Communication of Key Audit Matters as per New Auditing Standard

This article discusses the new auditing standard ASA 701 and its importance in communicating key audit matters to shareholders. It provides an analysis of audit reports of Telstra Corporation and TPG Telecom Limited, highlighting the key matters disclosed by the auditors. The article also explains the importance of the new standards and how auditors comply with reporting requirements. The purpose of communicating the key audit matters to the shareholder is to enhance the communicative value of the auditor’s report by providing greater transparency about the audit that was performed.

l 2018

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By student name
Professor
Date: 21 May, 2018.
Executive Assessment
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In this assignment the key matters of communication as per the new auditing standard has been
discussed and all important matters related to that has been highlighted on terms on how it is beneficial
for the auditors and the companies. Based on Audit report investor take important decisions related to
the company and also invest in the company. Purpose of communicating the key audit matters to the
shareholder is to enhance the communicative value of the auditor’s report by providing the grater
transparency about the audit that was performed
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Contents
Introduction...........…………………………………………………………………..........…..4
Analysis.......................……………….......................................................................................4-7
Conclusion.......................………………...................................................................................8
Recommendation.......................………………........................................................................9
Introduction
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The Auditing Standard ASA 701 “Communicating Key Audit Matters in the Independent Auditor’s
Report” issued by Australian university Auditing and Assurance standards Board (AUASB) deals with the
key Audit matters that the auditor needs to consider in his audit report. Key audit matter means those
matter that, as per the auditor’s professional judgment were of most significant in the audit of financial
statement of current period. These matters were address in the context of our audit of the financial
statement, and in forming our opinion thereon and we do not provide a separate opinion on these
matters. There are following item which materially affected the financial statement of the company that
item are the Key matter which is necessary to the auditor consider in their audit report (Alsagoff, 2010).
This standard is considering whether financial statement is prepared as per the applicable reporting
framework or not, such financial statement shall consider the Key point which are materially affected on
financial statement of the company, auditor shall consider such key audit matter of the company.
Auditor shall communicate the key audit matter to the share holder of the company. Further auditor
shall check whether management provide the proper disclosure in the financial statement that is
required by management to achieve the fair presentation of financial statement. It is to be checked that
management has properly provide the details of going concern Assumption or any other individual
matters which are necessary. This standard is applying to audits of complete sets of general purpose of
financial statement of listed entity and circumstances when the auditor otherwise decides to
communicate key audit matters in auditor’s report.
Analysis
This standard is very important for the investors of the company. Based on Audit report investor
take important decisions related to the company and also invest in the company. Purpose of
communicating the key audit matters to the shareholder is to enhance the communicative value of the
auditor’s report by providing the grater transparency about the audit that was performed. Another
purpose of communication with the management to provide the additional information to the intended
users of financial statements to assist them in understanding those matter that, in the auditor’s
professional judgment, were of most significance in the audit of the financial statement of current
period. Further it is communicated to provide the assistant to the intended user in understanding the
entity and area of significant management judgment in the audited financial statement or to provide a
basis to further engage with the management and those charge with governance about certain matters
relating to the entity, the audited financial statement or the audited that was performed.
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The detailed analysis of the given standard is stated below. The key aspects of this standard include the
points given below
 As per this standard ASA 701 auditor of a listed company are communicate Key matters that are
present in the financial statements of the company. The auditor is required to take important
decisions and highlight all the key matters and check whether any mistake in the financial
statements are arise or not. This standard is mandatory to follow for all the listed companies
and the auditors needs to follow this standard when they are preparing their audit report for
the company (Boghossian, 2017).
 For the other than listed company Auditor needs to decide which matters are important and
materially effect for the company. Such important matters are considered by the auditor in
their audit report. Basically it’s a discretion of auditor to decide the materiality of the item
 There are Few important matters which the auditor needs to follow when they are determining
the key audit matter for preparations of their audit report;-
The auditor shall determine, from the matter communicated with those charge with
governance, those matters that required significant auditor attention in performing the audit. In
making the determination auditor shall consider the following:
i) Auditor shall assess higher risk of material misstatement or significant risks are identified as
the manner given in another standard.
ii) Significant auditor judgment relating to area in the financial statement that involved
significant management judgment including accounting estimates that have been identified
as having high estimation uncertainty.
iii) The effect on the audit of significant event or transactions that occurred during the period.
 The auditor shall determine which of the matters so determined above were of most significant
in the audit of the financial statement of the current period and therefore are the key audit
matters.
 This audit standard considered the description of each key audit matter. In the section of Key
audit matters auditor report shall include the why the matter was considered to be one of the
most significance in the audit and therefore determining to be key audit matter and how the
matter was addressed in the audit report.
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 The are some circumstances in which a matter determined to be a key audit matter is not
communicated in the auditor’s report. The auditor shall describe each key audit matter in the
auditor’s report unless;
The Law or regulation prescribe the such disclosure which are for public, and In the extremely
circumstances, the auditor determines that the matter should not be communicated in the
auditor’s report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefit of such communication. This shall not apply if the entity
has publicly disclosed information about the matter (Cayon, Thorp, & Wu, 2017).
 This standard provides all the necessary steps which the auditor need to follow for providing the
audit opinion in the financial statement of the company. Further benefit of mentioning the key
audit matter in the audit report is stakeholder of the company can see those key matters and
then decide the performance of the company. And investor can invest on the basis of such audit
report.
Importance of new standards
The auditing standard ASA 570 “Going concern” issued by the by Australian university Auditing
and Assurance standards Board (AUASB). This standard deal with the auditor’s responsibilities in
the audit of financial statement relating to going concern and considers the implications of the
same in their audit report. Management of the company are responsible to make going concern
assumption in the company.
Under the going concern entity’s financial statement are prepared on the assumption that the
entity is going concern in foreseeable future. An auditor of a company check going concern basis
of accounting is appropriate or not assets and liabilities are recorded on the basis that the entity
will be able to realize its assets and discharge its liability in the normal course of business.
Management responsibility to assess the entity can continue as a going concern or not. Further
as per this standard responsibility of the auditor to obtain sufficient appropriate audit evidence
regarding the going concern assumption made by the management. Based on such Audit
evidence auditor needs to conclude whether a material uncertainty exist about the entity’s
ability to continue as a going concern. Further auditor needs to identify the risk involve in the
entity, auditor shall find any indicator regarding going concern assumption and auditor is unable
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to obtain sufficient appropriate audit evidences regarding such indicator than auditor shall
consider such indicator in their audit report (Cayon, Thorp, & Wu, 2017).
The above standard are analysed with the help of audit report of two companies, and see how the
auditors had complied these reporting requirement in their audit report. Auditor needs to disclose the
key matter of company and any indicator regarding the going concern assumption of the company. The
two companies that have been selected for comparison Telstra Corporation and TPG Telecom Limited.
These companies are part of the ASX100 List and they are the top companies of the telecom sector in
Australia. The annual reports of the company have been downloaded and analysed (Explaining auditors’
propensity to issue going-concern opinions in Australia after the global financial crisis, 2017).
The TPG Telecom is an Australian company that deals in providing telecom sector based
services, which is very cost effective and reliable for the people. The revenue of the company runs into
million since the time it was founded in 2008. The annual reports of the company have been audited by
the KPMG, and they have highlighted key matters in their audit reports accordingly.
The audit report of the TPG Telecom consists of the following key matters that have been highlighted
below by the auditors-
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As we can see in above audited audit report that the auditors have highlighted certain matters which
they feel are related to the company, such matter are affecting the company’s financial position. The
most important matters that auditor has included in their audit report is treatment of revenue
recognition. Basically, these companies deal to provide the services of high speed usage of internet,
which include a very high billing system in the company and the revenue of the company is spread to
different areas. In case of telecom sector different approaches are followed for valuation of their
services. Here the auditor has stated the proper ways of following which they have audited these
aspects of the financial statements of the company. Further auditor shall also consider the valuation of
goodwill and the method of valuation of goodwill are reported by the auditor. So, we see that the
auditors have provided necessary disclosure on all key matters that might affect the company as the
manner prescribe by the standards. Now the investors can do the analysis of audit report and then
decide whether to invest in this company or not (Eisemann, Parker, & Alstyne, 2017).
The audit report of the Telstra Corporation consists of the following key matters that have been
highlighted below by the auditors-
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Telstra Corporation
This is also one of the leading companies in the telecom sector which deals in mobile phones and tablets
and provides other telecom based services to the people. Financial statements of Telstra Corporation
are audited by EY. The company was started in 2015 and since then the company has made millions in
terms of revenue. The key matters have been stated by the auditor in his report and they have put more
resilience to the fact of going concern that is very important aspect of company. As per the applicable
accounting standard the auditor should check whether management are prepared the financial
statement of the company as per the applicable accounting standard or not and auditor shall check that
all key areas that might affect the company and should provide proper disclosure regarding the same in
their annual report of audit.
The key matter of Telstra corporation has been highlighted in the audit report would include following
important points: -
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 Since the Telstra Corporation provide the high usage of internet service, and valuation of the
same are becomes important matter for this company. The auditor has analysed the same and
has stated how they have proceeded with that. It is an important matter as it will materially
affect the revenue of the company and financial position of the company. Hence the auditor
needs to report the same in their audit report (Wang, Chiu, li, & Hsiao, 2018).
 Impairment of goodwill is another key matter which needs to be disclosed by the auditor in their
audit report
 Amortisation of goodwill is also the key aspect which needs to be disclosed
 All Key Significant matters have been included in the audit report of the company by the auditor.
The investors can check and decide whether the company involves the risk or not (Coate &
Mitschow, 2017). Thus, these are the few areas in which the auditor feels sceptic and has stated
it in his audit report clearly; -
Conclusion
Based on the entire analysis of the company auditor comment that in auditor’s opinion the above
financial statement is free from all the material miss statement prepared as per the applicable financial
reporting frame work and followed all the accounting standards. Since Audit report is mirror of any
company which shows the financial activity in the company. Based on auditor’s report investor can do
the analysis and take an investment decision because Audit is an independent examination of the
financial statement of the company to take important decisions.
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References
Alsagoff, N. (2010). Microsoft Excel as a tool for digital forensic accounting.
Boghossian, P. (2017). The Socratic method, defeasibility, and doxastic responsibility. Educational
Philosophy and Theory, 50(3), 244-253.
Cayon, E., Thorp, S., & Wu, E. (2017). Immunity and infection: Emerging and developed market sovereign
spreads over the Global Financial Crisis. Emerging Markets Review.
Coate, C., & Mitschow, M. (2017). Luca Pacioli and the Role of Accounting and Business: Early Lessons in
Social Responsibility.
Eisemann, T., Parker, G., & Alstyne, M. (2017). STRATEGIES FOR TWO SIDED MARKETS.
Explaining auditors’ propensity to issue going-concern opinions in Australia after the global financial
crisis. (2017). Accunting and Finance, Carson,E;Fargher,N;Zhang,Y;.
Wang, Z., Chiu, Y., li, Y., & Hsiao, L. (2018). Performance appraisal for the operation and management of
listed and OTC Taiwanese companies with DEA benchmarking models.
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