Evaluation of Auditors' Role in BHP Billiton's Annual Report

BHP Billiton
Executive summary
The duty of auditors holds a significant position in the corporate world as it is interconnected
with the ethics and operations of an organization. Further, the organization’s corporate
governance depends upon an auditors’ functioning because they assist in forming an opinion
as to whether the financials are true and fair or not. Moreover, their report lays an effective
significance in relation to the stakeholders’ concept. For this report, the annual report of BHP
Billiton, a pioneer in the field of mining has been selected that is listed on the Australian
Stock Exchange and in view of this organization, the auditors’ role is evaluated deeply.
Further, the report starts with an introduction that is followed by the independence of
auditors, significant audit matters, and the committee of audit respectively. Lastly, a thorough
discussion is framed on the audit opinion and other matters for better understanding.
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BHP Billiton
Contents
Introduction...........................................................................................................................................3
BHP’s compliance with all independent requirements..........................................................................3
Non-audit services.................................................................................................................................3
Remuneration of auditors.....................................................................................................................4
Significant nature of the non-audit services of BHP..............................................................................4
Key audit matters..................................................................................................................................4
Audit Committee & Charter...................................................................................................................5
Differences in the responsibilities of management and directors from that of the auditors’................5
Material subsequent events..................................................................................................................6
Efficiency of the material information disclosed by auditors.................................................................7
Whether material information is missing or remains under-reported..................................................7
Conclusion.............................................................................................................................................9
Follow up questions.............................................................................................................................10
References...........................................................................................................................................11
Appendix.............................................................................................................................................12
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BHP Billiton
Introduction
The requirements of auditors have become very crucial in the recent scenario because
organizations have become very vulnerable and risky in nature. Further, presence of effective
corporate governance also plays a role in mitigation of material risks that in turn assists in
enhancing the reputation or goodwill of the company. Therefore, this report has highlighted
the details of BHP Billiton Ltd and the auditors’ role has been reflected for better
understanding. Further, the company has been listed on the ASX (Australian Stock
Exchange) and this report has depicted proper information on the company’s key audit
matters and other relevant information on audit issues. Nevertheless, the information depicted
by BHP have assisted in depicting a true and fair view of the company’s performance.
BHP’s compliance with all independent requirements
Wesfarmers have properly reflected its audit requirements through its annual report and the
auditors have ensured a true and fair view of the company’s financial performance. Further, it
can be witnessed that the company has ensured that all necessary guidelines have been
fulfilled, thereby facilitating in addressing all requirements of the Australian Accounting
Standards. Further, other regulatory requirements that must be fulfilled by every company has
also been addressed by BHP Billiton in an effective way. Nevertheless, other requirements
like remuneration and audit control have also been represented by the company in an
appropriate way that can assist users in decision-making.
Non-audit services
Although the company’s external auditor has disclosed some of the non-audit services in the
annual report, their objectivity and independence are safeguarded by restrictions on the
provision of such services. For example, there are several types of non-audit services that the
external auditor of the company can adopt for better provision of services only with the prior
approval of the RAC. However, there can be various kinds of services that does not
necessitate the approval of RAC. In relation to this, the services consist of various kind of
activities that can be supervised or monitored by the company’s management. Furthermore,
advocacy role on behalf of the company can also be played by the external auditor in relation
to non-audit services (BHP Billiton, 2017). Lastly, even the RAC has framed a policy
wherein its entire group of policies and pre-approval procedures are prevalent and that can
play a role in maintaining the independence of external auditors.
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BHP Billiton
Remuneration of auditors
From the above table, it is evident that the major proportion of the auditor remuneration
derives from review of the financial report. Other segments include subsidiaries auditing,
assurance affairs, etc (Refer Appendix)
Significant nature of the non-audit services of BHP
It can be observed from the annual report of BHP that there were no non-audit services that
have been covered by it and was included in the policy of ‘Provision of audit and other
services.’
Key audit matters
In relation to any company, it is notable that key audit matters must be reflected to enhance
the quality of corporate reporting. Such matters are of prime importance and therefore, must
form part of a company’s annual report. Moreover, these matters cannot be disclosed by the
management because the judgement of auditors is mandatory in assessing the same. Besides,
disclosure of the same matters as key audit matter can allow users in understanding the
aspects that has made the auditor portray an unqualified opinion on the financials of the
company (Parker, Guthrie & Linacre, 2011). Moreover, the reason why auditors have
chosen various matters as key audit matters can be attributed to the fact that these can be
exposed to various types of fraud or errors and therefore, evaluation of the same is necessary.
When it comes to BHP, they have not changed their disclosure of key audit matters in 2017
because it was the same in previous year. The first key audit matter in relation to the
company is the assessment of future cash flows wherein judgement is compulsory for every
cash-generating units that can be used to assess the recoverable amount of Property, Plant,
and Equipment. This also includes the intangibles’ recoverable value in the company’s
financials. In addition, the recoverable value of investments is also included in the
subsidiaries of the company (BHP Billiton, 2017). The next key audit matter is the cash flows
of future in association with the forward-looking estimates and this also requires judgement
of auditors as the same cannot be determined accurately. BHP has also selected assets
valuation as a major matter due to sizes of balances that require judgement in evaluating the
efficacy of inputs used in analysing their recoverable value. Moreover, pursuing different
affairs in different companies also attract different types of taxes like corporation tax,
royalties, etc that are associated with international transfer pricing (BHP Billiton, 2017).
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