Auditing and Assurance Report: ASA 701 and Key Audit Matters

This report provides an overview of auditing and assurance processes, focusing on the application of ASA 701 and key audit matters. It begins with an executive summary and table of contents, then introduces the role of auditors in verifying financial statements and ensuring compliance with accounting standards. The report discusses ASA 570 (Going Concern) and the rationale behind ASA 701, highlighting its importance in addressing issues that arose in the Lehman Brothers case and the 2008 financial crisis. It explains the standard's guidelines for auditors, emphasizing the communication of key audit matters and the importance of independent opinions. The report then delves into key audit matters for companies in the utility industry, including Spark Infrastructure Stapled Ltd, AGL Energy Ltd, Ausnet Services Ltd, and APA Group, examining how auditors address issues such as revenue recognition, investments, and financial instruments. The report concludes with recommendations based on the analysis of these key audit matters, offering insights into the complexities of auditing in the modern financial landscape. The report highlights the importance of auditors in maintaining the confidence of financial users and the public.

Running head: Auditing and Assurance
Auditing and Assurance
Name of the Student
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Author Note

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Executive Summary
The report includes about the process of auditing in the company. It also discuss about the
Lehman Brother case and how the introduction of ASA 701 come in the accounting standard.
It also include about important and details of the ASA 701. It also consists of the key audit
matters of the company in the utility industry and how the auditor has tackled the situation.

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Table of Contents
Introduction................................................................................................................................4
ASA 570 Going Concern...........................................................................................................5
ASA 701: Rationales..................................................................................................................5
ASA 701: Explanation...............................................................................................................7
Key Auditing Matter of the Company.......................................................................................7
Spark Infrastructure Stapled Ltd............................................................................................7
AGL Energy Ltd:...................................................................................................................8
Ausnet Services Ltd:..............................................................................................................9
APA Group:.........................................................................................................................10
Conclusion and recommendations...........................................................................................10
Reference..................................................................................................................................12

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Introduction
Auditor carry audit process in the company as they do the verification and inspection
of the company financial statement and gives its opinion upon the statement that whether the
statement are showing true and fair view or not (Azim 2013). It have to check that the
company have follow all the rules and regulation which are mention in the accounting
standard as while preparing the financial statement of the company. It give more emphasis
upon the internal control of the company as it help it to know what are the risk which the
business has and how the auditor will able to report the same in its audit report (Carson,
Zhang and Fargher 2014). The auditor should gives its opinion independently and no
management decision should affect the same as it should a fair opinion so that the financial
user will able to show some confidence in the audited financial statement. As seen in the
previous year of collapse of the big firm which are been audited by the auditor so due to these
the auditor is not able to meet the expectation of the public and it also lost all the respect
which it had in the eyes of public (DeFond and Zhang 2014). So that the auditing process is
been done so that it can help the financial user to know more about how the company is
performing and whether they should invest in the company or not. But if the public is not
only having the confidence upon the auditor it will be a waste to carry the audit services in
the company. So to gain back the confidence in regards of the auditing profession the
Australian Accounting Standard Board have come up with the new accounting standard so
that with the help of new accounting standard the auditor will able to meet the expectation of
the public (Furnham, and Gunter 2015). The standard is ASA 701 it contains about
“Communicating Key Audit Matters in the Independent Auditor’s Report. As the new
section have arrived so as the result it have removed some old regulation and also the
standard of going concern which is ASA 570. The report deal with the adoption of the new
standard in the accounting process and what is been written inside of the standard ASA 701.

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It even give emphasis upon the key audit matter of different company residing in the same
industry (Griffiths 2016).
ASA 570 Going Concern
One of the important consideration which the auditor needs to consider is the going
concern principle which has become intensively important as the future of the business
depends on the same. The provisions of ASA 570 states that an auditor needs to check the
going concern principle so as to ensure that business would be operating for the foreseeable
future. In case the going concern, principle is affected in any manner than the auditor needs to
report of the same in the auditor’s report so that the investors are aware of the financial
situation of the business. The auditor should look for negative indicators which can affect the
financial position of the business such as negative profits, negative cash flows, high
employee turnover. The key audit matters which are to be included in the annual report would
also be including such estimates.
ASA 701: Rationales
Auditors have carry many audit procedure but still they were unable to catch the risks
which was associated in the case of Lehman Brothers so it was also an reason for the failure
of the Lehman Brother case. As it was known that the internal management is carrying some
fraud transaction in the company (Knechel, and Salterio, 2016). The company have misuse
the Repo rate as it showed in the different ways so that it able to show the financial position
of the company more good as it able to increase it financial position by $50 billion. The
auditor have been done all the analysis and got all the facts that the company is been doing
such kinds of stuff still the auditor have given the company an Unqualified Report. As this
report shows that the company have follow all the rules and regulation and material

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misstatement is been found in the company so this all become a reason of the downfall of
Lehman Brothers and also the financial crisis of 2008 (Peytcheva, Wright and Majoor 2014).
Australian Accounting Standard Board have seen all the matters and to overcome all
the barrier it came up with ASA 701. The Standard have some rules and regulation in regards
of the auditing process as it say that the process of the audit should be carried for a reason
and for a specific time only (Power and Gendron 2015). This type of norms was not there at
time of Lehman Brothers case. As there becomes a gap of auditing process after the case of
Lehman Brothers so this standard able to minimize the gap. The information which the
auditor has collect through its auditing process and thinks is a matter of risk for the company
than it should record the same in the annual report of the company. It should be done so that
it can able to base its decision upon the information while giving its opinion upon the
financial statement of the company (William Jr, Glover and Prawitt 2016). This norms are
been listed in the new standard as it was not there when the Lehman Brother case had happen
as that time the auditor are not used to give matter in the annual report of the company. It
should disclose all the judgement and estimation which is been given by the company in
regards of their auditing process. As the estimation which was taken by the Lehman Brother
case is not been given by the auditor (Xu et al ., 2013). So it can be said that these were some
of the reason from which the downfall of the Lehman Brothers happen and also the financial
crisis in 2008. The new accounting standard have imposed such rules upon the external
auditor that it have to report all the matters whi8ch seems important to the auditor in the
annual report of the company. It should all disclose the judgement and assumption which the
company have taken in the accounting process,
In the case of Lehman Brothers the auditor is not able to know firm capabilities in to
the future needs of the business. The standard removed the going concern concept as due to
the downfall of the Lehman Brother case it came to now that it is not necessary for the

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company to get loss in the long run as it can able to suffer the loss in short span of time as a
result it, the company may have to see a shutdown point in the business (Zakari 2013). So it
does not take into consideration the going concern assumption as this was also one of the
reason of downfall of the Lehman Brothers Case and the financial crisis of 2008
ASA 701: Explanation
This standard guide the auditor to know how it should carry its audit process in the
company and what are the area which is should report them in the financial statement of the
company (Zhang, Yang and Appelbaum 2015). It also makes the communication better
between key audit matter and annual report of the company. The regulation as per ASA 701
is given below:
o Proper explanation of the key audit matter of the company
o Detailed documentation of the company information
o Detailed proper procedure of the auditing process
o It shows the detail to be written in the key audit matter and what it should not record
Key Auditing Matter of the Company
It contain the detail of the key audit matter of the company under the utility industry
and show how the auditor have deal with the same key audit matter in the company.
Spark Infrastructure Stapled Ltd
The auditor of the business has effectively included key audit matters of the business
in the annual report of the business for the year 2018. The auditor of the business has
included investments and revenue recognition in the key audit matters of the business. The
investments of the business are included in the key audit matters of the business as the same
are considered to be material in nature and the same is measured accordingly following
equity method. The assessment of the recoverable value of the investment involves the

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exercise of significant judgement which is the main reason that investments are recognised
under key audit matters of the business. The auditor also has to determine the carrying value
of the investments for the purpose of charging impairment on the assets of the business. It can
be said that the items which are included in the key audit matters are complex and at the same
time material and therefore it is justified to include the items under key audit matters of the
business.
AGL Energy Ltd:
The financial reporting of the company show that there some key audit matters in the
company. The key audit matters which the company has financial instruments, unbilled
revenue and unbilled distribution costs. It is been found by the auditor tht the company have
recorded the revenue of $938 million in the financial statement but no proper bill is not been
raised by the company in regards with the customers so it is been consider as material
misstatement and thus the auditor consider it as a key audit matter of the company
(Agl.com.au 2019). The auditor is not able to found any proper judgment or estimation from
the management as it was unable to get any information in regards of the last customers bill
of the customer consumption in the company.
It was founded that the management have estimate the cost of the energy consumption
from the unbilled distribution cost. So the auditor does not take in to consideration the proper
judgement and the estimation which the company has taken in regards of the consumption of
the energy cost in the company.
As the financial instrument is been consider the auditor have found the company is
been entering into many number of the contract of the financial instrument which are also
related to the hedge and derivative financial instrument which gives the company an exposure
as per the interest rate, movement in foreign exchange and also the energy prices. It was seen

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that the company is not following the accounting standard as it not recorded the financial
instrument on the basis of the fair value estimation so it is also been consider as a key audit
matter in the company. The auditor need to know that the company have not taken proper
estimation about the financial instrument and also they should give a proper disclosure in the
annual report of the company.
Ausnet Services Ltd:
As per the financial reporting of the company it can be seen that there some key audit
matter of the company which is been found by the auditor of the company. The key audit
matters of the company are revenue recognition, accounting in regards of the project of
related expense, valuation of the non-current asset and accounting and valuation of
derivatives (Ausnetservices.com.au 2019). The auditor consider the revenue recognition as a
key audit matters as it due to the nature of the framework the audit process is been not able to
carry properly. The auditor found that there is inherent complexity in the customers billing
process in regards of the energy which is been in related to the project of the energy which is
been consumed and also the tariff rates.
The auditor have consider the non-current asset as an key audit matter as due to
complexity of the framework it was very difficult for the valuation of the revenue and related
expenses which are there in the company in regards of the cash generation unit. It is also been
found that there is a very high complexity in carrying the audit process regarding the forward
looking assumption so it is also been consider as a key audit matter in the annual report of the
company. Their was also a very high complex in regarding the classification operational and
capitalised expenses. It also can able to know the future benefits of the capital projects of the
company.

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APA Group:
As per the financial reporting of the company it can be seen that the company having
key audit matter as per the auditor of the company. The key audit matter of the company is
related to the goodwill, other intangible asset and also the carrying amount of the PPE. It was
consider by the auditor that the company is not able to give proper estimation and valuation
in regards of the goodwill of the company and due to these reason the auditor have consider it
as key audit matter of the company (Www.apa.com.au 2019).
It is been found by the auditor that the company have went to many unwanted
contracts which they should have not gone in the normal course of the business. As they went
in the forward exchange contract in regards of the hedging portion of the exchange rate risk
which is not been there in the US Dollar Borrowings.
So as per the above mention key audit factor the auditor is been consider as ASA 701.
So that it help the auditor to assertion in regards of the key audit matter of the account as also
it take into consideration as per the judgement, estimation of the auditor in regards of the
audit process of the company.
Conclusion and recommendations
As per the analysis of the above report it can be said that the audit help the financial
user to know the financial performance of the company. As it seen due to collapse of big firm
the auditor have lost all its position in between the society and no one is able to get the
confidence upon the audited financial statement. The accounting standard came up with new
standard so that it can able to stop the collapse of any big firm and also to get back the
position of the auditor in the society. The standard is ASA 701 which help the auditor to carry
the audit process more efficiently in the company. As it include that the auditor should

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disclose all the information which it have found risk in the company and should record the
same in the annual report of the company. Some recommendation to the auditor:
o It should record all the important point in the annual report of the company
o It should disclose all the material facts and estimation which the company have taken
in their accounting process
o The auditor should consider all the matters in the annual report as per ASA 701 as it
should follow all the standard details while doing the auditing of the company.