Auditing Standards ASA 315 and 701 Application in BlueScope Steel

This report assesses the application of Auditing Standards ASA 315 and ASA 701 in BlueScope Steel Limited. It highlights the significance of these standards in achieving organizational objectives, preventing fraud and errors, and managing risk factors. The report details the importance of ASA 315 in risk assessment, information gathering, and clarifying financial report items. It also examines the application of ASA 315 in identifying and assessing risks of material misstatement, particularly concerning short-term incentives and foreign exchange risk. Furthermore, the report discusses ASA 701's role in communicating key audit matters, enhancing auditor responsibilities, and ensuring appropriate communication of financial information to stakeholders, ultimately contributing to value-added decisions and improved transparency in financial reporting for BlueScope Steel Limited.

Assignment – Auditing, Assurance and
Services
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Executive Summary:
The overall project assessment highlights over the application of auditing standards in the
concerned organization. The report also explains how these standards can be significant source
of attaining the objectives of the company. The application of the given standards provides the
prevention of frauds and errors and also ensures that the risk factors are properly managed by the
management of the company. This will provide transparency and factual view over the financial
report of the company giving better understand ability to its viewers that is the customer,
investors, and the other parties dealing with the company so as to enhance their level of
confidence.
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Table of Contents
Executive Summary:........................................................................................................................2
Introduction:....................................................................................................................................4
About BlueScope Limited:..........................................................................................................5
A brief and glimpse of ASA (315):.............................................................................................5
Significances of ASA 315:..........................................................................................................6
Application of ASA 315 in Bluescope Steel Limited:.................................................................7
A brief introduction of ASA (701):.............................................................................................7
Significances of ASA 701:..........................................................................................................8
Application of ASA 701 in BlueScope Steel Limited:..............................................................10
Analysis:....................................................................................................................................11
Recommendations:........................................................................................................................13
Conclusion:....................................................................................................................................14
References:....................................................................................................................................15
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Introduction:
The project report highlights the meaning of ASA (701) that involves communicating key audit
matters in the independent auditor's report. The report highlights how this standard can be used
in understanding its impact on the financial crisis. The project report further evaluates the
significance or importance of the given standard so as to enable the parties dealing with the
companies to gain valuable information and then make a decision accordingly. Further, the
reports elaborate that how the use of this standard will help the investors in getting early warning
and manage the activities in accordance with the changing needs. Apart from this, the report
features out the application of the given standard in the company that is Blue Scope Limited, its
analysis, and understanding of the working criteria of the concerned company. The project report
features out the recommendation at every level of the report so as to enable the management of
the concerned company in making a value judgment.
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About BlueScope Limited:
BlueScope is an Australian based company which majorly deals in steel manufacturing company
as its primary business consists of flat product steel. It has its major operations in Australia, New
Zealand, Pacific Island, North America and Asia. The headquarters of the company is in
Melbourne, Victoria. The company has its operation in 17 countries and offices around the
world. The concerned company has built up a strong base for growth, and engaged in the diverse
portfolio as an emerging company in the world. The company has created a good flexibility and
has emerged as the third largest manufacturer of painted and coal steel products in the global
market. Apart from this, the concerned company commits to deliver value product throughout its
operation at a competitive value.
The concerned company provides multiple in order to build up a competitive image in the whole
world. Some of the fields include human resource, accounts and finance, supply chain, and
logistics. The company follows a certain set of principles that guide the management and its
employees the manner in which they need to operate.
A brief and glimpse of ASA (315):
Auditing Standard 701 deals with communicating key audit matters in the independent auditor's
report. The given standard was issued to fulfil the requirements of the Australian legislative
environment and to ensure the quality of the audit working. The auditing standard provides with
the application and the material consideration that are to be involved in the independent auditor
report. According to Alabede, (2012) the concerned standard conform the norms and requirement
of the International Auditing and Assurance Standards Board. The main motive of the issue of
the standard is to focus on clear interest of the public and maintain high level of integrity. Apart
from this, the standard ensures that the level of transparency about the audit is achieved so as to
enable the users of the financial statements with a better overview of the entity and the areas of
key focus and thereby having a better decision making Support the communication of the key
audit matters in the auditor report.
Further, the auditing standard also enables the auditor in evaluating the key areas of
consideration and thereby taking corrective decision in case of any default in the working
operation of the business entity. The given standard provides the organization with updated
information and thereby prevents any fraud and error (Jelic, 2012).
Significances of ASA 315:
Assessment of risk: The standard helps in finding out the risk
factors in materiality as such to enable the
management in taking corrective actions at the
appropriate time.
Worthwhile information: According to Kassem, et. al (2012) the
concerned finance manager is able to gather
useful information with regard to risk factor as
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such manager can get with valuable
information and further can make effective
decisions.
Authorizes assessment: The standard enables in making an assessment in
between the previous year performance and
current year performance so as to accurately
differentiate the performance of the company.
Clarifies the items to be included: The standard clearly specifies the list of items
to be included in the financial report of the
company so as to gather a true and fair view
with regards to the working affairs of the
company (Jelic, 2012).
Application of ASA 315 in Bluescope Steel Limited:
(Areas of the higher assessed risk of material misstatement, or significant risks identified in
accordance with ASA 315):
All possible risk of material misstatement has been identified and accordingly assessed in the
final statements of BlueScope Steel Limited of the financial year 2016-17 in accordance with the
ASA 315-“Identifying and Assessing the Risks of Material Misstatement through Understanding
the Entity and Its Environment”.
In the case of BlueScope Steel Limited, one of the major risks of material misstatements have
been identified which is associated with the accounting procedure of Short-term incentives (Zhu,
et. al. 2014). The concerned company follows the concept of Short-term incentive (STI) under
which STI outcomes depends on the financial performance of the company. However, the annual
STI plans for FY2016 and FY2017 were replaced by a two-year STI programme and accordingly
no cash has been awarded during the financial year ended 2016 and 2017. The Board of directors
of BlueScope Steel Ltd. still has discretion to clawback STI equity awards since it may
undermine the Company’s performance along with the reputation. As a result, the events or
transactions relating to the STI may include misrepresentation or material misstatements due to
errors, omissions or negligence.
Apart from that other misstatements have also been identified by applying the provisions of ASA
315 (Jelic, 2012). These include the impact of the financial global crisis of FY 2009 on the steel
industry, determination of steel demand with the assistance of external forecasters. Since
BlueScope Steel Limited operates in many countries, the company is also exposed to foreign
exchange risk. With the help of ASA-315, it can determine the risk associated with such
multination transactions.
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A brief introduction of ASA (701):
Auditing Standard 701 deals with communicating key audit matters in the independent auditor's
report. The given standard was issued to fulfill the requirements of the Australian legislative
environment and to ensure the quality of the audit work. According to Knechel, (2013), the
auditing standard provides with the application and the material consideration that are to be
involved in the independent auditor report. The given standard conform the norms and
requirement of the International Auditing and Assurance Standards Board. The main motive of
the issue of the standard is to focus on the clear interest of the public and maintain a high level of
integrity. Apart from this, the standard ensures that the level of transparency about the audit is
achieved so as to enable the users of the financial statements with a better overview of the entity
and the areas of key focus and thereby having a better decision making Support the
communication of the key audit matters in the auditor report.
According to Khaddash, et. al. (2013), the auditing standard also enables the auditor in
evaluating the key areas of consideration and thereby taking a corrective decision in case of any
default in the working operation of the business entity. The given standard provides the
organization with updated information and thereby prevents any fraud and error.
Significances of ASA 701:
ASA (701) provides the management of the organization with useful aspects through which it
can have a value judgment. The significance and importance can be depicted in the tabular form
as below:
Auditors estimation: The given standard brings the opinion of the
auditor in a broad aspect such as all material
information can be gathered that can influence
the decision of the parties dealing with the
company (Dhara, et.al. 2015).
Strategic areas selection: The given standard helps the management of
the organization in the selection of areas which
requires urgent attention. It further helps in
obtaining a meaningful summary and the
process through which audit work is
conducted.
The conception of going concern: The standard provides the company to ensure
the applicability of the concept of going
concern which would help in to attract the
investors toward the company.
Contributions in the annual report: Accordin to Nandini (2016), the concerned
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standard requires the company to include all
such information which could influence the
decision of the stakeholders such as investors,
competitors, shareholders etc. It also helps in
obtaining a clear picture of financial
statements.
Enrichment of auditors responsibilities: The standard requires the auditor to follow the
standard properly and effectively so as to avoid
any barrier in its working. This will also ensure
that the company would be able to focus on the
growth and sustainability factors.
Value-added decisions: The standard will require the auditor to give a
proper and professional judgment so that
management can have a proper situation with
regard to its operation (Zhu, et.al. 2014).
Appropriate communication: The standard requires that the use of financial
reports clearly communicate the users all
relevant topics and information so as to give a
clear blue print of the company.
Application of ASA 701 in BlueScope Steel Limited:
The application of auditing standard 701 involves two broadly aspects which have been
discussed separately as mentioned below.
1. Significant auditor judgments relating to areas in the financial report that involves significant
management judgment:
ASA 701 deals with “Communicating Key Audit Matters in the Independent Auditor’s Report”.
As such, it suggests the manner in which the key audit matters needs to be communicated in the
audit report. Key audit matters concerns with those matters that are important to be
communicated to all the stakeholders or those parties that are interested in the performance of the
company. Various factors are involved in the determination of key audit matters (Nandini 2016).
In the given case of BlueScope Steel Limited, ASA 701 has helped the auditor to properly
determine what to report, how to report and where to report all the key audit matters. Besides
this, it also helps in identifying the criteria of determination of key audit matters. One of the key
audit matter included in an audit report is the reporting of material misstatements at appropriate
places which prominently includes the accounting treatment of short-term incentives. Thus,
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accounting policy and procedure in relation to short-term incentives and its treatment in final
accounts is one of the key audit matters.
Another key audit matter that has been disclosed is the institution of various changes and
modifications in the remuneration framework or salary structure. A fixe pay scale has been
decided by the top level managers including executives. It has been decided that short-term
incentive will be provided in equity instead of awards in cash. As such, all these key matters
need to be reported in the audit report since the shareholders and other stakeholders must know
how the managers are getting payments in various forms. This may also be important from the
point of identifying the risk of material misstatements(Zhu, et. al. 2014).
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2. The effect on the audit of significant events or transactions that occurred during the period:
According to Dhara, et.al. (2015), several macro factors impacting the overall group have been
disclosed in the audit report in accordance with the various provisions of the ASA 701. Some of
the influential factors are market, social, environmental, compliance and conduct. These factors
have been listed so as to get the attention of prospective as well as existing shareholders and they
get an idea that these factors are largely responsible for the financial performance of the group as
a whole and these factors are outside the control of the concerned company. Also, it has been
clearly mentioned in the report that besides these factors there can be other factors as well. Thus,
all these points give a glimpse of all the factors and aspects which directly or indirectly affects
the existence and profitability of BlueScope Steel Limited.
Analysis:
The application of ASA 315, as well as ASA 701, will help in the audit planning phase. Also, it
helps in identifying the core areas which require careful consideration and which requires the
time and effort of the auditor. According to Loyeung, et.al. (2016), the auditor shall determine
which of the matters were of most significance in the audit of the financial report of the current
period and therefore are the key audit matters. Thus it can be interpreted that it depends on the
experience and the tolerance level of the auditor in determining the key audit matters. Such
determination will also help in identifying the various areas where there is the possibility of risk
of material misstatements and their effect on the audit procedures conducted.
It can be observed that complying the applicable provisions of ASA 315 and ASA 701 has
helped the auditor of BlueScope Steel Limited to identify possible areas where the risk of
material misstatement may have occurred. It also reduces the burden of the auditor as they can
focus on core audit areas. As such, shareholders can better know the actual position of the
concerned organization and can arrive at the right decision and conclusion (Knechel, 2013).
If these standards are not available, it will be very difficult for anyone to identify these possible
misstatements areas. Also, it will be burdensome and create havoc to properly and effectively
manage and coordinate the concerned audit task. Both these auditing standards facilitate the
whole audit team to prepare the audit assignment on time and prepare the correct audit report.
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Recommendations:
These risks may arise either due to fraud or error. The misstatements associated or related with
fraud may be difficult to detect since window dressing has been done to conceal the fraud. It is
imperative to understand the importance of this ASA 315 since it helps in identifying the
misstatements. The application of the concerned auditing standards is also beneficial to
organizations engaged in international transactions. For getting the desired result, it is advisable
to properly understand the objectives of the individual SA. Also, the whole audit team should try
to apply and implement all the applicable auditing standards to the extent possible (Jelic, 2012).
Only then he will be able to get the desired result.
The application of ASA 315 helps to determine the materiality level along with the significance
level both of which are necessary to determine the tolerance level which describes the extent to
which misstatements can be acceptable or tolerable to the concerned auditor (Alabede, 2012).
For better result, ASA 701 should be read in conjunction with ASA 200. This auditing standard
is in conformance with the international standard on auditing ISA 315 issued by the International
Auditing and Assurance Standards Board (IAASB). Thus, it can be concluded that following this
auditing standard will ensure that the auditor is trying to follow and apply international standards
on auditing which is very important to ensure the compliance of professional ethics as well as to
prevent from the civil liability.
Similarly, the ASA 701 is equally important to the concerned auditor. Following ASA 701 is in
conformance with the International Standards of Auditing 701. As such it ensures uniformity of
application of ASA 701. A prominent feature of ASA 701 is that it works in coordination with
the ASA 315. In other words, it also helps in determination of risks of material misstatements.
Being a multinational organization, ASA 701 assists the auditor in preparation as well as the
presentation of key audit matters in his audit report.
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Conclusion:
From the above report, it can be concluded that the applicability of the Auditing Standard-701
and Auditing Standard-315 in the operations of the BlueScope Limited. The project report has
clearly specified the meaning, its uses, and its applicability of the ASA 701 which state
communicating key audit matters in the independent auditor's report and Auditing Standard-315
in the concerned company and elaborates how the use of the given auditing standard could
further facilitate the concerned company in carrying its operations in an effective manner. The
report has defined the accountabilities that is need to be accomplished by the auditor to achieve
the insights of the standards so as to avoid any barrier in its working. For successful and proper
growth it is essential for the concerned company to understand the standard and its uses and how
this standard should be applied so as to en route for effective working and the transparency in the
financial reports ensuring clear understanding. The report has suggested useful recommendations
that the concerned company can adopt so as to carry its operation in an effective manner.
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