HI6026: Audit, Assurance and Compliance - CSR Limited Report Analysis

This report provides a comprehensive analysis of the 2018 annual report of CSR Limited, focusing on its audit, assurance, and compliance aspects. It examines the company's adherence to auditing standards, including APES 110, Australian standards for auditing, IFRS, IASB, and Corporations A...Read More

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, Assurance and Compliance
Name of the Student:
Name of the University:
Author’s Note:
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Executive Summary:
The current paper would try to evaluate the latest annual report of CSR Limited based on
the various auditing features of the operating statements. CSR Limited is a famous
Australian industrial company engaged in manufacturing building products. The members of
Deloitte involved in audit work of CSR Limited have made thorough analysis of material
information of the organisation in the most responsible manner. They have conformed to
the necessary standards mentioned in APES 110, Australian standards for auditing, IFRS,
IASB, Corporations Act 2001 and others. Two material subsequent events are deemed to be
identified from the annual report of CSR Limited. One of them is sale of a surplus asset and
another is associated with declaration of dividend. As per the latest annual report of CSR
Limited, Deloitte has performed all the necessary functions needed to analyse the material
aspects as well other information that have the possibility of developing material
misstatement risk in terms of financial reporting.

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Table of Contents
Introduction:..............................................................................................................................3
Compliance with the independence requirement of the auditor:............................................3
Non-audit services:....................................................................................................................4
Analysis of the auditor’s remuneration:....................................................................................5
Key audit matters:......................................................................................................................5
Audit committee:.......................................................................................................................8
Audit opinion:.............................................................................................................................8
Variations between accountabilities of the management, directors and auditors:..................9
Material subsequent events:...................................................................................................10
Appropriateness of material information:...............................................................................10
Missing or undisclosed material information:.........................................................................11
Follow-up questions:................................................................................................................11
Conclusion:...............................................................................................................................12
References and Bibliographies:................................................................................................13

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Introduction:
Auditing could be explained as an aim related examination and evaluation of the
operating statement of a company in order to assure the honest and appropriate recording
of the transactions claimed. Therefore, it is the liability for the auditors to enhance the
quality of the audit report by disclosing all vital data related to the material characteristics
of the financial statements (Kush et al. 2017). Such information requires to be presented to
the stakeholders of the company in a clarified and simple language. In the modern era,
various actions are attempted by the audit committees in order to assure that the quality of
the audit reports gets improved. The current study would try to evaluate the latest annual
report of CSR Limited based on the various auditing features of the operating statements.
CSR Limited is a famous Australian industrial company engaged in manufacturing building
products (Csr.com.au 2018). In this regard, it requires to be mentioned that Deloitte is the
audit partner of the organisation for the year 2018.
Compliance with the independence requirement of the auditor:
According to the annual report of CSR Limited in 2018, no members of Deloitte were
engaged with the business activities of the company. Besides, no specific staff of the audit
group of Deloitte played a significant role in the group audit of CSR Limited for the year,
which is made under a declaration in accordance with “Section 342A of the Corporations
Act 2001”. On the other hand, Deloitte has complied with all the requirements mentioned
under “Section 307C of the Corporations Act 2001” covering the following points:
1. No violations have been there related to the independence needs of the auditor with
respect to audit.

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2. All relevant codes of professional conduct have been performed regarding the audit and
other related activities of CSR Limited.
Non-audit services:
As stated in the annual report of CSR Limited in 2018, it could be noticed that
Deloitte has performed two types of non-audit services to the company. These services
involve sustainability and carbon related ensuring services and other assurance and advisory
services. For these two non-audit services, CSR Limited has paid $77,108 and $9,000
respectively to Deloitte. This has sum is equal to 10.40% of the overall remuneration of the
auditor (Csr.com.au 2018). On the other hand, sufficient compliance is ensured by both the
auditor and the company while performing and receiving the non-audit services.
As per the written advice of the Risk and Audit Committee, the directors have been
contented that the non-audit services performed by Deloitte have been satisfying to the
general independence status for the auditors implied on the part of the Corporations Act
2001. However, such services are performed by not incorporating with the independent
needs of the auditor of the above-stated standard regarding to materiality of the sum,
service features and the methods invented for supervising auditor independence (Duncan,
and Whittington 2014). Thus, the board of Directors of CSR Limited has assured that the
non-audit services do not include re-assessment of the self-work of the auditor for
undertaking management decisions (Yang et al. 2017). Moreover, the company has taken
into consideration all the rules and regulations regarding the corporate governance for the
non-audit services. Therefore, by taking into consideration all these characteristics, the
independence of the auditor could not be questioned (Marques 2018).

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Analysis of the auditor’s remuneration:
Table 1: Remuneration to Deloitte in 2017 and 2018
(Source: Csr.com.au 2018)
From the above table, it could be observed that the audit service payables relevant
to re-assessment of operating statements, which has been taken into consideration in case
of the Australian business of CSR Limited. The non-audit services involve sustainability and
carbon-related ensuring services and other assurance and advisory services. It could be
noticed that CSR Limited has reduced its payables for audit or re- assessment of operating
statements to Deloitte by 5.89% in 2018, in comparison to the past year. On the other hand,
a rise could be noticed in sustainability and carbon-related ensuring services by 32.94% in
2018, whereas notable decrease could be noticed in other assurance and advisory services
by 77.83% in 2018. This has contributed to the declining of the total auditor’s remuneration
of CSR Limited by 6.64% in 2018.
Key audit matters:
The key audit factors have been taken into consideration as the notable features,
while auditing the financial reports of a company (Nalewaik and Mills 2016). As cited in the
annual report of CSR Limited in 2018, two key audit factors could be noticed and their

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elaborated audit process for reduction and classification have been represented in the
following:
Product liability provision:
A liability catering to a sum of $289 million has been identified by CSR Limited at 31st
March 2018. The provision is regarding the declaration and forecasting of the future claims
related to asbestos. This has been assured after considering the suggestion of an external
specialist appointed by the management in Australia and USA. The provision needs
substantial acumen for settling the sums and the possibilities of the future claims. However,
the predictions regarding the foreign exchange rate shifts and rates of discount have
substantial effect on the estimated provision (Paterson et al. 2016). Furthermore, after all
the predictions vary in size and complex in nature, Deloitte has taken into consideration
product liability catering to the form a key audit factor (Pedersen et al. 2016).
For handling with this problem, Deloitte has evaluated the experience as well as
independence of the external specialist and the appropriateness of the predictions and
processes used in the study. This involves analysing the impactful nature of the utilised
process for calculating the provision, standard of the rates of discount and comparison of
the expertise of historical claims to predictions used for projecting future claims (Schmidt,
Wood and Grabski 2016). However, Deloitte has utilised sample testing for accurate
examination and elimination of claims regarding the asbestos in the liability database of the
management. This is vital for the audit processes, after all the provision is constructed on
the basis of the reports. Thus, the auditor has inspected about the external specialist and
the internal and external legal counsel of the company. Lastly, Deloitte has evaluated the
appropriateness of the relevant declarations in the financial reports.

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Asset valuation:
As per the annual report of CSR Limited in 2018, it has been noticed that the
company has goodwill amount of $98.1 million, other intangible assets of $45.8 million and
property, plant and equipment of $834 million that take into account a number of money
producing units. In order to carry out the evaluation of the dissimilarities of these asset
balances, considerable judgement is required. Such acumen involves notable predictions
like inflation, discount tasks, estimation of building cycle changes, growth rates and
assumptions of future cash flows (Shafii, Abidin and Salleh 2015). The management of CSR
Limited has constructed a dissimilarity triggering evaluation for indicating those money
producing units to be taken into consideration for further dissimilarities. It has been
recognised that the Viridian money producing unit requires more dissimilarity assessment.
This is because it has earned diminished return on capital employed (Stafford, Deitz and
2018). This has been taken into consideration as a key audit factor because of the acumen
incorporated with the assumption of future cash flows and chosen estimations.
In order to manage this matter, the auditor has evaluated the management process
of CSR Limited for identifying the cash generating units (CGUs), in which further impairment
evaluation is required. Hence, it has assisted in developing an understanding of the
consistency in segmental reporting, outside market situations, financial health of the year
and apportionment of goodwill to all CGUs for testing impairment. In addition, the
methodology associated with the impairment model as well as assumptions are evaluated
appropriately while bearing in mind various influential dynamics. Furthermore, Deloitte is
observed to use sample testing so that the cash flow models could be checked for accuracy

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(Kend 2015). Therefore, the auditor has considered all the accounting related impairment
disclosures from the annual report of CSR Limited in 2018.
Audit committee:
As apparent from the latest annual report of CSR Limited, a risk and audit committee
is established that would govern the various internal control guidelines in order to shield
company liabilities and assets. Moreover, the committee would be responsible to assure
that the financial reporting guidelines are maintained with integrity. The committee consists
of four non-executive directors and they are listed as follows:
 Mike Ihlein
 John Gillam
 Penny Winn
 Matthew Quinn
These personnel along with the other members of the committee look after the
evaluation of the different processes to ensure that integrity is maintained within financial
reporting. Moreover, they also assess the factors needed to recognise commercial incomes
and framework evaluation of audit risk management (Kend, Houghton and Jubb 2014). The
organisation does not have any audit committee charter, as no evidences could be gathered
about the same in its financial reports.
Audit opinion:
CSR Limited has the independent auditor’s report, in which it has been clearly
mentioned that it has followed the Corporations Act 2001 to develop its remuneration
report by adhering to the guidelines mentioned in “Section 300A of the Act”. In addition, the

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other accounting standards laid down in AASB, IFRS and IASB are followed as well. The
auditor has stated that no material misstatements are apparent in the financial reports of
CSR Limited and hence, no distortions are made in representing the financial condition of
the organisation that would affect the users of the financial statements in undertaking
decisions. This implies unqualified audit opinion was expressed by Deloitte after it has
audited its financial statements accompanied by supporting notes so that their
appropriateness could be tested.
Variations between accountabilities of the management, directors and auditors:
As observed from the latest annual report of the organisation, the roles of the
management and directors vary greatly from those of the auditors at the time of financial
report presentation and preparation. Both management and directors are needed to bear
into mind the accounting rules and guidelines of the nation at the time of preparing financial
statements and they need to assess whether the organisation is capable enough of
continuing as going concern by applying the appropriate accounting bases.
Conversely, the auditors do not carry out the same roles as those of the
management and directors (Kend, Houghton and Jubb 2014). The primary responsibility of
the auditors is to check whether any material misstatements prevail in the financial reports
because of illicit practices, errors or others based on which they would issue their opinion.
Deloitte has carried out the following accountabilities while the auditing the financial
reports of CSR Limited:
 Discovering and dissecting material misstatement risks
 Knowledge about the procedures of internal control
 Checking the effectiveness of accounting processes

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 Judging whether CSR Limited has applied appropriate recognition bases for operating
as a going concern
 Reviewing whether the financial statements are prepared and depicted accurately
 Accumulation of considerable evidence for audit functions (Knechel and Salterio
2016)
Material subsequent events:
Two material subsequent events are deemed to be identified from the annual report
of CSR Limited. One of them is sale of a surplus asset and another is associated with
declaration of dividend. The organisation has announced that it would dispose-off its Hosley
Park excess land, which is situated in New South Wales on April 3, 2018. From sales
agreement, it is estimated that recognition of $30 million profit would be realised in profit
and loss statement before tax deduction in the next year’s annual report. This is because the
sale would be conducted in April, 2019. In 2018, it has declared a dividend of $0.135 per
share, which is fully-franked and the total dividend payment is expected at $68.1 million,
which should be settled on July 3, 2018. However, the dividend amount is not distributed
yet among the shareholders of the organisation.
Appropriateness of material information:
When this situation is analysed by positioning as a third party stakeholder, the
members of Deloitte involved in audit work of CSR Limited have made thorough analysis of
material information of the organisation in the most responsible manner. They have
conformed to the necessary standards mentioned in APES 110, Australian standards for
auditing, IFRS, IASB, Corporations Act 2001 and others. Along with this, the auditors have
identified two events, which are treated as key audit matters and hence, the risks expected

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to arise from these events are to be mitigated supported by relevant recommendations.
Hence, all these aspects together clearly state that Deloitte has performed all the necessary
audit-related work to identify and analyse material information laid out in the financial
reports of the organisation (Knechel 2016).
Missing or undisclosed material information:
As per the latest annual report of CSR Limited, Deloitte has performed all the
necessary functions needed to analyse the material aspects as well other information that
have the possibility of developing material misstatement risk in terms of financial reporting.
Moreover, it has provided explanation of the reasons behind why certain events are
considered to have material factors. Hence, it could be said that no material information is
excluded or missing materiality aspects (Louwers et al. 2015).
Follow-up questions:
Certain questions could be raised for the auditor at the annual general meeting. In
this case, it would be Deloitte, since it has audited the financial statements of CSR Limited in
2018. Some of the important follow-up questions that could be put forth in front of Deloitte
include the following:
 Are you engaged in discussion of any accounting issues with management before
discussion?
 How have you planned the scope of your audit work?
 Is your audit scope effective enough to detect material errors and unethical
practices?

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 Has the management encountered any problem to control important business
processes?
Conclusion:
The above discussion clearly makes it evident that no members of Deloitte were
engaged with the business activities of the company. Besides, no specific staff of the audit
group of Deloitte played a significant role in the group audit of CSR Limited for the year. As
per the written advice of the Risk and Audit Committee, the directors have been contented
that the non-audit services performed by Deloitte have been satisfying to the general
independence status for the auditors implied on the part of the Corporations Act 2001.
Moreover, the auditors have detected two key audit matters from the annual report of CSR
Limited in 2018 and accordingly, they have provided suggestions to manage these matters.
Two material subsequent events are deemed to be identified from the annual report
of CSR Limited. One of them is sale of a surplus asset and another is associated with
declaration of dividend. As per the latest annual report of CSR Limited, Deloitte has
performed all the necessary functions needed to analyse the material aspects as well other
information that have the possibility of developing material misstatement risk in terms of
financial reporting. Moreover, it has provided explanation of the reasons behind why certain
events are considered to have material factors.

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References and Bibliographies:
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Assurance Engagements. Pearson Canada.
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opportunity for CPA firms. Management Accounting Quarterly, 17(3), p.29.
Bradbury, M.E., Raftery, A. and Scott, T., 2018. Knowledge spillover from other assurance
services. Journal of Contemporary Accounting & Economics, 14(1), pp.52-64.
Carey, P.J., 2015. External accountants’ business advice and SME performance. Pacific
Accounting Review, 27(2), pp.166-188.
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A Journal of Practice & Theory, 34(1), pp.59-74.
Csr.com.au., 2018. Annual Meetings and Reports. [online] Available at:
https://www.csr.com.au/investor-relations-and-news/annual-meetings-and-reports
[Accessed 12 Sep. 2018].
Csr.com.au., 2018. CSR Building Products - a leading building products brand in Australia &
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Duncan, B. and Whittington, M., 2014, September. Compliance with standards, assurance
and audit: does this equal security?. In Proceedings of the 7th International Conference on
Security of Information and Networks (p. 77). ACM.

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Kend, M., 2015. Governance, firm-level characteristics and their impact on the client’s
voluntary sustainability disclosures and assurance decisions. Sustainability Accounting,
Management and Policy Journal, 6(1), pp.54-78.
Kend, M., Houghton, K.A. and Jubb, C., 2014. Competition issues in the market for audit and
assurance services: are the concerns justified?. Australian Accounting Review, 24(4), pp.313-
320.
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assurance services: are the concerns justified?. Australian Accounting Review, 24(4), pp.313-
320.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Knechel, W.R., 2016. Audit quality and regulation. International Journal of Auditing, 20(3),
pp.215-223.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
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Nalewaik, A. and Mills, A., 2016. Project performance review: Capturing the value of audit,
oversight, and compliance for project success. Routledge.

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Sandberg, M., Dahl, J., Lindegaard, L.L. and Pedersen, J.R., 2016. Compliance/non-
compliance with biosecurity rules specified in the Danish Quality Assurance system (KIK) and
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on Governance, Audit, and Assurance. Journal of Information Systems, 30(3), pp.173-189.
Shafii, Z., Abidin, A.Z. and Salleh, S., 2015. Integrated internal-external Shariah audit model:
A proposal towards the enhancement of Shariah assurance practices in Islamic financial
institutions. McGraw Hill.
Stafford, T., Deitz, G. and Li, Y., 2018. The role of internal audit and user training in
information security policy compliance. Managerial Auditing Journal, 33(4), pp.410-424.