Enhanced Audit Report of CSL Ltd for Financial Year 2018

This article discusses the enhanced audit report of CSL Ltd for financial year 2018, including key audit matters and procedures performed. It covers topics such as independence requirements, non-audit services provided, and analysis of auditor's remuneration. The article also includes information on the audit committee, audit opinion, and directors' and management's responsibilities.

Audit Assignment

1
By student name
Professor
University
Date: 16th Sep 2018.
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Executive Summary
The main function of the enhanced audit report is to disclose all the key audit matters (KAMs)
of the company in the audit report. For the in depth understanding of the topic the annual
report for the financial year ended 2018 of an ASX listed company has been taken into
consideration, in this case the Annual Report of CSL Ltd has been considered. On the perusal of
the financial statements of the company along with its enhanced audit report, it has been
observed that the requirements of the enhanced audit report have been met by the auditors.
No material discrepancy has been reported and the audit procedures applied for all the key
audit matters have been very well addressed.
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Contents
Introduction.................................................................................................................................................4
Analysis........................................................................................................................................................5
Conclusion...................................................................................................................................................7
References.................................................................................................................................................10
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Introduction
Enhanced audit report, as the word implies, is the intensification of the standard form of audit
report which emphasizes mainly on the disclosure of the key audit matters, also known as
“KAMs”. The enhanced audit report brings about more transparency and insight into these
matters by communicating the most significant matters to the audit of the financial statements
of the organization (Alexander, 2016). The auditors are thus able to demonstrate more visibly
the value and relevance of audit to the stakeholders. The revised auditing standards, which
requires the auditors to provide enhanced audit report of companies was issued by the
Australian Auditing and Assurance Standard Board (AUASB) for financial periods ending on or
after 15 December, 2016.
Independence Requirements
The independence of the auditor is very crucial for the audit process. The Auditor should be
independent from the client company and the parties having any kind of interest in the
business of the client company, to avoid any kind of influence on the audit opinion of the
auditor resulting from the relation between them. The shareholders expects the auditor to give
them an opinion an on the financial statements which is unbiased and professional. In case
there is any threat to the independence then that will show that the audit report is not correct
in terms of the opinion involved. It is important that all such factors that might influence the
auditor and his decisions should be taken care of and there should be no risk to his stand in the
organisation as a whole.
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The declaration of independence has been signed by the partners of Ernest & Young Global
Limited for the financial year ended 30 June, 2018. The declaration states that there has been
no contravention as per section 307C of the Corporations Act, 2001 in respect of auditor
independence requirements as well as the any professional conduct applicable in relation to
the audit(Arnott, et al., 2017).
Non – audit services provided
Along with the general auditing services, the auditors are component to provide many non-
audit services also that is not a threat to their independence. As auditors it is important that
they should help the client as much as possible from their own end. During the relevant audit
period, the auditors have provided certain non-audit services to the company (Belton, 2017).
The details of the nature of non-audit services provided and amount paid or payable by the
entity to the auditor in respect of those services are provided clearly under the head Auditor’s
Remuneration. All non-audit services provided by the auditor during the financial year have
been reviewed and approved by the entity’s Audit and Risk Management Committee to ensure
the objectivity and impartiality of the auditor and the same is in compliance with the general
standards to the independence of the auditor.
Analysis of Auditor’s Remuneration
Particulars Amount in $ Percentage
Change
Remarks
Financial
Year
2018
Financial
Year
2017
Difference
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Audit Fees –
For audit and related services 4615400 4203240 + 412160 9.81% Increase
Non-audit related services -
203751 155781 + 49770 30.79% IncreaseOther assurance services
Non-assurance services 749992 879849 - 129857 14.76% Decrease
Total Fees for non-audit related services 953743 1035630 -81887 7.91% Decrease
From the tabular data given above, the audit fees for audit and related services has gone up by
9.81% in comparison to the previous year, however, the non audit related services has all over
decreased by 7.91% but if viewed separately, then the other assurance services have increased
by 30.79%, whereas there is a fall in non assurance services by 14.76%(Kim, et al., 2017). This
fall might be due to the decrease in the requirement of the entity for non assurance services or
adoption of advanced technologies.
Key audit matters and audit procedures performed
The key audit matters (KAMs) are the matters which, in the professional view of the auditor, are
of uttermost importance for the audit of the financial statements. These matters have been
addressed by the auditor in relation to the audit of the company’s books as a whole but no
separate opinion has been provided by the auditors on such matters . These declaration helps
the users to understand clearly the areas in which they should operate so that ultimately they
are able to take correct decisions regarding the company and its policies. The responsibilities of
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the auditor as described in the Auditor’s Responsibilities for the Audit of the Financial Report
section has been fulfilled.
The key audit matters which are disclosed by the auditor in the financial statements are
discussed below:
Existence and evaluation of Inventories: The inventory holding of the Group as at 30 June
2018 was $ 2,692.8 million at the cost price or net realizable value, whichever is lower.
The accounting adopted by the Group is intricate as of the nature of the products
involved and for the compliance with the accounting standards there is a risk of valuing
the inventories at a value higher than the recoverable amount, therefore, strict quality
and efficacy requirements are required. The Group has disclosed information with
respect to inventories as is covered in the notes of the financial statements (Sithole, et
al., 2017).
The auditors have done the assessment of the carrying value of inventories as well as of
the costing and also the provisions for obsolescence and net realizable value as at 30
June. The auditors have tested the existence of the inventories at regular cycle counts
through attendance which is conducted throughout the period at all the locations
having significant amount of stock holding. The appropriateness of the determination of
inventory cost have been assessed by assessing the accuracy of application of standard
costing used by the Group and also evaluation of the variances from standard costs have
been done. The auditors have also assessed whether the inventories are valued or not
at lower of cost price or net realizable value by comparing the cost of the inventories
with the current sale value at the period end, which is being supported by evidence.
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The assessment of the provisions for obsolescence as calculated by the Group has also
been done to ensure that the same is in agreement with Australian Accounting
standards.
Acquisition accounting for Ruide and Calimmune: There were three number of
acquisition made by the Group during the period, the detail of which is disclosed in the
financial statements by the entity. The accounting of acquisition of Ruide and
Calimmune is significant due to the judgement exercised by the Group in the valuation
of the purchase consideration. The recognition of Goodwill amounting to $ 415.8 million
was for the acquisition of Ruide and the recognition of intellectual properties maounting
to $ 151.5 million was for the acquisition of Calimmune(Trieu, 2017).
The auditors have studied the agreements for acquisition of Ruide and Calimmuneand
also the amendments where applicable. The auditors have analyzed various aspects
including the nature of milestone associated with contingent consideration and also for
determining whether the same has been met. The adequacy of the disclosures provide
by the Group in the financial statements have been assessed.
Tax complexities: There are various aspects related to tax which is required to be
assessed like uncertain tax positions and recoverability of deferred tax. The deferred tax
assets recognized by the Group relates to the carry forward losses amounting to $ 178.3
million. The majority of which is related to two entities, CSL Behring Lengnau AG
(Switzerland) and Seqirus UK Limited (United Kingdom). The recognition of deferred tax
assets for losses have been done by the Group on the basis of certainty that there will
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be probable future taxable profits available against which the unutilized deferred tax
assets for losses can be utilized(Werner, 2017). There are various different tax
jurisdictions under which the Group operates and all of which involves numerous risks
and regulations which are required to be complied.
The auditors have assessed the basis of determining the deferred tax assets for losses by
the Group also analyzing the Group’s viability for earning optimum future taxable profits
to set off the deferred tax assets for losses. In addition to this, the auditors have also
assessed the disclosure requirements regarding the deferred tax assets recognized as
well as unrecognized have been met by the Group or not and whether the same reflects
appropriately the position of the Group’s deferred tax position. The auditors have also
assessed the various tax jurisdictions the Group is exposed to and all relevant tax
requirements are complied with by the Group along with the provisions required to be
made under such jurisdictions.
Audit Committee
The main purpose of the Audit Committee is to supervise the in the preparation of the financial
reports and related disclosures. The Audit Committee is comprised of members and a
chairperson selected from among the members of the committee. All the members are the
directors of the company. The audit committee is a major operating committee of board of
directors of a company.
The CSL group also has an Audit and Risk Management Committee which comprises of three
Directors, Mr. Brook Bruce, who is the Chairperson of the committee and also a member of
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Nomination Committee; Ms Marie McDonald, who is also a member of the Human Resources
and Remuneration Committee and the Nomination Committee; Ms Christine O’Relly, who is
also a member of the Human Resources and Remuneration Committee and the Nomination
Committee.
Audit Opinion
In the auditor’s opinion, the annual report of the Group is in compliance with provisions of the
Corporations Act 2001. The financial statements of the company provides true and fair view of
the consolidated position of the Group and of consolidated financial positions of the financial
transaction as at the reporting date. The financial report of the company has complied with the
australian standards of accounting and also with Corporations Act and deviations from the
applicable standards and regulations have come to the notice of the auditors (Coate &
Mitschow, 2017). The auditors have conducted the audit in following the norms and provisions
put down by the Australian Auditing Standards and the auditors have gathered sufficient
appropriate amount of audit evidence to form their basis of audit opinion.
Directors’ and Management’s responsibilities
The preparation of financial statements by the Directors of the company each and every year is
the requirement of Company Law. It is the responsibility of the Directors to prepare the
financial reports in confirmity with applicable law and regulations and also to ensure that the
annual accounts are being prepared following the standards of accounting as applicable
providing proper explanations relating to material departures, if any. The Directors must ensure
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that proper and adequate accounting records have been maintained, so that no provision of the
act remains non complied, the safe keeping of the assets of the company along with the
internal control mechanism is the responsibility of the management. The Directors are to
ensure whether the company fulfills the requirement of a going concern entity and going
concern basis has been adopted for the preparation of the accounts (Gullet, et al., 2018).
The Auditor relies on the management for the preparation of the accounts and the basis on
which it is prepared. The responsibility of the auditor is to form an opinion and give a true and
fair view on the annual statements of the company, but preparation of the same is the
responsibility of the management.
Material subsequent events
The events occurring after the record date are known as subsequent events. If these events
have are important enough to affect the decision making process then they are considered to
be material. Not all subsequent events requires to be reported in the annual report, unless they
are material. It is important that the auditor needs to check whether their any such matters
should be taken into consideration and they should thoroughly check all such matters.
No aubsequent matters or events have taken place after the end of the reporting period which
has any siginficnce to the company’s present or future operations.
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Follow-up question from Auditor at Annual General Meeting
The audit report covers almost all the significant matters which are required to be pointed to
merit the attention of the shareholders but there are few points which may be raised before
the auditors. These are:
“Whether the Auditor has observed any flaw in the internal control mechanism of the
Group? Are the internal control mechanism in operation within the company
sufficient?”
“Is the auditor aware of any grievances addressed by the shareholders and whether the
company has resolved the same?”
Conclusion
From the study of the annual report and audit report of the Group, we can conclude that the
auditor has reported all the significant matters that needed to be reported in the enhanced
audit report. The key audit matters (KAMs) have been well addressed by the auditor in the
enhanced audit report touching all the key factors and also providing the detail of audit
procedures applied. All the relevant provisions required to followed and standards required to
be applied have been applied by the auditor and the same are in compliance with the
Australian Standards of Auditing and Corporations Act, 2001.
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References
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411-431.
Antle, R. & Smith, A., 1985. Measuring Executive Compensation: Methods and an Application. Journal of
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Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations.
Decision Support Systems, Volume 97, pp. 58-68.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
Coate, C. & Mitschow, M., 2017. Luca Pacioli and the Role of Accounting and Business: Early Lessons in
Social Responsibility. s.l.:s.n.
Gullet, N., Kilgore, R. & Geddie, M., 2018. USE OF FINANCIAL RATIOS TO MEASURE THE QUALITY OF
EARNINGS. Academy of Accounting and Financial Studies Journal, 22(2).
Kim, M., Schmidgall, R. & Damitio, J., 2017. Key Managerial Accounting Skills for Lodging Industry
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Tourism Administration, , 18(1), pp. 23-40.
Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention
on learning accounting. Journal of Educational Psychology, 109(2), p. 220.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda.
Decision Support Systems, Volume 93, pp. 111-124.
Werner, M., 2017. Financial process mining - Accounting data structure dependent control flow
inference. International Journal of Accounting Information Systems, Volume 25, pp. 57-80.
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