Importance of ASA 701 in Conducting an Effective Audit

Running head: AUDIT
Audit
Name of the Student:
Name of the University:
Authors Note:

1AUDIT
Executive summary:
An audit if objectively carried out should be able to bring out all necessary information required
by the investors to assess the financial performance and position of an entity correctly from
independently verified financial statements of the entity. In this case the importance of ASA 701
in conducting an effective audit has been discussed to find out the importance of the standard in
the current economic and financial environment.

2AUDIT
Table of Contents
Introduction:....................................................................................................................................3
Auditing and its objectives..............................................................................................................3
Key Audit Matters to be communicated in the independent auditor’s report..................................4
Areas of financial statements which require auditors to make significant judgment......................5
BHP Billiton financial statements dealing with such matters.........................................................6
Significant events or transactions and their impact on the audit of the financial statements..........7
Recommendations/ Conclusion.......................................................................................................9
Reference.......................................................................................................................................10

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Introduction:
In the wake of global financial crisis the importance of audit have reached its peak.
Considering the number of accounting scandals that the world of business has seen in recent
times the utility of auditing has been reaffirmed. However, the failure of auditing in many cases
such as in case of Enron, Satyam and other such accounting scandals have compelled the
stakeholders to question the auditing standards governing the auditing principles and policies.
With the objective of improving the quality of auditing, ASA 701 Communicating Key Audit
Matters in the independent Auditor’s report has been issued by the Australian Auditing and
Assurance Standards Board (AUSAB). An in-depth analysis on the auditing standard and its
practical implementation in an audit of an entity is provided to help the readers in understanding
the importance of the standard (Segal 2017).
In order to complete the evaluation of ASA 701 and to assess its importance in auditing
of an entity, BHP Billiton Limited has been chosen. BHP Billiton Limited is an Australian
company in involved in the business of mining, petroleum products and metals. The registered
head office of the company is in Melbourne, Australia.
Auditing and its objectives
The objectives of auditing is to provide an unbiased and independent opinion on the
financial statements of an entity to express whether the financial performance reflected in the
income statement of the company is a fair reflection of the financial performance of the entity
and simultaneously whether the Balance sheet of the entity shows the true and fair picture of the
entity as on the date to which these statements relate (Ratzinger-Sakel and Theis 2017).
ASA 701: