Auditing Theory and Practice

The present report is based on assessing financial performance of BHP Billiton and Qantas. The report will address the key business and inherent risk for both the companies in the industry in which it operates. The report will further assess the audited reports of Qantas and BHP Billiton to determine the nature key audit test conducted. Further evidences would be provided relating to audit approaches for both Qantas and BHP Billiton with necessary information relating to auditors opinions of both the companies.

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
Name of the Student
Name of the University
Authors Note
Course ID

1AUDITING THEORY AND PRACTICE
Table of Contents
Introduction:...............................................................................................................................3
Comparison of Financial Statement:..........................................................................................3
Key Business and Inherent Risks:..............................................................................................5
Findings of auditors Related to Key Business Risks:................................................................6
Auditors Recommendations:......................................................................................................7
Impact of Control Tests:.............................................................................................................8
Audit Approaches:.....................................................................................................................9
Auditors Opinion:.......................................................................................................................9
Limitations of Audit Reports:..................................................................................................10
Responsibilities of Auditors and Managements:......................................................................11
Conclusions:.............................................................................................................................12
Reference List:.........................................................................................................................13

2AUDITING THEORY AND PRACTICE
Executive Summary:
The present report is based on assessing financial performance of BHP Billiton and Qantas.
The report will address the key business and inherent risk for both the companies in the
industry in which it operates. The report will further assess the audited reports of Qantas and
BHP Billiton to determine the nature key audit test conducted. Further evidences would be
provided relating to audit approaches for both Qantas and BHP Billiton with necessary
information relating to auditors opinions of both the companies.

3AUDITING THEORY AND PRACTICE
Introduction:
BHP Billiton is an Anglo-Australian mining company that has its headquarters in
Melbourne. The company was founded in 2017 and it is considered as the largest mining
company in the world in respect of its market capitalization. BHP Billiton is also regarded as
the third largest company in terms of revenue (BHP 2018). BHP Billiton is listed on the
Australian Stock Exchange and it is considered as the largest company in Australia in respect
of market capitalization.
Qantas Airways is an airline company which is regarded as the flag carrier of
Australia and it is regarded as the largest airline in respect of size of fleet, international flights
and international destinations (Qantas.com 2018). Qantas is regarded as the third oldest
airline company in the world. Qantas was founded in 1920 and the company started its first
passenger flights in May 1935. Qantas Airlines occupies 65% Australian domestic market
share and carries approximately 14.9% of the passengers in and out of Australia.
Comparison of Financial Statement:
The revenue for the BHP Billiton for the financial year of 2016 stood US $30.9 billion
reflecting a fall of 31 per cent from the revenue reported in 2015. The net operating cash flow
of the BHP Billiton declined by 45 per cent to stand at $10.6 billion (BHP Billiton 2018). The
basic earnings per share of BHP Billiton reported a loss as the earning per share stood (120)
US cents per ordinary share. In spite of loss the company reported a total dividend per share
of 30 US Cents per share. The sustainable productivity gains for BHP Billiton stood US $437
million. The underlying EBITDA for the company stood $12.3 billion with attributable
amount of loss of US $6.4 billion.

4AUDITING THEORY AND PRACTICE
Figure 1: Figure representing Attributable profit or loss of BHP Billiton
(Source: BHP Billiton 2018)
Qantas reported a strong financial performance with record increase in its margins.
The total amount of underlying EBIT in 2016 for the domestic market stood $820 million
with 30% rise from the previous year. While the total amount of underlying EBIT of the
company’s international operations rose by 107% to stand at $722 million
(Investor.qantas.com 2018). The financial position of Qantas Airways strengthened as the
operating cash flow for 2016 stood $2.8 billion. The excess amount of cash was used by
Qantas for refinancing its aircraft. The company reported a strong balance sheet with more
sustainable outlook was identified by the rating agencies. The profit for Qantas increased by
57% to stand at $1.53 billion. The statutory EPS stood 49.4 cents each share with 24 cents
rise from previous year. The return on capital invested stood 23% in 2016 and net debt
reduced to within target of $5.6 billion.

5AUDITING THEORY AND PRACTICE
Figure 2: Figure reporting Revenue and EBIT of Qantas Airways
(Source: Investor.qantas.com. (2018)
Key Business and Inherent Risks:
Business risks for BHP Billiton: For BHP Billiton there are number of risk factors that
might have adverse impact on its business operations (Zeff 2016). The key business risk for
BHP Billiton are discussed below;
Failure to identify and acquire new resources: The demand for the products and operations
is depleting over the time for BHP. A failure in the ability of the business to identify or obtain
the new resources along with the maintenance of reserves or development of new operations
is regarded as the business risks for BHP Billiton (Vasarhelyi, Alles and Kogan 2018). BHP
Billiton faces several uncertainties in its business to estimate the mineral, oil and reserves of
gas. The uncertain global financial outlook pose a business risk that can negatively impact its
business prospects.
Increasing costs and delays in development projects: Another business risks identified for
BHP Billiton is the increasing cost and programmed delay in their schedule may adversely
create an impact on BHP Billiton developmental projects (Samsonova-Taddei and Siddiqui
2016). In spite of the company devoting significant amount of time and resources to its

6AUDITING THEORY AND PRACTICE
business projects but there are certain projects that are very complex and depends on factors
that are beyond the control of BHP Billiton.
Business risks for Qantas: The aviation industry has certain inherent risks and Qantas is
subject to certain business risk that are as follows
Intensity of Competition: For Qantas Airways market capacity growth ahead of the
fundamental demand creates an impact on the profitability of the company (Shaub and Braun
2014). The liberal aviation policy of Australia weakening of international economy in the
recent years has enabled more offshore competitors. The increasing intensity of offshore
competition is viewed as the business risk for Qantas Airways.
Volatility in fuel and foreign exchange: The operations of Qantas Airways also faces the
risk of fuel and foreign exchange. This risk is considered as the inherent business risk of
operating in airline industry (William, Glover and Prawitt 2016). The company has increased
the emphasis on the forecasting agility for its operations to support in the management of
uncertainty business risks.
Findings of auditors Related to Key Business Risks:
BHP Billiton has set up a Business Risk and Audit Committee to recommend
regarding the business risk. In respect of the business risk identified the auditors have
considered numerous changes in the estimations for closure and rehabilitation provision
identified throughout the year (Arens et al. 2016). The auditors provided considerations
relating to outcomes of currently concluded estimations and considered suitable inclusion of
contingency in the costs estimations to enable both the known and residual business risks.
The findings of auditors concluded that the assumptions and inputs relating to closure and
rehabilitation costs estimations were sensible and associated provisions identified were
appropriate.

7AUDITING THEORY AND PRACTICE
The auditors of the Qantas are committed to implanting the practices of risk
management to assist the achievement of the business risks and meet the corporate
governance obligations. The audit committee approves the company’s audit and internal audit
risk charter that offer the company’s audit with the complete access to the Qantas Airways
functions. The auditors of Qantas Airways records the property and personnel and creates
requirements for independence (Cohen and Simnett 2014). The audit reviews the matter of
risks and also undertakes the yearly review of the effectiveness of the Qantas Airways
application of risk management system and framework of internal control.
Auditors Recommendations:
The auditors of the Qantas Airways provides the recommendations to the board
regarding the continuous reviews of the corporate financial statement as this would help the
company in safeguarding the integrity of financial reporting (Leung et al. 2014). The auditors
provide recommendations regarding the timely and balance disclosure of the information.
The auditors recommendations also included that timely disclosure by board would help in
making sure that the trading in the market share occurs in a timely manner and a transparent
information is provided to shareholders. Recommendations have been made to make sure that
Qantas Airways adheres with the continuous disclosure obligations. The auditors provides the
Qantas Airways with recommendations regarding the objective assurance, risk management,
internal control and corporate governance.
The auditors have provided recommendations to the BHP Billiton regarding the
appropriateness of the accounting policies and appropriate implementation of practices in the
areas of judgement, compliance and accounting standards (Messier, Glover and Prawitt
2015). The auditors have reviewed the financial statements and have also recommended BHP
Billiton for the formal adoption of financial reports and statements so that the board can
maintain the integrity of financial reports.

8AUDITING THEORY AND PRACTICE
The auditors have identified for the inclusion and diversity to promote the culture of
safety and productivity priorities (Alles, Kogan and Vasarhelyi 2018). The auditors of BHP
Billiton have recommended for inclusion of safety in the business that underpins improve
reporting. The auditors of BHP Billiton have also made recommendations relating to the
possible conflict of interest and have recommended for constant review of situations that
causes actual conflict of interest.
Impact of Control Tests:
The auditors of BHP Billiton conducted test on the key controls of the group’s
valuation of assets along with those that are used in asset impairments and reversals. The
auditors tested the correctness of BHP Billiton recognition of CGU to align with the
knowledge of the business and its internal reporting structure (Bradbury, Raftery and Scott
2018). The auditors tested vital controls relating to the accounting and disclosure of
transactions related to tax. The auditors tested BHP Billiton assumptions and forecasted
assessable earnings that supports the deferred tax assets. The auditors tested the consistency
of assumptions used in the estimation of contingent liabilities and provisions.
The auditors performed the test on LTIP awards issued by Qantas Airlines under
2014-16 and asserted that the performance measurement were attained in full against the peer
groups (Rezaee et al. 2018). The auditors have tested the performance measurement for
Qantas Airlines ranging from 2014-16 for the company’s relative with the ordinary shares
that are included in the ASX 100. The auditors have also tested performance hurdles ranging
from the year 2014-16 and consequently 10,208,000 rights were vested and converted to
shares subsequently in 2016.

9AUDITING THEORY AND PRACTICE
Audit Approaches:
The audit approach for BHP Billiton comprised of assessment of risk relating to
material misstatement (BHP Billiton 2018). The auditor in arriving at their opinions
considered including any changes that occurred during the year in the operations of the
company and the wider market that might create an influence on BHP Billiton risk profile
related to audit (Vasarhelyi, Alles and Kogan 2018). The auditors in their approach
considered the application of materiality to perform the audit of BHP Billiton financial
statement and noticed that decline in the profit because of the fall in the price of commodity.
The auditors for Qantas Airlines were KPMG. The Auditors approach for Qantas
Airlines comprises of assessment of the company financial report that consisted of
consolidated balance sheet, income statement, cash flow and equity (Investor.qantas.com
2018). The auditors approach comprised of determination of significance of accounting
policies adopted by Qantas Airlines along with the explanatory information provided by the
company.
Auditors Opinion:
The auditors of BHP Billiton has stated their opinion that the company has prepared
their financial statements by applying the standards of IFRS that are issued by the IASB.
According to the opinion of auditors the financial statements of BHP Billiton have been
prepared correctly and all the material respects are in compliance with the IFRS that are
provided by the IASB (BHP Billiton 2018). The auditors opinion also include that the
financial reports of BHP Billiton along with the directors declaration are in compliance with
the Australian Corporation Act 2001. The financial statements provides true and fair view of
BHP Billiton financial position for the year ended 2016. BHP Billiton has complied with the
section 5.1 relating to the basis of preparation of financial reports.

10AUDITING THEORY AND PRACTICE
The auditor’s opinion relating to Qantas Airlines states that the company’s annual
statement are prepared in compliance with the Corporation Act 2001. The financial statement
of Qantas Airlines provides a true and fair view of the organization financial position. The
company complies with IFRS standard for disclosure (Investor.qantas.com 2018). The
auditor’s opinion of Qantas Airlines also stated that the remuneration report is in agreement
with section 300A of the corporation Act 2001.
Limitations of Audit Reports:
Even though there are several studies that have analysed the differences regarding the
expectations of audit but none of the studies have been performed in a concerted manner
(Becker, Stead and Stead 2016). The main factors that have he influence on the audit reports
is the discontent of the users of financial report.
On considering the annual report of both the companies the location of frauds is in the
interest of the financial information users. On one hand it is viewed as the job that is well
done while on the other hand it is regarded as the sign for the auditor’s risk that the clients
shows. The fraud and irrelevant materials must be detected because this forms the measuring
tool for assessing the performance of the auditors (Dow 2017). Therefore the in adequate
detection of frauds and relevant materiality errors creates an influence on the significant
method of insufficient performance by the auditors.
The detection of illegal actions is another limitation of audit the users of financial
information are unable to obtain the required information regarding the commitment of an
enterprise illicit acts (Knechel, and Salterio 2016). The users of the financial information
states that the objective of the auditors is provide information that the organization has not
committed any illegal acts and their financial report provides a correct view of financial

11AUDITING THEORY AND PRACTICE
standings. The auditors are also required to apply the principles of continuity to measure the
independence of the auditor while applying the principles of continuity.
Responsibilities of Auditors and Managements:
The responsibilities of the Qantas Airlines management includes the preparation of
the financial statement in order to provide the shareholders with the correct view of the
financial standings. The directors are responsible for adhering with the principles of AASB
and Corporation Act 2001 (Investor.qantas.com 2018). The management responsibilities of
Qantas Airlines includes presentation of financial statements with the international financial
reporting standards and AASB 101.
The auditors responsibilities includes providing a true opinion of the financial report
of Qantas Airlines based on the audit conducted. The auditors are responsible for conducting
the audit in compliance with the Australian Auditing Standards. The auditors are accountable
for assessing the risks relating to material misstatement and assessing the internal control of
Qantas Airlines (Investor.qantas.com 2018). The audit also includes assessment of
appropriate accounting policies for determining the reasonableness of accounting estimations.
The management responsibilities of BHP Billiton include preparation of annual
reports for both the group and parent company in compliance with the applicable laws and
regulations. The managements are accountable to present the financial report in compliance
with the IFRS standards to fairly present the financial position and performance of groups
with reference to UK Companies Act 2006 (BHP Billiton 2018). The directors are required to
select the correct accounting estimations and apply appropriate accounting policies.
The auditors of BHP Billiton are KPMG. The auditors are responsible for the audit of
financial statements in compliance with the International standard on auditing and Australian

12AUDITING THEORY AND PRACTICE
Auditing Standards (BHP Billiton 2018). The auditors are responsible for including the
compliance together with necessary ethical standards and express their opinion from thereon.
Conclusions:
On a conclusive note the report has considered the performance of both BHP Billiton
and Qantas Airlines. The performance of Qantas has been better than the performance of
BHP Billiton. The underlying revenue of BHP Billiton has declined significantly due to the
falling prices while Qantas Airways has posted a strong performance with improved
underlying revenue and EBIT. Despite the growing competition in the aviation industry
Qantas Airways business risks has better risk management abilities. BHP Billiton has posted
a difficult financial year with suffering of loss in their earnings and EBIT following the
disastrous event at the Samarco Iron Ore operations. For BHP Billiton the financial year of
2016 witnessed a weakening market of commodity prices.

13AUDITING THEORY AND PRACTICE
Reference List:
Alles, M.G., Kogan, A. and Vasarhelyi, M.A., 2018. Feasibility and Economics of
Continuous Assurance 1. In Continuous Auditing: Theory and Application (pp. 149-167).
Emerald Publishing Limited.
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance
services. Pearson.
Becker, L.L., Stead, J.G. and Stead, W.E., 2016. Sustainability Assurance: A Strategic
Opportunity for CPA Firms. Management Accounting Quarterly, 17(3), p.29.
BHP Billiton. (2018). BHP Annual Reporting 2017. [online] Available at:
https://www.bhp.com/investor-centre/annual-reporting-2017 [Accessed 21 Apr. 2018].
BHP. (2018). BHP Billiton | Our business. [online] Available at: https://www.bhp.com/our-
businesses [Accessed 21 Apr. 2018].
Bradbury, M.E., Raftery, A. and Scott, T., 2018. Knowledge spillover from other assurance
services. Journal of Contemporary Accounting & Economics, 14(1), pp.52-64.
Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing:
A Journal of Practice & Theory, 34(1), pp.59-74.
Dow, K.L., 2017. Strengthening quality assurance in Australian higher education. In Global
perspectives on quality in higher education (pp. 135-154). Routledge.
Investor.qantas.com. (2018). Qantas Investors | Sustainability and governance. [online]
Available at: http://investor.qantas.com/sustainability/?page=accountability [Accessed 21
Apr. 2018].
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.

14AUDITING THEORY AND PRACTICE
Leung, P., Coram, P., Cooper, B.J. and Richardson, P., 2014. Modern Auditing and
Assurance Services 6e. Wiley.
Messier, W.F., Glover, S.M. and Prawitt, D.F., 2015. Auditing & Assurance Services: A
Systematic Approach. Qing hua da xue chu ban she.
Qantas.com. (2018). Our Company | Qantas. [online] Available at:
https://www.qantas.com/travel/airlines/company/global/en [Accessed 21 Apr. 2018].
Rezaee, Z., Sharbatoghlie, A., Elam, R. and McMickle, P.L., 2018. Continuous auditing:
Building automated auditing capability. In Continuous Auditing: Theory and Application (pp.
169-190). Emerald Publishing Limited.
Samsonova-Taddei, A. and Siddiqui, J., 2016. Regulation and the Promotion of Audit Ethics:
Analysis of the Content of the EU’s Policy. Journal of business ethics, 139(1), pp.183-195.
Shaub, M.K. and Braun, R.L., 2014. Call of duty: A framework for auditors’ ethical
decisions. In Accounting for the Public Interest (pp. 3-25). Springer, Dordrecht.
Vasarhelyi, M.A., Alles, M.G. and Kogan, A., 2018. Principles of analytic monitoring for
continuous assurance. In Continuous Auditing: Theory and Application (pp. 191-217).
Emerald Publishing Limited.
Vasarhelyi, M.A., Alles, M.G. and Kogan, A., 2018. Principles of analytic monitoring for
continuous assurance. In Continuous Auditing: Theory and Application (pp. 191-217).
Emerald Publishing Limited.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A
systematic approach. McGraw-Hill Education.
Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis of
trends. Routledge.