Audit and Assurance of BHP Billiton

This report focuses on the auditor’s responsibilities, acts, roles and opinion given on the financial statement prepared by BHP Billiton Company. It helps in analyzing the auditor’s responsibilities and roles and director’s roles and responsibilities toward the company and stakeholders.

BHP BILLITON
Audit and Assurance
University Name
Name of the author-

EXECUTIVE SUMMARY
With the changes in economic condition, auditing and assurance program have been
gaining momentum throughout the time. It is analyzed that auditing and assurance program is
undertaken with a view to strengthen the fairness of the recorded accounts in the financial
statement of company. It is analyzed that company needs to comply with the applicable rules
and accounting standards if it wants to win the trust of the stakeholders throughout the time.
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Table of Contents
EXECUTIVE SUMMARY...................................................................................................................1
INTRODUCTION.................................................................................................................................2
AUDITOR’S INDEPENDENCE..........................................................................................................3
PROVISION OF NON-AUDIT SERVICES.........................................................................................4
AUDITER REMUNERATION.............................................................................................................4
KEY AUDIT MATTERS......................................................................................................................5
AUDIT COMMITTEE & AUDIT CHARTER.....................................................................................8
STRUCTURE....................................................................................................................................8
FUNCTIONS........................................................................................................................................9
RESPONSIBILITIES......................................................................................................................10
AUDIT OPINION...............................................................................................................................10
DIFFERENCE BETWEEN THE RESPONSIBILITIES OF MANAGEMENT AND AUDITOR.....10
MATERIAL SUBSEQUENT EVENTS..............................................................................................11
CONCLUSION...................................................................................................................................11
REFERENCES....................................................................................................................................12
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INTRODUCTION
With the ramified economic growth and complex business structure, each and every
organization needs to get their accounts audited from the qualified auditors. In this report,
BHP Billiton Company has been selected to determine the auditor’s opinion, work functions
and auditor’s responsibilities as well. Auditors need to analysis whether the accountant of the
company has complied with the international accounting standards while preparing the
financial statements or not. After analysing the annual report of BHP Billiton Company, it is
found that auditors have focused on providing the auditing and non-auditing services to
clients. In the audit report, it is revealed that company has followed all the listing rules and
regulation and also complied with the applicable corporation laws and regulation. This report
focuses on the auditor’s responsibilities, acts, roles and opinion given on the financial
statement prepared by company. This report helps in analysing the auditor’s responsibilities
and roles and director’s roles and responsibilities toward the company and stakeholders. The
current auditor of the company is KPMG who has undertaken the auditing and assurance
program in the business functioning of organization (Porter, Hatherly, and Simon, 2008).
It is analyzed that audit committee should also be convinced by auditors that the auditors are
independents in their operations (Sirois, Bédard, and Bera, 2018).
AUDITOR’S INDEPENDENCE
The auditor’s independence is based on the relation of the auditors and undertaken
business transactions undertaken by the auditors. It is analyzed that auditors acts in the best
interest of the stakeholders which assists stakeholders to identify the true and fair view of the
recorded books of accounts (Štangová, 2017). It will also help in keeping the financial
statements transparent to the stakeholders. As per the listing rules and regulation, every
auditors needs to submit the independence of the eligibility of the auditors before appointing
as auditor in company. The KPMG is the carrying the independence auditing eligibility
intent with the company as it has not been indulged in any pecuniary relation with the
company. All the auditors who are the member of the KPMG have no direct and indirect
relation with the business functioning of Organizaiton (BHP Billiton Company. 2016). The
auditors of the company have been KPMG. All the declarations both from the side of the
management and the entity are evident in the annual report. The main focus of the study is on
the aspects related to the independence of the auditor, the audit opinion, remuneration of the
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auditors, audit committee and key audit matters undertaken in BHP Billiton Company
(Ingerman, Hynes, Benjet, and Neff, 2015).
The KPMG being in the fiduciary position towards the stakeholders take all the required acts
so that it could find any discrepancies and issues in the financial statement prepared by BHP
Billiton Company. As per the section 307C of the Australian corporation act 2001, every
auditor who wants to audit the financial statement of company needs to submit the eligibility
form before appointing as auditors. This form will divulges all the required details and cases
which will showcase the relation between the auditors and company (BHP Billiton Company,
2017).
PROVISION OF NON-AUDIT SERVICES
Auditors of the company are allowed to offer auditing and non-audit services to its
clients. It is analyzed that in case of BHP Billiton Company, KPMG has been offering
auditing and non-auditing services to its clients. In this case, auditors have taken additional
amount of consideration from the company for the non-auditing services provided by
company. It is analyzed that as per the corporation act 2001 and listing rules and regulation,
all the auditors are liable to offer non-audit services to company if they are paid for that.
However, the consideration given to auditors should be at arm length price. The KPMG
auditors of company has offered tax legal compliance services in which BHP Billiton
company was advised the possible methods which they could use to avoid the possible issues
in their tax legal compliance program and setting up the effective level of the harmonization
in its domestic and international reporting frameworks. It is analyzed that auditors have also
given the insurance services program advice to company which will allow it to secure its
business from the possible business risk in effective manner (BHP Billiton Company, 2017).
(BHP Billiton Company. 2016).
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AUDITER REMUNERATION
The audit remuneration is the amount given to auditors for the audit services
performed by auditors. Audit remuneration is given to auditors for the auditing and non-audit
services given by the auditors to company. The KPMG company has received remuneration
for all the services which it has offered to company such as offering advice to clients, tax
planning services and advising the clients about the possible business changes (BHP Billiton
Company. 2016).
The below given table assist in analysing the audit remuneration given to auditors (BHP
Billiton Company, 2017).
Audit remuneration
JUNE 2017
($) in
million
JUNE 2016
($)in
million
% change
Fees payable to auditors for the
auditing services 15867 15842 .30%
Fees and other remuneration given
to KPMG for the tax planning and
other services
0.631 1.091 150%
The audit assurance and program has been considered as audit series and the same have been
paid to auditors. In addition to this, fees and other remuneration given to KPMG for the tax
planning and other services (BHP Billiton Company. 2016).
KEY AUDIT MATTERS
There are several key audit maters which is followed by the auditors to keep the
business and financial transaction of the BHP Billiton Company more transparent to
stakeholders. The audit assertion test and observation have been followed by KPMG auditors
to identify whether company has shown the right value of the assets and liabilities recorded in
its books of account (Ramsay, 2015).
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The below given table reflects how auditors have followed the key audit matters with the
given audit procedures (BHP Billiton Company, 2017).
KEY AUDIT MATTER AUDIT PROCEDURE
PERFORMED
CLASSIFICATION OF
AUDIT PROCEDURE
1. Audit control to identify the
audit risk model to cover the
inherent, detention and
control risk in the financial
statement
The auditors will have to
analysis the financial
statement of company before
implementing the risk model.
The nature of the BHP
Billiton is very risky
therefore, the audit control
risk model will set all the
inherent, detention and
control risk in the financial
statement high. It will keep
the business transactions safe
and secure.
Assertion test and
observation would be used
with the implemented risk
model to identify the risk
associated with the prepared
financial statement.
2. The strategic alliance and
undertaken business
evaluation
It will analysis the financial
statement of the other
business units. The proper
management representation
letter would be used to
identify whether company
has recorded right value of
the assets and liabilities in its
books of accounts (BHP
Billiton Company, 2017).
The substantive test and
observation test would be
used to identify the true and
fair view of the books of
account of the consolidated
financial statement.
3. Impairment test The impairment test needs to
be evaluated whether BHP
The analytical procedure and
undertaken impairment test
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Billiton company has
complied with the AASB 136
while recovering the right
value of the assets (BHP
Billiton Company, 2017).
would be followed.
It is analyzed that company has complied with the coronation act and listing rules for the
preparation of the financial statement. The auditor’s opinion has also been analysed to
identify the issue in keeping the business more transparent (Salvioni, and Astori, 2015).
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AUDIT COMMITTEE & AUDIT CHARTER
The audit committee and charter have been appointed to determine whether managers
and accountants are not manipulating the financial data of company and keeping the business
more transparent. The audit committee is managed by the four auditors and one two auditors
indulged in the business audit charter. The matters relating to the auditor report involve his
opinion, key audit matters, and the declaration given for the responsibilities of management
and the auditors (Blowfield, Karam, and Jamali, 2017) The details relating to the audit
committee are also reported. Further the remuneration has also to be shown separately for
both audit and non-audit services presented by the auditors to the company. Moreover, the
audit committee has to check whether the provisions off the non-audit services extended by
the auditors to the company have been in line with the independence requirements of none
They have gathered all the sufficient and appropriate evidence required to form a base for the
opinion set Analysing whether there are any changes that are possible to happen in the
assumptions made by the entity that could indicate requirement of impairment (Louwers, et
al. 2015).
STRUCTURE
The structure of the audit committee is designed on the basis of the listing rules and laws
given in the corporation act. It is analyzed that audit committee is managed by the four
auditors and one two auditors indulged in the business audit charter. These members identify
whether company has made any discrepancies in recording the books of accounts and
evaluate the business transparency of the company. The auditors of the KMPG are indulged
in providing its auditing services in the best interest of the stakeholders (Knechel, and
Salterio, 2016).
The structure of the audit committee of company is determined as fellow. The Lindsay
Maxsted is the chain of the audit committee and the member of the audit charter. The
Malcom Broom is also head of the executive audit member who is also member of the audit
committee. Andrew few and Marlay would also be auditor for the company along with the
other auditors (BHP Billiton Company, 2017).
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(BHP Billiton Company. 2016)
FUNCTIONS
The main function of the auditors is to offer the audit services and assist company to maintain
the transparency in the financial statement. It helps company to keep the business sustainable
in long run and also comply with the applicable laws and regulation (Thompson, 2018).
 Evaluation the appropriateness of the going concern assumption made by the directors. Along
with other audit evidences, gathering sufficient and appropriate audit evidence regarding this
assumption also.
 Evaluation of the disclosures made in the notes regarding the intangible assets to determine
the adequacy of judgements and estimates
 To check whether the presentation made in the financial reports thrives for fairness or not.
 To formulate the opinion and to express the same, gathering sufficient and appropriate audit
evidence. These evidences must make the auditor certain to a level that enables him to
provide a reasonable assurance regarding the business activities of the entity.
 Overseeing the proper implementation and existence of the internal control function in the
entity (BHP Billiton Company, 2017).
 Compliance with the internal audit functions within the organisation.
 Ensuring whether the internal audit function is headed properly and is working as per the
requirements.
 Undertaking the oversight function of the management risk persisting in the organisation.
 To look whether all the statutory requirements and accounting standards are being complied
with in the entity (BHP Billiton Company, 2017).
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RESPONSIBILITIES
It is analyzed that the responsibilities of the auditors is based on the audit and non-audit
services which KPMG has offered to company (Clark, et al.., 2017).
 Auditors need to take the management representation letter from the directors of company for
the all the financial information recorded in the books of accounts of company.
 Auditors’ needs to analysis the whether company has made any fraud, errors and
misstatement while recording the financial details in company.
 Auditors need to identify whether company has complied with the Australian listing rules and
regulations while undertaking particular actions (BHP Billiton Company, 2017).
AUDIT OPINION
After analysing the audit report given by the auditor of BHP Billiton company, it is
found that company has maintained strengthen legal compliance reporting frameworks and
KPMG has given non-qualified audit report. However, the clean report is also not an absolute
assurance regarding the fairness of the financial statements. There are chances that some
internal frauds and misstatements are forged deep intentionally that cannot be levelled up
with the procedures that the auditor performed. Every kind of work that the auditor is doing
in his professional capacity is bound to follow the independence requirements. The auditor
has also maintained its independence while auditing the financial statement company. As per
the declaration of the auditors, company will sustain its business in long run (BHP Billiton
Company, 2017).
Follow up question
The follow up question which I would ask form the auditors at the general meeting would be
whether they took management representation letter for the information shared with him by
the directors when he was auditing the financial statement.
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DIFFERENCE BETWEEN THE RESPONSIBILITIES OF MANAGEMENT AND
AUDITOR
The main responsibility of the auditor is to analysis the whether company has made any
fraud, errors and misstatement while recording the financial details in company. They all
have to make sure that they have maintained effective audit and assurance program while
auditing the financial statement of company. To erase out the scepticism that the users might
develop for the information published by the organisation, it becomes necessary for the entity
to hire external auditors to get the books audited. The directors are responsible to maintain an
internal environment that is consistent with the ethical standards. The opinion of the auditor
needs to be based on certain evidences that count to be sufficient and appropriate. There are
many ways to conduct an audit the way all material information is reported in the report and
the transparency of the actions make it a very effective presentation. Director’s needs to make
sure that there are no latent representations that might have been hidden from the auditors
(Mock, Ragothaman, and Srivastava, 2018).
MATERIAL SUBSEQUENT EVENTS
BHP Billiton Company has recorded several subsequent events which have also impacted the
profitability, liquidity and business efficiency of company. The annual report has reflected
that company has changed its business profit and faced loss of US $ 7.6 billion in the current
year. However, the main losses have arisen due to the increased business costing and interest
expenses payment to lenders. In addition to this, tax implication has also one of the reasons
for the low amount of return on capital employed to company. The material subsequent
events have shown that company needs to work on its legal compliance program and
strengthen its business functioning to make its business more sustainable in long run (Chan,
Chiu, and Vasarhelyi, 2018). There is no such other information which have been hidden
from the stakeholders.
CONCLUSION
There are several subsequent events auditors program which have resulted to the
increased business transparency to the stakeholders. It is analyze that BHP Billiton should
establish the harmonization in its domestic and international reporting frameworks if it wants
to keep its business more effective in long run. Nonetheless, there is also need to arrange the
document which could reflect that all the transaction with the auditors have been entered at
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the arm length price. It is inferred that if company wants to win the trust of its stakeholders
then it will have to keep its business more transparent. The auditor’s roles, responsibilities
and auditing legal compliance are the some of the important parts which are followed by
auditors in the best interest of the stakeholders.
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REFERENCES
BHP Billiton Company. (2016). Annual report. Available at https://www.bhp.com/investor-
centre/annual-reporting-2017., Accessed on 19th September, 2018
BHP Billiton Company. (2017). Annual report. Available at https://www.bhp.com/investor-
centre/annual-reporting-2017., Accessed on 19th September, 2018
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Application. 2nd ed, Australia: Emerald Publishing Limited.
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2015. Auditing & assurance services. 2nd ed, Australia:McGraw-Hill Education.
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.
Porter, B., Hatherly, D. and Simon, J. (2008). Principles of external auditing. Chichester,
England: John Wiley.
Ramsay, D., 2015. Legal risk what, why and how?. Governance Directions, 67(2), p.90.
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Salvioni, D. and Astori, R., 2015. Sustainable development and global responsibility in
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