Auditing Process and Key Audit Matters

The provided project report focuses on the auditing process, involving the analysis of annual reports to gain insight into a company's performance. Auditors examine financial statements, provide opinions, and address key audit matters identified during the process. The report also highlights the significance of following accounting standards and corporate governance laws. It concludes that auditors play a crucial role in ensuring the accuracy and relevance of recorded information.

AUDITING

EXECUTIVE SUMMARY
This project report summarises the concept of auditing. In this project report the annual
reports of K&S Corporation Ltd are examined to provide the information the current status of
the company. There are two key audit matters are also discussed in this project reports that are
identified by the auditors while evaluation the financial statements of the company.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
Overview of the company...........................................................................................................1
Auditor's independence declaration............................................................................................1
Non auditing services in the company........................................................................................2
Auditor's remuneration................................................................................................................2
Key audit matters in K&S Corporation Ltd................................................................................3
Audit committee..........................................................................................................................3
Audit opinion..............................................................................................................................4
Responsibilities of Directors and auditors..................................................................................5
Material subsequent events.........................................................................................................6
Assessment of the effectiveness of the material information reported by the auditor................7
Missing material information......................................................................................................7
Questions asked by auditors in AGM.........................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Auditing is the process of evaluating and checking financial statements of a company and
provide judgement that all the recorded information is correct or not and is it relevant to the
annual reports or not. It is a function which is performed by an auditor to analyse transparency of
financial statements of a company. An auditor is responsible to properly examine the annual
reports of the company and give opinion on the financial statements (Arens, Elder and Mark,
2012). Auditors are responsible to analyse and examine the financial statements of the company
and give their opinion of the information which is shown in the statements. The main objective
of auditing reports is to examine various things such as performance, position, financial status
and the level of transparency in annual reports of the company. The company which is chosen
for this project report is K&S Corporation Ltd which is a transportation company and established
in Australia.
This project report consist independence declaration of auditor and the report, non audit
services that are performed by auditor and remuneration, roles, function and composition of audit
committee, key audit matters of the companies and their procedures.
Overview of the company
K&S Corporation Ltd.: It is a transportation company which is mainly based in
Australia. It was formed in 1945 and operated for many years supporting Mt Gambier and
Victorian based business. It has expand its business in 1978 in to the field of national rail freight
forwarding. It was purchased by Allan Scott in 1988. It has also started the operating in first B
Double combination at Victoria in 1991. It has acquired Stepnell Transport in 2001 and it has
also acquired the Cochrane's transport by expanding its business in New Zealand's market in
2002. It has also expanded its business in western Australia and other places.
Auditor's independence declaration
Auditor's independence: It refers to the independence of the auditor from external
parties who may influence the auditor and affect the decision of the auditor (Wang and et. al.,
2013). These parties may affect the decision of internal and external auditor. The auditors of
K&S Corporation Ltd. are complied with the independence requirement. An auditor is liable to
declare two main points that are as follows:
1

 No disputes of the auditor's freedom requisite of the corporations act 2001 to the auditing
procedure.
 No resistance of any relevant codification of professional activity in relation to the
auditing.
There are two different auditors who are liable to examine the annual reports of K&S
Corporation Ltd. These auditors are Ernst & Young and Mark Phelps partner.
Non auditing services in the company
Non Audit services: These are professional services that are provided by a qualified
auditor or accountant. It refers to those services that are not related to the auditing work, for
example assembling the financial statement is a non audit service (Louwers and et. al., 2015). It
includes tax planning, wealth management, business evaluation and other consulting services. In
K&S Corporation Ltd. In year 2017 the auditor Ernst & Young of the company has provided one
non audit service which is tax software implementation and the fund used or the auditor has
received for this services was $14911. The executives of K&S Corporation Ltd. are contented
that the preconditions for the non audit services was congruous with the generic regulation of
independence for auditors enforced by the corporation act.
Auditor's remuneration
Auditor's remuneration: It is an amount which has to be paid by the owner or director
of the company to the auditor to perform duties that are examining, evaluating and analysing the
annual reports of the company and providing their opinion the same (Knechel and Salterio,
2016). A comparison of the auditor's remuneration of K&S Corporation Ltd. is provided in the
following table:
Particular 2016 2017
Changes in
%
Audit services 179600 186000 103.56
Other services
Tax software implementation services 17500 14911 85.21
Asset valuation assistance 5900 nil
Total auditor's remuneration 203000 200911 98.97
2

From the above table it has been analysed that changes in percentage in 2017 for audit
services 103.56 %, for tax software implementation services it is 85.21% and the percentage
changed in total remuneration was 98.97%.
Key audit matters in K&S Corporation Ltd
Key audit matters: These matters are addressed by the auditors in the context of their
audit of the overall annual reports, and in forming their opinion, but the auditors do not provide
any specific opinion on these type of matters (Key audit matters, 2017). It includes such matters
that are mainly based on the professional judgement of the auditor of an organisation. The
auditor of K&S Corporation Ltd has found two key audit matters. Both the matters are described
below:
Merger with Scott's Transport industries Pty Ltd (STI): This matter was occurred
because of the complexness of the transaction. Both the companies STI and K&S Corporation
Ltd are controlled by same shareholders, and they have determined the merger to to make a
business combination which is controlled by same authority. As an outcome the excavation of
involvement method has been applied. The purpose of the direction is depended on the opinion.
Procedure: The auditors have analysed the suitability of the companies that are using the
method of pooling interest. They have assessed that the reflected amount of assets and liabilities
of STI are is on carrying value or not and the accounting plan of action of STI allied K&S. The
auditors have checked that variation between the consideration provided by K&S Corporation
Ltd and the equity adopted by STI was relatively conferred by the managers of K&S. They have
also analysed the sufficiency of the related discloser.
Impairment assessment of intangible assets: On 30 June 2017, the auditors have found
the insufficiency between the net assets and market estimation of the company which is an signal
of vitiate. The identified impairment was carried out on the company's CGU. It is required to the
companies to refer instruments for the discount rate, cash flows, long term growth rates and
distribution of corporate costs. The uncertainty involved in the estimation of upcoming results
for the computation of damage.
Procedure: The auditors have analysed the company's estimation which is used in the
damage model. They have specially examined the cash flow estimations, discount rates, growth
rates with the help of external market data. They have also assessed the historical quality of the
company's forecasting policies.
3

Audit committee
Audit committee: It is formed by the directors of the company and liable to supervise
the financial reporting and its revealing (Furnham and Gunter, 2015). All the companies are
instructed to formulate an audit committee in the organisation that may control the auditing
process of the organisation.
In K&S Corporation Ltd an audit committee is formed by the directors which is going to
operate its work under a charter that is approved by the Board or the directors.
Responsibilities and functions of Audit committee charter:
 Main responsibility of audit committee charters is to assure that an impressive internal
control structure exists within the organisation.
 It is also liable to deal with the effectiveness and efficiency of different business
procedures.
 The main function of audit committee charter is to safeguard the assets, maintain proper
accounting records and record such information which is reliable.
 Another function of audit committee charter is to oversee the recording process of the
financial information.
 Provide assurance to the directors related to the reliability of the information which is
recorded in the financial statements.
 To review the scope and independence of external auditing process.
 To analyse the comments of auditors and advice on the performance, remunerations and
appointment of the auditors.
Audit committee members: There are two audit committee members and both were non
executive directors (Smith-Lacroix, Durocher and Gendron, 2012). First member of audit
committee is Mr. Smith who is the chairman of audit committee, and the directors of the
company consider him to be independent. Another member of audit committee is Mr. Johnson
and the directors of the company do not consider him to be independent. Both the members have
attended the audit committee meetings that are conducted within the organisation.
Audit opinion
It refers to the declaration which has been made by the auditor after analysing the annual
reports of the organisation (Chan and Vasarhelyi, 2018). The companies are liable to follow the
corporations act 2001 while recording the transactions in the financial statements. The auditors
4

have conducted the auditing program of K&S Corporation Ltd which is based on the Australian
auditing standards. They are mainly responsible for the auditing of the financial reports of the
company. The auditors have audited the annual reports of K&S Corporation Ltd and its
subsidiaries and following opinions are provided by the auditors of the K&S Corporation Ltd
about the financial statements of the company:
 The company is providing the actual, relevant and fair view of consolidated financial
position of the organisation and also providing the accurate financial status of the
company.
 The company is following the Australian Accounting Standards and the corporation
regulations act 2001.
The auditors believe that the audit evidence which have been obtained by them was
sufficient and appropriate to provide the opinion on the annual reports of K&S Corporation Ltd.
The auditors have also fulfilled the responsibilities that are to properly analyse the financial
statements, to check the accuracy and other (Barton and Bruder, 2014).
Responsibilities of Directors and auditors
Responsibilities of directors or management:
 Directors of K&S Corporation Ltd are liable to accurately prepare the financial
statements of the company and record actual information the reports.
 Directors should follow the Corporation act 2001 and Australian Accounting Standards
while recording transactions in the annual reports of the company.
 They are responsible to provide a fair view of company's actual position and
performance.
 The directors are responsible for analysing the ability of the company and its subsidiaries
to continue the business which is based on going concern concept, disclosing actual
information.
 The directors are also liable to ignore frauds or misrepresentation while generating
financial reports.
All the above mentioned responsibilities are related to the directors but the auditor's
responsibilities are different from them.
Responsibilities of auditors:
5

The objectives of the auditor is to make sure that the financial statement that are
presented by the company do not consist any information related to fraud, it should be free from
the misstatement of material and to make a report on the company's actual performance.
Following are the responsibilities that has to be fulfilled by the auditor:
 Analyse the financial statements to identify risks related to the misstatement of material,
which may be occur due to fraud or any error, design and perform the auditing process
with full responsibility and check every information carefully. The risk of not detecting
the material misstatement will result high than other which may occur because of an
error (Griffiths, 2016).
 The auditor is liable to obtain an understanding of internal control which is relevant to the
auditing process that may provide the appropriate opinion on the reports of the company.
 Examine the truthfulness of the accounting policies that are framed by the directors and
to analyse the provided informations.
 Determine the performance of whole organisation, its structure, and the informations that
are recorded in the financial statements.
 The auditors are responsible to provide the accurate opinion, supervise the auditing
process of company and its subsidiaries.
 Find out the optimum audit evidences that are related to the financial information of the
company.
The auditors communicate with the directors about the matters they found in the reports
and provide their reports to the directors which is compiled with the relevant requirements.
Material subsequent events
Material subsequent events: A subsequent event occurs after a reporting period, but
before the date of forming financial statements for that period (Hope, Langli and Thomas, 2012).
It depends upon the situation that the event requires the disclosure of financial statements or not.
It can affect the opinion of investors whether they should invest in the company or not.
There is no material subsequent event in K&S Corporation Ltd. but the organisation is
willing to expand its transport and logistic operational activities in next year by extending its
services in Australia and following the current technology in the market to reduce the cost and
improve the services provided to the customers.
6

Assessment of the effectiveness of the material information reported by the auditor
As a stakeholder like investor, supplier or creditor, the most important information which
is provided by the auditor is the effectiveness of the material information, performance of the
company, cash flow system, market image and other information. For example, the most
important information for an investor is the market image and performance of the company, for
supplier the most important information is the cash flow management system of the company,
for a creditor the credit policies of the company is very important while assessing the
effectiveness of an organisation (Bell and Griffin, 2012). In K&S Corporation Ltd all the above
information is very important for the stakeholders, because these informations help to to make
different decisions like make investments, provide credit, supply goods and other.
Missing material information
It refers to the information which is purposely not disclosed by the directors in the
financial reports (AICPA, 2017). It can make a high negative impact on the opinion of the
auditor. In K&S Corporation Ltd there is no missing material information found by the auditors
in financial statements.
Questions asked by auditors in AGM
Q1 What is the percentage of net profitability which is proposed as the remuneration?
Q2 Do the company is following the Corporation act 2001 and Australian accounting
standards?
Q3 Do the company pay for non audit services to the auditors?
Q4 Do the finance department of the company has cooperated with the auditors or not?
CONCLUSION
From the above project reports it has been concluded that auditing is the process of
analysing annual reports of an organisation to get an insight of the company. Auditors are liable
to examine the financial statements and than provide their opinion on the same. Different key
audit matters are also discussed in this report that are identified by the auditors. Auditor
evaluates that the organisation is following the Accounting standards and corporation act 2001
properly, and the information recorded by the accountant is relevant or not. They also discuss the
identified issues with the directors. They get remuneration for their services that are provided to
the company whether it is audit or non audit services.
7

REFERENCES
Books and Journals:
AICPA, 2017. Statement on Auditing Standards, Number 126: The Auditor's Consideration of an
Entity's Ability to Continue as a Going Concern (No. 126). John Wiley & Sons.
Arens, A. A., Elder, R. J. and Mark, B., 2012. Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Barton, H. and Bruder, N., 2014. A guide to local environmental auditing. Routledge.
Bell, T. B. and Griffin, J.B., 2012. Commentary on auditing high-uncertainty fair value
estimates. Auditing: A Journal of Practice & Theory. 31(1). pp.147-155.
Chan, D. Y. and Vasarhelyi, M. A., 2018. Innovation and practice of continuous auditing. In
Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing
Limited.
Furnham, A. and Gunter, B., 2015. Corporate Assessment (Routledge Revivals): Auditing a
Company's Personality. Routledge.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Hope, O. K., Langli, J. C. and Thomas, W. B., 2012. Agency conflicts and auditing in private
firms. Accounting, Organizations and Society. 37(7). pp.500-517.
Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Routledge.
Louwers, T. J., and et. al., 2015. Auditing & assurance services. McGraw-Hill Education.
Smith-Lacroix, J. H., Durocher, S. and Gendron, Y., 2012. The erosion of jurisdiction: Auditing
in a market value accounting regime. Critical Perspectives on Accounting. 23(1). pp.36-
53.
Wang, C., and et. al., 2013. Privacy-preserving public auditing for secure cloud storage. IEEE
Transactions on computers. 62(2). pp.362-375.
Online
Key audit matters. 2017. [Online]. Available through:
<http://www.ksgroup.com.au/wp-content/uploads/documents/KSAnnRep17FINAL.pdf
>
8