Importance of Enhanced Audit Report: Analysis of Amcor Limited's Annual Report

The assignment stresses on the importance of enhanced audit report and analyzes the annual report of Amcor Limited. The financial statement of the company is well-prepared and the auditor has discussed all the key audit matters in a transparent manner. The analysis includes the auditor's remuneration, key audit matters, audit committee, audit opinion, directors' and management's responsibilities, and material subsequent events.

Audit Assignment

1
By student name
Professor
University
Date: 16th Sep 2018.
1 | P a g e

2
Executive Summary
The main purpose of the assignment is to stress on the importance of enhanced audit report.
For the in depth understanding of the topic we were required to take the annual report of an
ASX listed company as an example and analyze the same. In this case the company taken is
Amcor Limited. The annual report has been profoundly studied to know whether the aim of the
project has been achieved. The financial statement of the company is very well prepared with
all the necessary notes and explanation forming part of it being disclosed in a transparent
manner. Moreover, the auditor has legibly discussed all the key audit matters in his/her audit
report, describing the reasons behind considering each matter as key audit matter and sighting
their significance to the audit. The audit procedures followed by the auditor in the assessment
of all the key audit matters are also discussed very clearly. To gauge it up, we can say that the
objective of this assignment has been met, so as the requirements of the users of annual
report.
2 | P a g e

3
Contents
Introduction.................................................................................................................................................4
Analysis........................................................................................................................................................5
Conclusion...................................................................................................................................................7
References.................................................................................................................................................10
3 | P a g e

4
Introduction
Enhanced Audit Report as the name suggests is the enhanced version of the
conventional audit report. With the growing complexity involved in the financial reports, the
demand of more transparency and insight in the financial statements has been increased by its
users and stakeholders. Feeling the need of transparency, insight and relevance to users the
Australian Auditing and Assurance Standard Board (AUASB) has approved and issued the
revised auditing standards financial periods ending on or after 15 December, 2016, which
requires the auditors to provide enhanced audit report of companies (Alexander, 2016). The
main objective of introducing the enhanced audit report was the requirement to disclose the
Key Audit Matters (KAMs) in the audit report. The key audit matters cover the areas that
requires significant attention of the auditor.
Independence Requirements
Independence, as the term suggests, refer to the state or quality of being independent.
Auditor’ independence basically means the independence of the auditor from the parties which
directly or indirectly have interest in the business of the entity, with which the auditor has audit
engagement. The auditor’s independence is very important because the auditor is expected to
provide an unbiased and honest professional opinion on the financial statements of the
organization to its users including its stakeholders. The stakeholders highly rely on the auditor’s
4 | P a g e

5
opinion of the financial statements for their decision making process. Hence, the independence
of the auditor is inevitable (Antle & Smith, 1985).
The declaration of independence has been signed by the partners of PricewaterhouseCoopers
(PwC) that to the best of their knowledge and belief there has been no contraventions of the
independence requirement of the auditor as per the provisions of the Corporation Act 2001 and
any profession code of conduct, as applicable in relation to the audit (Arnott, et al., 2017).
Non – audit services provided
The auditor of the Group Amcor Limited, PricewaterhouseCoopers (PwC) has during the
financial year, provided along with audit services, certain non audit services, the detail of which
relating to the nature of service provided and amount paid or payable in respect of each service
is given clearly in the analysis of the Auditor’s Remuneration. The Board of Directors, after
consideration of the written resolution of the Audit and Compliance Committee, are satisfied
that the non audit services provided during the financial year did not compromise the
independence requirements of the auditors as per the provisions of the Corporations Act, 2001
(Coate & Mitschow, 2017). The Audit and Compliance committee has reviewed all the non audit
services provided by the auditor during the year to ensure that the same are subject to the
procedures of corporate governance which are adopted by the company. Moreover, all the non
audit services provided are in accordance with the delegations for non audit services and
approval framework.
Analysis of Auditor’s Remuneration
Particulars Amount in $ ‘000 Percentage Remarks
5 | P a g e

6
Change
Financial
Year
2018
Financial
Year
2017
Difference
Audit & other assurance services
Auditors of the Company – PwC Australia
- Audit & review of financial reports
- Other assurances services
Network firms of PwC Australia
- Audit & review of financial reports
- Other regulatory audit services
- Other assurance services
368
140
2328
4208
4
404
-
2207
3808
3
- 36
+ 140
+ 121
+ 400
+ 1
8.91%
100%
5.48%
10.50%
33.33%
Decrease
Increase
Increase
Increase
Increase
Non – audit services
Auditors of the Company – PwC Australia
- Taxation services, transaction related
taxation advice and due diligence
- Other advisory services
Network firms of PwC Australia
- Taxation services, transaction related
taxation advice and due diligence
- Other advisory services
76
40
767
34
692
-
1127
120
- 616
+ 40
- 360
- 86
89.02%
100%
31.94%
71.67%
Decrease
Increase
Decrease
Decrease
6 | P a g e

7
The above chart represents the analysis of auditor’s remuneration relating to both audit
services and non audit services provided during the course of audit. On the basis of the above
analysis we can observe that there is an overall increase in the fees paid for the audit services
provided during the current year as compared to last year. However, fee paid for the current
year to the auditor of the company, i.e., PwC Australia, has decreased by 8.91%. The reason
may be the involvement of the network firms of PwC Australia, whose fee structure shows
considerable increase in the rates from the previous year (Gullet, et al., 2018). As far as the non
audit services are considered, there is massive decrease in the fees paid in comparison to the
last year. This may be due to the advancement in technologies and adoption of such
technologies by the company.
Key audit matters and audit procedures performed
Key Audit Matters are widely known because of its importance in the audit of listed
companies. These are matters which require grave attention of the auditor as it is also
mandatorily required to be disclosed by the auditor in his/her audit report.
The following key audit matters have been observed by the audit during the course of audit of
Amcor Ltd:
Impairment risk of carrying value of investments in AMVIG: AMVIG is a listed company in
Hong Kong stock exchange over which Amcor Ltd is having significant influence as it is
holding 47.6% shares in AMVIG as investment. This has been considered as a key audit
matter because the valuation done by Amcor ltd of shares of AMVIG in Hong Kong
Dollars exceeds the share price which is quoted on Hang Seng. There is impairment risk
7 | P a g e

8
involved if the quoted price of the share is considered as its carrying amount (Kim, et al.,
2017).
The auditor of the company has applied subsequent audit procedures to assess the level
of materiality involved in the above case. The evaluation of the model has been done
which includes assessment of the ability of the company to develop a reliable forecast
on the basis of comparison of last year’s and current year’s performance of AMVIG.
Various valuation experts of PwC have together tested the mathematical accuracy of the
valuation model adopted by the company. The auditor has also performed other audit
procedure also in view of the sensitivity involved with the issue.
Risk of material income tax exposures across the Group not identified or accounted for:
There are number of foreign income tax jurisdiction along with the Australian income
tax under which Amcor Ltd is covered. The reason for considering income tax exposures
as a key audit matter is because of the complexity involved in the calculation of the tax
charge, its estimation and judgment by the company. Moreover there is no specific
method of determining the tax provision; the company generally creates provision on
taxes on the basis of probable amount of taxes payable or receivable (Sithole, et al.,
2017). The auditor is of the view that any change in the tax judgment and estimates of
the company will affect the tax provision of the company heavily and the company does
not even have any defined policy for identification of tax exposure in foreign countries,
in case where it is material. The auditor ahs assessed the accuracy of the Group’s
previous estimates of tax risks by making a comparison between the tax estimates of
the previous year with the related tax liability settled in the current year.
8 | P a g e

9
Risk of material indirect tax exposures in Brazil: The Company frequently receives
numerous assessments from tax authorities of different jurisdiction for payment of
additional taxes. Amongst the various tax assessments the one related to excise and
other indirect tax claims in Brazil is most vital. The Company has even sought for
guidance in Brazil for external counsel in relation to tax matters. This has been
considered as a key audit matter as any change in the above situation might result in
payment of heavy amount of taxes, duties and penalties. The audit procedures in the
above involved discussion of the auditor with the statutory auditor in Brazil regarding
any regulatory changes and assessment of the likelihood of tax payments by the
company with the help of its external legal counsel (Trieu, 2017).
Audit Committee
An audit committee is formed by the board of directors. The members of the audit
committee then elect a chairperson from amongst themselves. All the members of the audit
committee are independent non executives directors, they are, Mr. Paul Brasher, the chairman
of the committee, Graeme Liebelt and Eva Cheng.
Composition: To form an audit committee, a minimum of three directors are required with
majority of them being independent non executive directors. The members of the committee
should possess expertise in different field of business. They must be able to read and
understand the financial statements. The chairperson is appointed from amongst the
committee board by the members.
Objectives: The main objective behind the formation of an audit committee is to form a
committee that is independent and which can oversee the compliances, accounting policies and
9 | P a g e

10
practices of the company and which can also assist the board about the applicable governance
framework.
Audit Opinion
The responsibility of the auditor is to form an opinion on the authenticity of the financial
statements of the company. In the opinion of the auditor of Amcor Ltd, PwC, the company’s
financial report including those of its controlled entities is in conformity with the provisions of
the Corporations Act, 2001. In the auditor’s opinion the financial report of the Group gives a
true and fair view of the financial position and all the Australian standards of accounting which
are applicable to the Group have been complied with.
The Auditor knows not of any material misstatement in the annual report of the Group which
was required to be disclosed but remains undisclosed (Werner, 2017).
Directors’ and Management’s responsibilities
The responsibility of a Director of Company is wide. Directors are appointed to manage
the affairs of the company and its business. A company acts through its board of directors. The
board of directors makes all the strategic and operational decisions of the company, they are in
charge of managing the company and ensuring that the statutory obligations of the company
are met. The board of director must hold, on time to time basis, meetings of the board to
discuss the various agendas relating to the company’s business and affairs. The directors are
considered as the agents of the company, any act done by a director on behalf of the company
is considered to be done by the company itself. On a primary basis, the directors are
responsible for the preparation of financial statements of the company each and every year
without fail. They should ensure that the financial statements are correct and discloses all the
10 | P a g e

11
information as is required by law and that it is free from any material misstatements. The
directors are also in charge of the sound internal control system of the company.
The directors of Amcor Ltd has signed the declaration stating that in their opinion the financial
statements of the company including all the relevant notes that forms part of the annual report
are in compliance with the provisions of the Corporations Act and also fulfills all the relevant
requirements of the Australian accounting standards and that the company has reasonable
grounds to believe in its ability to pay off its debts and other liabilities in full. All the relevant
disclosures form part of the annual report the accounts comply with the International Financial
Reporting Frameworks (Belton, 2017).
Material subsequent events
Material subsequent events are those events which occur after the end of the record
date. During the year there are few subsequent events recorded by the company and are
considered material. These are:
Bemis acquisition: Amcor Limited and Bemis Company Inc. has, on 6th August 2018, announced
Amcor Limited will acquire shares of Bemis in an all-in share combination arrangement and
that, the same has been approved unanimously by the board of directors of both the
companies under a definitive agreement. The purchase consideration has also been disclosed
which is 5.1 share of Amcor for each share of Bemis, consequently the holding of Amor and
Bemis will be 791% and 29% respectively of the combined company.
Rigid Plastics restructuring initiatives: Amcor Limited has announced on 21st August 2018
about the restructuring programme in the Rigid Plastics business. The total expected amount of
11 | P a g e

12
post tax cost will range between USD 50 million to USD 60 million. The major part of these costs
is expected to incur in the year 2019 and the earnings underlying will be excluded.
Follow-up question from Auditor at the Annual General Meeting
Almost all the information relevant to the audit are covered by the auditor in his audit report
but there are few other points I would like to bring into the notice of the auditor. These are:
o “Were there any instances of insider trading that came to the notice of auditor?
What were the actions taken by the auditor to report the same? If yes, then who
are the parties involved? Was the matter being reported to the management?”
o “Is the auditor aware of any conflict of interest amongst the member of senior
management? If yes, than what were the steps taken? Did the auditor discuss
the same with the management? How did they resolve it?”
Conclusion
On the overall analysis of the enhanced audit report of the company, there is an
assurance that the annual report of Amcor Limited has been prepared keeping in mind all the
requirements of law and compliances of all the provisions of the Australian standards of
accounting. The relevant and material information is properly disclosed, leaving no doubt about
its clarity. Proper explanations were given with all the notes forming part of the annual report.
Moreover, the auditor has also complied with all the relevant requirements of the Australian
12 | P a g e

13
standards of auditing. The key audit matters are properly explained along with the audit
procedures followed during the assessment of such matters. No unfavorable remarks have
been given by the auditor.
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Antle, R. & Smith, A., 1985. Measuring Executive Compensation: Methods and an Application. Journal of
Accounting Research , 23(1), pp. 296-325.
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).
13 | P a g e

14
Kim, M., Schmidgall, R. & Damitio, J., 2017. Key Managerial Accounting Skills for Lodging Industry
Managers: The Third Phase of a Repeated Cross-Sectional Study. International Journal of Hospitality &
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.
14 | P a g e