ASA 701 - Auditing and Assurance Standards Board

RUNNING HEAD: IMPACT OF ASA 701 ON AUDITOR’S REPORT
APPLICATION OF ASA 701 TO THE
AUDIT OF ABC LEARNING CENTER

IMPACT OF ASA 701 ON AUDITOR’S REPORT
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Executive Summary
This research gives a clear understanding about the implications of new changes that are
brought in the reporting requirement through the introduction of new standards on auditing.
One of such standards is ASA 701 which requires the independent auditors of the company to
report on all the matters that are of significance to the intended users of financial statements
so that adequate information about the company’s financial position can be delivered to them
in time to assist the investors in proper decision-making about investments made in the
company. The report also sets out the major auditing issues which had contributed to the
collapse of ABC Learning centres as ASA 701 was not in effect at the time company was
facing the financial crisis. The financial statements of ABC Learning were manipulated and
the auditor of the company failed to apply required auditing procedures to modify the opinion
in the audit report which turned out to be one of the issues for the company’s collapse.

IMPACT OF ASA 701 ON AUDITOR’S REPORT
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Table of Contents
Executive Summary............................................................................................... 1
Introduction............................................................................................................... 3
Auditing issues that revolved around the collapse of ABC Learning..........................................3
The issues that led to the development of ASA 701..............................................................5
Key Audit Matters to be disclosed in the auditor’s report.......................................................5
Usefulness of ASA 701................................................................................................. 7
Recommendations................................................................................................. 8
Conclusion................................................................................................................ 9
References.............................................................................................................. 10

IMPACT OF ASA 701 ON AUDITOR’S REPORT
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Introduction
ABC Learning was a company listed on Australian Stock Exchange. The company had it’s
privately owned centres for child-care and it was established in the year 1988. But
unfortunately, the company had to face its sudden fall in the market which led to the delisting
of company’s name from the stock exchange. The financial statements of the company were
falsified to a great extent and the auditor of the company had failed to provide an appropriate
opinion about the true and fair view of the financial position of the company as a result of
which the investors of the company could not be acknowledged about the company’s actual
financial situation. Resultantly this became the reason for the suspension of ABC Learning
auditor. If ASA 701 (Communicating the key audit matters in the independent auditor’s
report) was introduced at the time company was facing the downfall in its position the
investors could get a true picture of company’s standing in the market through the auditor’s
report as ASA 701 is an Australian standard of auditing which sets out the responsibility on
an independent auditors of the companies to incorporate the important matters as a result of
the audit findings in auditor’s report. ASA 701 was introduced by Australian Auditing &
Assurance Standards Board on December 1st, 2015 and this standard is in effect for the audits
of financial statements of the periods ending on or after December 15th, 2016.
Auditing issues that revolved around the collapse of ABC Learning
 Firstly, the auditor of the company had failed perform his audit engagement duties
with due care and independence. Professional scepticism was required of the auditor
of ABC Learning to be maintained throughout the work of audit which he did not
apply. According to the reports of investigation done by the Australian Securities
&Investments Commission the company’s auditor was unable to obtain reasonable