can be said
that some specific follow-up questions can be asked to the auditor during the annual
general meeting.

13AUDITING THEORY AND PRACTICE
References:
Cohen, J., Krishnamoorthy, G. and Wright, A., 2017. Enterprise Risk Management and the
Financial Reporting Process: The Experiences of Audit Committee Members, CFO s, and
External Auditors. Contemporary Accounting Research, 34(2), pp.1178-1209.
Csr.com.au., 2018. CSR Building Products - a leading building products brand in Australia &
New Zealand. [online] Available at: https://www.csr.com.au/ [Accessed 12 Sep. 2018].
DeZoort, F.T. and Harrison, P.D., 2018. Understanding auditors’ sense of responsibility for
detecting fraud within organizations. Journal of Business Ethics, 149(4), pp.857-874.
Erasmus, L. and Coetzee, P., 2018. Drivers of stakeholders’ view of internal audit
effectiveness: Management versus audit committee. Managerial Auditing Journal, 33(1),
pp.90-114.
Fang, J., Lobo, G.J., Zhang, Y. and Zhao, Y., 2018. Auditing Related Party Transactions:
Evidence from Audit Opinions and Restatements. Auditing: A Journal of Practice &
Theory, 37(2), pp.73-106.
Fernandez Feijoo, B., Romero, S. and Ruiz, S., 2018. Financial Auditor and Sustainability‐
Reporting: Does it matter?. Corporate Social Responsibility and Environmental
Management, 25(3), pp.209-224.
Garcia-Blandon, J., Argiles-Bosch, J.M., Castillo-Merino, D. and Martinez-Blasco, M., 2017.
An Assessment of the Provisions of Regulation (EU) No 537/2014 on Non-audit Services and
Audit Firm Tenure: Evidence from Spain. The International Journal of Accounting, 52(3),
pp.251-261.
Herda, D.N. and Lavelle, J.J., 2014. Auditing Subsequent Events: Perspectives from the
Field. Current Issues in Auditing, 8(2), pp.A10-A24.

14AUDITING THEORY AND PRACTICE
Kelton, A.S. and Montague, N.R., 2018. The unintended consequences of uncertainty
disclosures made by auditors and managers on nonprofessional investor
judgments. Accounting, Organizations and Society, 65, pp.44-55.
Kowaleski, Z.T., Mayhew, B.W. and Tegeler, A.C., 2018. The Impact of Consulting Services on
Audit Quality: An Experimental Approach. Journal of Accounting Research, 56(2), pp.673-
711.
Li, C., Raman, K.K., Sun, L. and Wu, D., 2017. The effect of ambiguity in an auditing standard
on auditor independence: Evidence from nonaudit fees and SOX 404 opinions. Journal of
Contemporary Accounting & Economics, 13(1), pp.37-51.
Libby, R., Rennekamp, K.M. and Seybert, N., 2015. Regulation and the interdependent roles
of managers, auditors, and directors in earnings management and accounting
choice. Accounting, Organizations and Society, 47, pp.25-42.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.
Mašek, O., Buss, W., Roy-Poirier, A., Lowe, W., Peters, C., Brownsort, P., Mignard, D.,
Pritchard, C. and Sohi, S., 2018. Consistency of biochar properties over time and production
scales: A characterisation of standard materials. Journal of Analytical and Applied
Pyrolysis, 132, pp.200-210.
Mock, T.J., Ragothaman, S.C. and Srivastava, R.P., 2018. Using Evidential Reasoning
Technology to Enhance the Audit Quality Assurance Inspection Process. Journal of Emerging
Technologies in Accounting, 15(1), pp.29-43.
No, W.G. and Vasarhelyi, M.A., 2017. Cybersecurity and Continuous Assurance. Journal of
Emerging Technologies in Accounting, 14(1), pp.1-12.

15AUDITING THEORY AND PRACTICE
Qu, X., Percy, M., Stewart, J. and Hu, F., 2018. Executive stock option vesting conditions,
corporate governance and CEO attributes: evidence from Australia. Accounting &
Finance, 58(2), pp.503-533.
Segal, M., 2017. ISA 701: Key Audit Matters-An exploration of the rationale and possible
unintended consequences in a South African. Journal of Economic and Financial
Sciences, 10(2), pp.376-391.
Sneller, L., Bode, R. and Klerkx, A., 2017. Do IT matters matter? IT-related key audit matters
in Dutch annual reports. International Journal of Disclosure and Governance, 14(2), pp.139-
151.
Viale, T., Gendron, Y. and Suddaby, R., 2017. From “mad men” to “math men” The rise of
expertise in digital measurement and the shaping of online consumer freedom. Accounting,
Auditing & Accountability Journal, 30(2), pp.270-305.