Evaluation of Auditors' Assurance Services: A Case Study of Boral Limited

The report evaluates the effectiveness of the material information identified by the auditors of Boral Limited. It covers areas such as independence requirements, non-audit services, audit committee, remuneration, key audit matters, and outlining the responsibilities of auditors and directors of the company.

Running head: AUDITING THEORY AND PRACTICE
Auditing theory and practice
Name of the University
Name of the student
Authors note

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AUDITING THEORY AND PRACTICE
Executive summary:
The report is prepared for evaluating the effectiveness of the material information identified by
the auditors of the company listed on ASX. For the analysis, Boral limited is the company that
has been chosen and the data for the analysis have been extracted from the annual report
published by company annually. Analysis of the auditors have been done concerning wide range
of areas such as the independence requirements, non audit services, audit committee,
remuneration, key audit matters and outlining the responsibilities of auditors and director of
company. Evaluation of the auditing section presented in the annual report has assisted the user
in identifying the relevance of the audit opinion presented.

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AUDITING THEORY AND PRACTICE
Table of Contents
Introduction:....................................................................................................................................3
Discussion:.......................................................................................................................................3
1) Evaluation of the auditor’s assurance services:...........................................................................3
2) Evaluation of Compliance of auditors with independence requirements:...................................3
3) Nature of non audit services:.......................................................................................................3
4) Analysis of remuneration of auditors:.........................................................................................3
5) Evaluation of key audit matters:..................................................................................................3
6) Evaluation of audit committee:...................................................................................................4
7) Audit opinion expressed:.............................................................................................................4
8) Difference between the responsibilities of management and auditors:.......................................4
Conclusion:......................................................................................................................................4
Reference list:..................................................................................................................................4

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AUDITING THEORY AND PRACTICE
Introduction:
The current paper addresses the evaluation of assurances services provided the auditors of
listed company on the Australia stock exchange. For this purpose, analysis of the auditor’s
section has been demonstrated in several areas such as auditor’s remuneration, audit committee,
key audit matters, non audit services and audit opinion. The company that is selected from the
list is Boral limited which is a multinational company engaged in the constriction of materials,
supplying and manufacturing of buildings. There are three divisions of organization comprising
of fast growing Boral interior linings, material business that is well positioned and high
performing business. The analysis of the auditors section has been done by evaluating the
information presented in the financial report of company that is published on the website. The
last section of report identifies whether the material information presented by the auditor in the
annual report is effective or not. Analysis of the audit committee has been done in the context of
the responsibilities, functions, meeting and composition that helps in evaluating the contribution
of such committee to the organization as a whole.
Discussion:
1) Evaluation of the auditor’s assurance services:
An objective and independence assurance is provided by the group audit and risk being a
function of internal audit. It has been ascertained from the annual report that the auditor has not
expressed any opinion in the form of concluding about the assurance thereon relating to the
financial statements. However, for the remuneration report, the opinion by the auditors has been
assured. The objective of auditor is to provide reasonable assurance about the financial report
that is free from any material misstatement due to the consequence of errors and fraud (Power &
Gendron, 2015).

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AUDITING THEORY AND PRACTICE
2) Evaluation of Compliance of auditors with independence requirements:
The independence and effectiveness of external auditor of Boral limited is reviewed by
the audit committee. Since, the external auditors have the potential to impair independence
because of the services kind that is prohibited. The directors of Boral limited have made
declarations to the best of their belief and knowledge that there are no contraventions in relation
to any applicable code of professional conduct and independence requirements of auditors that is
set in the Corporation Act, 2001. Furthermore, the independence requirements of auditor are not
compromised in carrying out the non auditing services and its related provisions. The
independence declaration of auditor does not seem to be questioned by the director as there is not
any reasonable basis according to Corporation act requirements (Cannon & Bedard, 2016).
3) Nature of non audit services:
The non audit services provided by auditor of Boral limited comprise of services of tax
compliance in Australia, tax compliance services in other jurisdiction that in Australia, assurance
and other advisory related services and due diligence services in relation to the formation of joint
venture of Meridian bricks and Headwaters acquisition. The external auditor of Boral limited is
KPMG and they are paid total of amount of $ 2830000 for non audit services. In relation to the
provision of non audit services, directors are satisfied about the compatibility of auditor
independence as per the advice from audit and risk committee of company. In addition to this,
there is no inconsistency between the Corporation act requirements, process of audit committee
and non audit services.

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AUDITING THEORY AND PRACTICE
Fees for non audit services:
(Source: Boral.com 2018)
4) Analysis of remuneration of auditors:
The table below illustrates the remuneration that is paid to the external auditor of Boral
limited and they are paid for auditing and no auditing services. Total amount paid to auditor for
auditing services stood at $ thousand 2902 and $ thousand 1867 for financial year 2017 and
2016. Such auditing services comprised of reviewing and auditing of financial reports of
Australian firm as well as those operating overseas and assurances services. In addition to this,
total amount paid for other services include is recorded at $ 2830 in financial year 2017. The
total amount paid to directors as remuneration stood at $ 5732 in year 2017 and $ 2893 in year
2016 indicating a considerable increase in total amount of remuneration paid (Boral.com 2018).

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AUDITING THEORY AND PRACTICE
Remuneration of auditors:
(Source: Boral.com 2018)
5) Evaluation of key audit matters:
The below identified key audit matters of Boral limited have been addressed in auditing
of the financial report by providing opinion thereon.
Key audit matters Addressing of key audit matters
Headwaters acquisition
A considerable single transaction is represented in
relation to the acquisition of headwaters Boral
limited in consideration of $ 3.6 billion. The
financial statements of Boral are pervasively
impacted by such transaction and thereby on the
The auditing procedures for providing assurance
over each identified audit matters are listed below.
 The appropriateness of accounting
treatment in relation to cost of
truncation is assessed by checking the
allocation based on cost obligations

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AUDITING THEORY AND PRACTICE
audit. A diversified, large, decentralized and new
business is represented by Headwaters that calls for
considerable amount of effort to understand and
familiarize audit (Carnegie & Napier, 2017).
and evaluating the criteria for
classification along with sourcing
documentation.
 Understanding the operations and
business of Headwaters by visiting key
sites and meeting with the
management.
 Ensuring the implementation of
appropriate accounting treatment that
aligns with the accounting standard by
reading the acquisition contract to gain
knowledge about the key terms.
 Challenging the methodologies of
valuation for the identification of
intangible asset and property,
equipment plant. This calls for
assessing the competence, objectivity
and independent expert advice.
Formation of joint venture of Meridian brick
One of the significant transaction of Boral limited
as on 1st November, 2016 is the disposal of US
bricks business of Boral and formation of joint
venture of meridian brick. It is considered as key
audit matter because the transaction accounting
 The tax structure of joint venture of
Meridian brick should be assessed for
treating tax for complying with the
taxation requirements of US and using
the tax specialist of US.

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AUDITING THEORY AND PRACTICE
relating to taxation that required to involve tax
specialist of US.
Across the multiple jurisdictions, there was
complicated contractual arrangements’ seeking for
an increased level of audit.
 The contractual arrangement should be
examined for identification of the terms
that is applicable to legal structure of
such joint venture. Such terms have
been assessed for implications
concerning accounting by comparing to
the accounting standards requirement
and criteria.
 The net assets of Boral should be
assessed for valuation by using the
procedures that is illustrated in the joint
venture of Meridian brick.
Investment carrying value of joint venture of
Meridian brick and USG Boral.
It is considered as key audit matter because of the
risk due to the variation between average selling
price and market demand for products and auditing
complexities for forward looking estimates. The
assessment of recoverability of the carrying value
of joint venture is done by the application of
considerable judgments (Trotman et al., 2015).
The judgments have been done in relation to the
applicable discount rate for forecasting the cash
flow, indication of impairment, cash generating
 The key assumptions of Boral such as
selling price and market demand are
challenged by carrying out comparisons
of different components. Forecast is
approved by comparing the valuation
model data. in addition to this, over the
multiple housing cycle, the actual
historical data is compared (Louwers et
al., 2015).
 The determination of cash generating
unit of Boral is assessed for assisting

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AUDITING THEORY AND PRACTICE
unit determination and assumptions relating to the
selling price and market demand.
the audit team in making the
assessment of the valuation approach of
Boral. For this purpose, the valuation
specialist of auditor is used
(Demirakos, 2018).
 The external valuers engaged in the
preparation of valuation models are
assessed for their capability,
competence and objectivity (Knechel &
Salterio, 2016).
Recoverability and availability of US tax loss
asset
It is considered as audit matter because assessment
of future utilization of taxes requires considerable
level of judgment for forward looking estimates of
audit. Furthermore, it is considered essential to
involve tax specialist of US resulting from the
complexities of ownership requirement of US
(Minnis & Shroff, 2017).
 The taxation experts of Boral is
assessed for their capability,
competence, objectivity and analyzing
the US tax losses for their time of
origin.
 With reference to the key assumptions
about the taxable income and EBIT,
sensitivity analysis is performed.
 The results of continuity of assessment
of ownership which the tax experts
have performed are obtained when the
tax losses are assessed (Byrnes et al.,
2018).

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AUDITING THEORY AND PRACTICE
6) Evaluation of audit committee:
The formal charter of audit committee sets out the requirement of composition,
responsibilities and roles, membership and structure.
Composition of audit committee:
The audit committee of Boral limited provides assistance in effective operations of the
board of directors. The composition of audit committee involves only non executive directors
who are independent and the members are Eileen Doyle, Paul Rayner and Karen Moses.
Function of audit committee:
 The procedure for ensuring the rotation of engagement partner of external audit is
monitored by audit committee.
 The formalization of process for the appointment and selection of new auditors is
required to be done by the auditors.
 The effectiveness, quality of performance and independence of auditors is evaluated
along with reviewing of the scope of internal audit is done by the audit committee
(Dumay et al., 2018).
Responsibilities of audit committee:
The responsibilities of audit committee is to provide oversight and conduct review of the
 Quality and integrity of the disclosures and financial statements of Boral limited

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AUDITING THEORY AND PRACTICE
 Financial information provided to the public and shareholder of company should be
reviewed.
 Reviewing the accounting, auditing and process of financial reporting of Boral limited
 Managing and identifying the significant risk areas by establishing process and system of
management and the board (Chan & Vasarhelyi, 2018).
 The committee meets its responsibilities under the charter as it is entrusted with the
necessary resources and power. All this include explanation of additional information and
right of management access.
 Committee is also entrusted with the responsibility of monitoring and establishing
financial and accounting control procedures and policies for ensuring that the financial
records are reliable and accurate.
7) Audit opinion expressed:
The auditor of Boral limited has formed an opinion on the financial report that the
accompanying financial reports prepared by the company is according to the requirements of
Corporation Act, 2001, Corporation regulation act and Australian accounting standard that gives
a fair and true view of the financial performance of company. The audit of the financial
statements comprising of statement of change in equity, statement of comprehensive income,
income statement, statement of cash flow have been conducted according to the Australian
auditing standard (Chen et al., 2017). The evidence of audit that has been obtained is considered
appropriate and sufficient for providing basis of opinion.
8) Difference between the responsibilities of management and auditors:
The responsibilities of auditor and director differ and the differences are outlined in the
annual report of the Boral limited. Director’s responsibility lies in the preparation of the annual

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AUDITING THEORY AND PRACTICE
report according to the Corporation Act 2001 and Australian accounting standard that depicts a
fair and true view of the financial information presented. In addition to this, they are entitled to
enable the financial report preparation by the implementation of necessary internal control
system. Furthermore, they are also required to make the assessment of the ability of group to
continue as a going concern in terms of all the applicable and disclosing matters relating to the
going concern basis. The remuneration report is also prepared and presented by the director
according to the requirement of 300 A of the Corporation act, 2001 (Glover et al., 2016).
Auditor’s responsibility on other hand lies in obtaining reasonable assurance about the
absence of material misstatement of the financial report due to errors and fraud. They are also
responsible to conduct audit and review of the remuneration report and expressing an opinion on
the same that is in accordance with the auditing standard of Australia. Such assurance does not
act as guarantee that conducting the audit of the financial statements would be able to detect the
existence of material misstatement. However, if the financial statements prepared do not
complies with the requirement of the reporting standard, it should be informed by the auditor in
their statement of declaration in the annual report of company (Fang et al., 2018). While
conducting the auditing of the financial statements, they should comply with the ethical
requirements that are set out in the ethical code of conduct.
Conclusion:
The above report is prepared for evaluating the effectiveness of the auditing of the
financial report as presented in the section of auditor’s opinion. It has been found from the
analysis of annual report that the auditors have provided reasonable assurance of the financial

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AUDITING THEORY AND PRACTICE
information presented, although such assurance is of high level and they do not the guarantee for
the users in their decision making. In addition to this, it has been found that there is formal
charter of the audit and risk committee who has several functions and responsibilities to perform
in context of the information presented in the annual report. The effectiveness of the material
information presented has been evaluated in terms of the various key audit matters. Moreover,
Boral report has implemented the appropriate auditing procedures for dealing with the identified
key audit matters. Furthermore, the report also addresses the differences between the
responsibilities of management, directors and auditors toward the financial report. Such analysis
has enabled to enhance their knowledge of auditing by the application of relevant auditing theory
and principles.
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https://boral.com//wp-content/uploads/2017/09/170928-AON-2017-Annual-Report.pdf
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