Key Audit Matters in Annual Report of Organisation

The report evaluates the Key audit matter in annual report of organisation and depicts its significance. The Communication of Key Audit Matters was mainly conducted in annual report of the organisation after the commencement of financial crisis, as companies were not disclosing all the relevant data in their annual report.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
The report evaluates the Key audit matter in annual report of organisation and depicts its
significance. The Communication of Key Audit Matters was mainly conducted in annual
report of the organisation after the commencement of financial crisis, as companies were not
disclosing all the relevant data in their annual report. With the implementation of Key Audit
Matter companies were mainly forced by accounting standard to follow the regulation for
reducing the occurrence of next financial crisis. Moreover, companies are mainly responsible
for disclosing the explanatory materials in key audit report in the independent auditor’s
report. This disclosure is mainly conducted according to the standard mentioned in ASA 701,
which could depict actual financial condition to its stakeholders. The relevant transactions
conducted by the company during the fiscal year needs to be evaluated by the auditor for
detecting the material misstatement present within operations of the organization. this
detection of material misstatement could eventually allow the auditor to convey the message
in key audit matters of the organization. This transfer of information from the auditors to the
investors could eventually help them understand the actual financial position of the
organization while making a relevant investment decision.

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Table of Contents
Introduction:...............................................................................................................................3
Analysis:.....................................................................................................................................3
Research- extent and application:..............................................................................................5
Recommendation and conclusion:.............................................................................................6
Reference and Bibliography:......................................................................................................8

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Introduction:
The relevant evaluation of auditing standard is mainly conducted in the assignment,
where ASA701 Communicating Key Audit Matters in the Independent Auditor’s Report is
been evaluated for TPG Telecom Limited. The relevant annual report of TPG Telecom
Limited does not comply with the ASA 701 standard, where the independent auditor report
does not hold any kind of Key Audit Matter. The relevant assessment of risk from material
misstatement or significant risk in accordance with ASA 315 is also evaluated for TPG
Telecom Limited. This evaluation could directly help in detecting the measures that needs to
be conducted by the company in its financial report for allowing the investor to understand
the relevant misstatement. The Communication of Key Audit Matters was mainly conducted
in annual report of the organisation after the commencement of financial crisis, as companies
were not disclosing all the relevant data in their annual report. With the implementation of
Key Audit Matter companies were mainly forced by accounting standard to follow the
regulation for reducing the occurrence of next financial crisis. Moreover, companies are
mainly responsible for disclosing the explanatory materials in key audit report in the
independent auditor’s report. This disclosure is mainly conducted according to the standard
mentioned in ASA 701, which could depict actual financial condition to its stakeholders.
Analysis:
The relevant analysis of the annual report could mainly help in detecting the material
misstatement, which could increase problems of the organisation. After the passing of
financial crises, authorities mainly detected problems in financial report of organisation,
where all the relevant disclosure was not conducted by companies. This relevant problem in
disclosure mainly led to the implementation of ASA 701, which is a disclosure measure that
needs to be communicated in the annual report. Therefore, relevant disclosure of Key Audit
Matters needs to be disclosed by the company in their annual report. The evaluation of the
annual report of TPG Telecom Limited also helps in detecting signification risk with ASA
315, which could affect its operations. Arens, Elder and Beasley (2014) mentioned that with
the help of material misstatement relevant evaluation of the problems, which could incur in
future can be estimated. Moreover, from the evaluation of annual report any kind of problems
hindering activities of the company can be estimated, which might allow the investors in
detecting problems of the organisation. On the other hand, Basu (2016) criticises that non-
disclosure of material misstatement could eventually increase the unethical measures of the
organisation. The evaluation of annual report of TPG Telecom Limited could eventually help
in depicting high risk if material misstatement in accordance with ASA 315 are conducted as
follows.
Assessed areas of high risk of material misstatement:
After the evaluation of TPG Telecom Limited annual report no relevant Key Audit
Matter (KAM) is communicated by the company to its shareholders. This relevantly reduces
compliance of the organisation with the ASA 701 in disclosing all relevant matters. The
evaluation of annual report mainly helps in depicting the disclosure, which is been conducted
by the company. This could eventually help in stating the problems faced by the organisation,
where the director and independent auditor depicts that there is no material misstatement in
annual report of the organisation. The company is not following with the overall ASA 701,
which mainly reduces viability of the annual report depicted by the organisation. The relevant
disclosure of Key Audit Matter (KAM) is also not being depicted in the annual report of the

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organisation. This mainly indicate the lack of Auditing standard ASA 315 conducted by the
company and the auditor. Furthermore, the use of ASA 315 could allow investors of TPG
Telecom Limited to identify the risk of material statement present in the organisation.
Accounting policies adopted by the company mainly helps in depicting the actual
financial posit on of the organisation. However, the non-representation of Key Audit Matters
in the annual report of TPG Telecom Limited mainly indicates the noncompliance of ASA
701 conducted by the organisation. Moreover, there has been high profile scandals conducted
by companies where auditors have unethically represented financial strength of the company,
which directly questions creditability of the independent auditor’s report without Key Audit
Report. The auditors of TPG Telecom need to understand the business risk, where
identification of material misstatement is essential to be conducted. The business
environment risk, firm’s operation risk, business entity risk and other forms of risk needs to
be evaluated by auditors’ before evaluating the audit procedure. The evaluation of approach
used by organisation, such as top down approach could also increase the chance of material
misstatement, as employees have no say in the decisions conducted by organisation.
Therefore, understanding the business risk, which could convert into audit risk needs to be
evaluated by the organisation. Cao, Chychyla and Stewart (2015) stated that auditors need to
evaluate all the business process of the organisation to understand the actual risk, which
could arise material misstatement.
The use of ASA 701 was mainly implemented after the completion of financial crisis,
which was started in 2007. The crisis mainly allowed audit Assurance board to detect
unethical measures conducted by organization and independent audit companies while
formulating the financial report. This unethical measure in preparing the financial report as
mainly portrayed wrong financial strength of the organization, which increased share value
and allowed companies to retain more capital from the market. However, during the financial
crisis all the companies using unethical measure mainly collapsed and no buyers were present
for their shares. This directly declined financial stability of the capital market and economy
of various countries all around the world. Hence, it could be understood that the
implementation of ASA 701 is mainly a measure taken by the audit Assurance board for
reducing any kind of unethical ways used by organizations. Chandler (2014) stated that
companies used their debts as income in their financial report to hide their insolvency
condition from investors. The ASA 701 was mainly a measure for stopping the company to
use unethical measures in preparing their annual report and increase transparency in
portraying their actual financial condition.
Significant risk identified in accordance with ASA:
In addition, to the non-representation of Key Audit Matters the company has no
material misstatement, which was identified by the independent audit report. However,
according to the audit standard ASA 315 conducted by auditing and assurance standard
board, auditors with the standard will be able to recognisees risk of material misstatement
present in company’s financial books. Moreover, the ASA ruling states that auditors need to
evaluate business environment, internal control, and external risk, which could arise material
misstatement of the organisation. ASA 315 directly indicates that auditors need to use the
guideline depicted in paragraphs from A9 t A11 and A27 to A30. This could directly help
auditors in identifying the material misstatement, which could increase audit risk. This
relevant evaluation could also allow the auditors in detecting frauds, which could be
conducted by companies in inflating their balance sheet. In this context, Cohen and Simnett
(2014) mentioned that auditors due to the measures depicted in ASA standard are able to

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detect frauds, which could be conducted by companies in preparing their annual report. On
the other hand, Earley et al. (2016) argued that independent auditors are influenced by
management to use unethical measures in their audit report for inflating financial
performance of the company.
However, the current financial report of TPG Telecom Limited does not comply with
the ASA 315 standard, as there is no material misstatement that is identified by auditors. In
addition, the auditors need to follow ASA 315 paragraph A105 to A108, which enables them
to identify risk of material misstatement that is present within operations of the organisation.
Moreover, the evaluation could also help in asserting different levels of diverse transaction
classes while detecting performance of audit process. The auditors are mainly able to detect
financial risks, while analysing financial report of the organisation to detect material
misstatement hindering their financial stability. Hay, Knechel and Willekens (2014) stated
that auditors by implementing audit procedures are able to detect financial viability of
company’s annual report.
Research- extent and application:
The TPG Telecom Limited annual report does not comply with ASA standard, which
is needed by every organization. This noncompliance of preparing the key audit matters could
directly increase audit risk of the organization. This relevant audit risk could be identified
with the help of audit procedures, which needs to be followed by auditors. The Railways
procedures needs to be followed by auditors to evaluate and analyze risk involved in
operations of the organization. Firstly, the identification of risk pertaining business objectives
portrayed in the financial report needs to be evaluated by the auditor. This evaluation could
eventually help in identifying the material misstatement, which could depict wrong financial
statement of the organization. Secondly the auditors need to approximate the importance of
risk to the management of the company, who needs to comply with regulations laid down by
Audit Assurance Board. In addition, the likelihood of occurrence of certain risk needs to be
identified by auditors which might increase material misstatement in future of the
organization (Junior, Best and Cotter 2014). Furthermore, relevant activities conducted by the
organization needs to be evaluated for identifying any kind of risk pertaining from those
actions.
Areas in financial report that needs significant management judgement:
There are different levels of internal control that needs to be conducted by
organizations for reducing the risk from material misstatement. In addition, evaluation of
internal control for specific entity needs to be conducted by the independent auditors for
detecting the chance of material the statement. according to ASA 315 A36 to A41, relevant
understanding of industry divisions and risk involved in operations of the organization needs
to be evaluated by the auditor's. This evaluation could eventually help in detecting the
external factors, which could be applicable on the formation of financial report. The
understanding of internal control needs to be conducted by auditors for adequately
completing the audit procedure. This could eventually allow the auditor to understand the
complex internal control, which is being conducted by the organization for completing its
operations. Furthermore, majority of the internal controls evaluated by the auditors needs to
comply with the process of financial reporting, as detection of material misstatement is the
major priority for the auditor. According to ASA 315 paragraph A42 to A65, professional
judgement of the assessor regarding specific control could be conducted by the auditor for
singling out controls, which could have material misstatement. In this context, Kinney (2015)

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stated that auditors by evaluating annual report and operations of the company are able to
detect any kind of risk, which could lead to material misstatement in the financial report.
The audit process conducted by the auditor's needs to comprehend in the control
environment in which operations of the organization is being conducted. this evaluation
could eventually help auditors to understand the overall activities conducted by the
administration within the organization. this evaluation could eventually lead to a detection of
any kind of material misstatement present within the Governance of the organization.
Moreover, this could also help in detecting the culture of honesty as well as ethical behavior
present within the organization employees and Management. this overall detection could
eventually help in detecting material misstatement present within the operations of the
organization. Therefore, auditors need to evaluate external and internal control of TPG
Telecom Limited for identify any kind of material misstatement, which could be present in its
operations. However, both directors and independent auditors of the firm has depicted no
material misstatement presence in operations of the company (Knechel and Salterio 2016). In
addition, the detection material misstatement could evaluate the actual financial position of
the company. therefore, from the identified material misstatement the auditors could portray
the actual financial position of the company to the stakeholders. These material
misstatements can be shown directly in key audit matters section of the annual report, which
could in turn increase viability of their annual report.
The effect of significant events and transactions occurred during the period:
The evaluation of significant events and transactions that has been conducted by the
company during the fiscal year also needs to be evaluated by auditors. This evaluation could
eventually allow the auditors to detect any kind of strange activities or risk which might
increase the chance of material misstatement. Currently, TPG Telecom Limited directly
provides all the relevant information regarding their activities in the annual report. Therefore,
different impact of the event and transactions occurred during the period can be evaluated by
auditors. Different accounting standards such as ISA 260 could also be violated by the
organization, issues regarding internal audit procedures might eventually rise. As depicted by
Louwers et al. (2015), companies following all the relevant accounting standards are able to
portray actual financial position to the stakeholders, which depicts the honesty of the
organization in conducting their operations. Moreover, the evaluation of significant events
could allow the auditors to identify any kind of risk involved in both internal and external
factors of the organization. Moreover, the internal and external process could also be
evaluated by the auditor during the period. this kind of detection of different types of risk
identified from operations could eventually allow the auditors to understand material
misstatement of the organization. on the contrary, Messier, Glover and Prawitt (2014) argued
that companies use the independent auditor's report as a cover for hiding all the relevant
unethical measures conducted during the fiscal year.
Recommendation and conclusion:
From the evaluation of all the relevant ASA standard such as ASA 701, ASA 315 and
ISA 260, companies are needed to portray their actual financial position in the annual report.
Companies that are not providing key audit matters in the annual report could eventually
increase suspicion of the investors regarding their activities. Hence, TPG Telecom Limited
needs to prepare key audit matters in their annual report to identify any kind of material
misstatement a present in its operation. The disclosure needs to be conducted by the
organization in the annual report to the investors, which could help in portraying the actual

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financial position of the company. Therefore, it is essential for TPG Telecom Limited to
adopt ASA 701 and ASA 315 in its operations for complying with the Audit and Assurance
Board. The company also needs to acquire an experience auditor or an audit company, which
could depict actual financial position of the organization. This selection of the auditor is
essential, as they need to know all the relevant standards and regulations which needs to
complete their actual financial report. Thus, the company need to prepare financial report
where all the relevant accounting standards are depicted and addressed according to the
regulation. Lastly, all the relevant transactions conducted by the company during the fiscal
year needs to be evaluated by the auditor for detecting the material misstatement present
within operations of the organization. this detection of material misstatement could
eventually allow the auditor to convey the message in key audit matters of the organization.
This transfer of information from the auditors to the investors could eventually help them
understand the actual financial position of the organization while making a relevant
investment decision.

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