Auditing and Assurance: BHP Billiton's Annual Report Executive Summary

This report provides an executive summary of an audit, assurance, and compliance analysis, using BHP Billiton's annual report as a case study. The report begins with an overview of BHP Billiton and then delves into key aspects of the audit process, including auditor independence declarations, non-audit services, and auditor remuneration. It examines the role, functions, and composition of the audit committee, including its responsibilities in overseeing financial statements and risk management. The report also details the audit opinion provided by KPMG UK, the key audit matters identified, such as asset valuation, and the procedures undertaken to assess these matters. Furthermore, it explores the responsibilities of directors, managers, and auditors, the assessment of material information, and follow-up questions from the auditor in the annual general meeting. Overall, the report offers a comprehensive understanding of the auditing process and its application within a large organization.

AUDITING
ASSURANCE AND
COMPLAINCE

EXECUTIVE SUMMARY
This project summarises concept of audit, assurance and compliance. In this present
assignment, BHP Billiton's annual report will be assessed for present a proper understanding on
the auditing process. Numerous core audit matters has been evaluated in this paper with audit
committee suggestions in order to prepare an audit report of organisation and analyse it
accordingly.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
Overview of the company......................................................................................................1
Auditor's independence declaration........................................................................................1
Non audit services formed by the auditor...............................................................................2
Auditor's remuneration...........................................................................................................3
Role, functions and composition of the audit committee.......................................................4
Audit Opinion.........................................................................................................................5
Key Audit Matters..................................................................................................................5
Responsibilities of Director, manager and auditor.................................................................8
Assessment of the effectiveness of the material information reported by the auditor...........9
Follow up questions from auditor in AGM............................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Audit refers to the process of analysing annual reports, accounts, vouchers of a business
enterprise to analyse that the financial and non-financial statements shows the actual position of
the company or not (what is auditing, 2017). The auditor is liable to check the annual reports
physically and give his opinion on those reports. The main reason behind audit is to ensure that
the transactions recorded in financial statements are fair or not, and is there any
misrepresentation in the reports. Auditor is the person who is appointed by the executives of an
organisation and responsible to analyse annual reports of a company and then prepare a report
which is based on his opinion. The company chosen for this report is BHP Billiton Ltd, which is
a metals and mining company.
This project report is based on auditor's independence declaration and his report, non-
audit services performed by the auditor, auditor's remuneration, audit committee and its roles
function and composition, independent auditor's report to the shareholders and key audit matters
associated and noted in audit procedure.
Overview of the company
BHP Billiton Ltd is a global resources company, which is a producer of different
commodities like iron ore, uranium, copper, metallurgical coal etc. It has four segments that are
copper, coal, petroleum and iron ore (Mills, 2012). These segments are occupied by different
production such as coal involves mining of metallurgical coal and thermal energy, copper
segment is engaged with excavation of silver, lead, zinc, gold, copper uranium etc., the
petroleum segment is concerned with development, exploration of oil and gas. The product
distribution of the company is managed through global logistic chain of the organisation. The
products are sold by the organisation through supply agreements with its clients. It has three
outlets, Minerals Australia, Minerals America and Petroleum and Marketing.
Auditor's independence declaration
Auditor's independence: It refers to the independence of internal as well as external
auditors from the parties who may have financial involvement in the business which is going to
be audited by the auditor. It requires honesty and a neutral formulation to the audit procedure.
The auditor of the company is liable to present actual and original information to the
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shareholders (Ryan and et. al., 2012). Following is the declaration that has been made by the
auditor:
 No contraventions of the auditor independence requirements as set out in the Australian
Corporations Act 2001 in relation to the audit.
 No contraventions of any applicable code of professional conduct in relation to the audit.
There are two auditors who have hired by the company they are KPMG and Anthony Young.
Both the auditors have made a declaration under section 307 c of the Australian Corporations act
2001, that consist above mentioned points.
The auditors are complied with the independence requirements because both of them declared
and signed an agreement under section 307 c of the Australian Corporations act 2001.
Non audit services formed by the auditor
Non audit services: It includes such services that are not involved in the audit process of
the company's financial statements. For example, tax planning, business consulting, system
integration etc.
All non-audit services are sanctioned in conformity with the procedure which have been
set out in the argumentation on condition of audit and other services by extrinsic auditor of BHP
Billiton Ltd. There are no non audit services were found out that were generally eliminated by
the logical argument on provision of audit and other non-audit services. Based on advice
provided by the risk and audit committee, it was formed by the directors that provision for non-
audit services are compatible or not with special regulation of independence for auditors. It was
also identified that nature of non-audit services will never affect the independence of auditors
(Prempeh, Twumasi and Kyeremeh, 2015). The external auditor does provide some non-audit
services. These services can be undertaken by the auditor with the prior approval of the RAC, but
the other services are not undertaken. These services are required to the external auditor to audit
his own work, to participate in the activities that are normally directed by the owner of the
company to act in the advocacy role of BHP Billiton Ltd. Although, the outside auditor does
convey certain non-audit services. the objectively and independence of external auditors are
defence by restriction on the overall provision of below mentioned services. Those services are:
 Auditor may need to audit their own work.
 In some situation, auditors can also take participation in various activities that would be
basically undertaken by the management.
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 Auditor remunerated by a success fee structure that is design by the BHP Billiton.
 Acts in an advocacy role for the BHP company.
The RAC has adopted an effective policy that is entitled with the specific provision of
audit and external services that is being done by the auditors of BHP.
Auditor's remuneration
Auditor's remuneration: It is a fees which has been paid by the management of the
company to the external audit to conduct an audit within the organisation for the financial
statements of the company. Auditing has become more complex because of Sarbanes Oxley Act.
Fees or remuneration paid to the auditors for the assurance services are disclosed. There are no
fees which has to be paid in respect of the audit or pension fund. Fees payable to the group's
auditors for other services that are related to the corporate finance which includes acquiring,
divestment and obligations increasing transactions (Whitaker, 2013). A comparison of auditor's
remuneration of BHP Billiton Ltd is shown in table, which is as follows:
Particulars 2015
Comparison in
% of 2017 and
2015 2016
Comparison
in % of
2017 and
2016 2017
Payable remuneration to the
auditors for assurance services
Audit of the group annual report 4.299 3.126 3.381
Audit of Subsidiaries and
association 11.185 7.715 7.04
Audit related assurance services 5.377 3.493 3.597
other assurance services 1.557 1.508 1.849
Total remuneration for
assurance services 22.418 70.78 15.842 100.16 15.867
remuneration payable for other
services
Other services relating to 6.871 0.276 0.042
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corporate finance
All other services 1.093 0.815 0.589
Total other services 7.964 7.92 1.091 57.84 0.631
Total remuneration 30.382 54.30 16.933 97.43 16.498
From the above table it has been analysed that when total remunerations for assured services of
2017 compared with 2016 than the percentage changes were 100.16% and when it was compared
to 2015 the changing percentage was 70.78%. Percentage changed in total other services while
comparing with 2016 is 1.091% and for 2015 it was 7.92%. When total remuneration of 2017
was compared to 2016 the total percentage changed was 97.43% and when it was compared to
2015 the percentage changed was 54.30%.
Role, functions and composition of the audit committee
Audit committee: Audit committee is a group is persons who are liable to keep a track
record of all financial activities of the company (Knechel, and Salterio, 2016). All the companies
are directed to form an audit committee to control the activities within the organisation. The
members are selected from the board of directors of the company and they may take help of
other auditors to analyse the truthfulness of the transactions of the company.
There is also an audit committee in BHP Billiton Ltd to analyse the transparency of the financial
statements. There are four different non-executive directors in audit committee and all the
members are independent and three of them have full attendance. The members are Mindsey
Maxsted who is chairman of the company and member for whole life, Malcolm Broomhead, he
is member for whole life, Anita Frew, who is member for whole life and her attendance is 11 out
of 12, Wayne Murdy who is a member of the organisation for whole life (Fiolleau, and et. al.,
2013).
Role, functions and responsibilities of audit committee:
 Audit committee is liable to oversee the transparency of financial statements and annual
reports of BHP Billiton Ltd.
 To analyse the performance, appointment and remuneration of external auditors and the
audit process of the company.
 To judge the effectiveness of the risk management system of the company.
 To control the internal environment.
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 To examine the plans, objectives and leadership of the internal audit process and check
its liableness.
 To handle capital managements and other matters of the company.
Audit Opinion
The auditor of BHP Billiton Ltd who is KPMG UK has given following opinions on the
annual reports of the organisation:
 According to KPMG the financial statements of the company shows the fair and true
transactions for the year ended 30 June 2017.
 The managers of the company have properly prepared consolidated balance sheet as well
as income statements of the organisation.
 The financial statements are properly prepared according to the accounting standard of
UK.
 The annual reports of the company are generated according to the UK's Companies Act
2006.
Key Audit Matters
Key audit matters covers those matters, that are mainly based on the professional
judgement of the auditor, it includes the most significant assessed risks of material. It consists
the material information which is required to analyse the actual performance of the company
(Tepalagul and Lin, 2015). Few of the key audit matters that are identified in BHP Billiton Ltd.
are defined below:
Asset valuation: The carrying value of the group's functions of possession has been
wedged by continuous excitability in commodity prices. The key area of the judgement is related
to the assessment of the company of future cash flow for every cash creating unit, that is used to
analyse the redeemable value of the property. The future cash flows help to determine the future
events where cash is required. Assets valuation is the key matter for the company because of the
judgement which has been applied by auditors when examining the redeemable values of the
assets.
Procedure:
 Investigating the central activities over the evaluation of the assets or the property of the
company. It includes evaluation and control of to identify the material weakness.
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 Examining the predicted commodity prices integrated into the asset's modification testing
considering comparison to accessible market data.
 Comparison of the future capital expenditures and reserves to the actual or current plans.
 Evaluating the competency and objectivity of experienced persons who have forecasted
the reserves that are used in the valuation and based on the experience and qualification
of experts.
 Working with the experts to compare the assumptions that are commodity prices,
inflation rate or discount rates.
 Conducting a sensitivity analysis which is based on the assumptions of the specialists.
 Evaluation of potential financial implications to control the deficiencies of the
organisation.
 Analysing the impacts of the alteration in the evaluation of those properties on the
transfer value of investment.
Taxation: The company has operation in multiple countries, and every country has its
own taxation rules and regulations. It affects the taxation policy of the company and also trigger
various taxation obligations. It includes corporate tax, royalties and other sources. The nature of
the company which is cross border also affects the international transfer pricing of the company
(Ng, Chong and Ismail, 2012). Taxation is a key matter because of the different regulation
authorities of various countries in which the company is running its business.
Procedure:
 Testing the main points that are related to the accounting for the uncovering of the
taxation related transactions of BHP Billiton Ltd.
 Work with the different taxation authorities of different countries like Australia, Chile,
US etc. to evaluate the exact taxation liability of the company for the year ending 30 June
2017. It also involves the documentation of from recent similar tax rulings to evaluate the
completeness of taxation matters.
 Analysing the uniformity of various assumptions that are used in the contamination of
different provisions and uncertain liabilities for key taxation disclosure.
 Evaluate the adequacy of the company's presentation which is related to the tax and its
ongoing matters.
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Samarco: There are various accounting judgements that are complex and results as a
failure of the Samarco Dam, it includes:
 estimating the legal status of claims made against Samarco and BHP Billiton Ltd. and the
suitable accounting treatment for the same.
 Estimating the magnitude of BHP Billiton Ltd.’s legal obligations to provide monetary
sources to Samarco.
 Revelation of different liabilities that are related to various claims and different events
that shows the aspect of Samarco and BHP Billiton Ltd.
Procedure:
 analysing the key control system over accounting and exposure that are related to the dam
failure.
 Analysing the presence of legal or constructive rules under the Samarco Stakeholder's
agreement and determining Brazilian legal interference.
 Examining the main assumptions that are used to analyse the provisions which are
recorded by BHP Billiton Ltd. in relation to its possible funding causes. It has been
assessed that the events described in the framework statement and compared the same to
the cash flow estimation of the company.
 Directing the auditors of Samarco and analysing the outcome of the process which is
undertaken in relation to the causes that are required under framework and other
statements.
 Assessing that the disclosure of the liabilities is complete and relevant or not. It is
possible with the help of legal and other documents that are presented by the external
auditor.
 Analysing the discloser of the group of the company whether it is significantly following
legal obligations or not.
Closure and rehabilitation provisions: It has been provided that to run the operations
successfully the company has to follow the legal obligations to close, restore and rehabilitate its
different outlets. Closure and rehabilitations events are controlled by legal authority and other
legislations (Greiner, Kohlbeck and Smith, 2013). The calculation of different closers and other
provisions require significant judgement due to the complexness in the estimation of future costs.
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It was a key audit matter due to the momentous size which is related to the company's financial
position.
Procedure:
 Analysing the key controls of closure and different rehabilitation provisions.
 Employing with the experts to assess the reasons of estimation of the mining process and
reserves used by BHP Billiton Ltd.
 Analysing the activities of the company's hired experts to identify rehabilitation activities
against legislative activities. It is mainly based on the qualification, experience and
working style of the company.
 Evaluating the main economic estimation that are used in the calculation of important
closure and other provisions and it also include the discount rates that are applied to
calculate the net present value of the company and help to identify the risks.
Material subsequent events and missing material information: According to the annual
reports of BHP Billiton Ltd. for the year ending 30 June 2017, there are no material subsequent
events and missing material information that are found by the auditor of the company.
Responsibilities of Director, manager and auditor
Director of the company is liable to direct the managers and auditors for their duties.
Director of BHP Billiton Ltd. Is the person who has all the powers of the company and have
rights to ask about any information from the auditor and managers. The mangers of the company
are liable to manage the activities that happen in and out of the organisation. The auditor
analyses the annual reports that are generated by the managers (Nicolăescu, 2013).
The auditor of BHP Billiton Ltd. Examine the financial statements of the organisation
and find out that the transactions that are recorded are relevant or not is there any missing
information which needs to be recorded in the financial reports. If the auditor finds any
misrepresentation in the annual reports than he may give the information to the director and then
the director is liable to take the action. In such way the roles of auditor, director and managers
differ from each other (Sarkar and Sarkar, 2012).
Assessment of the effectiveness of the material information reported by the auditor
As a stakeholder such as investor or debtor, effectiveness of the material information
reported by auditor is most important. For example, the most important information for these
stakeholders is debt equity position and profitability position of an organisation.
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Follow up questions from auditor in AGM
Q1. Do the information which is recorded in the annual reports of BHP Billiton Ltd. Was
relevant or not?
Q2. whether the procedure of calling AGM is followed properly or not?
Q3. Whether the conceptual framework of financial reporting is followed by the company or
not?
Q4. Do the organisation have followed all the accounting standards while recording transactions
in financial reports?
CONCLUSION
From the above project report it has been concluded that in order to enhance the auditing,
assurance and complains company need to analyse various financial statements those are
evaluated by the auditor. In order to analysis the performance of the company and enhance the
auditing assurance key audit matters and its procedures has been clearly provided in context to
the company. However, to get more reliable results in near future all the essential requirements
which are mentioned in the annual report of the company in context to the auditor is being
analyse effectively.
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REFERENCES
Books and journals:
Mills, J., 2012. Quality auditing. Springer Science & Business Media.
Ryan, K., and et. al., 2012. Development of a standardised approach to observing hand hygiene
compliance in Australia. Healthcare infection. 17(4). pp.115-121.
Prempeh, K. B., Twumasi, P. and Kyeremeh, K., 2015. Assessment of financial control practices
in Polytechnics in Ghana. A case study of Sunyani Polytechnic.
Whitaker, S., 2013. PMP Rapid Review. Microsoft Press.
Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Routledge.
Fiolleau, K., and et. al., 2013. How do regulatory reforms to enhance auditor independence work
in practice? Contemporary Accounting Research. 30(3). pp.864-890.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review.
Journal of Accounting, Auditing & Finance. 30(1). pp.101-121.
Jones, P., 2017. Statistical sampling and risk analysis in auditing. Routledge.
Ng, T. H., Chong, L. L. and Ismail, H., 2012. Is the risk management committee only a
procedural compliance? An insight into managing risk taking among insurance
companies in Malaysia. The Journal of Risk Finance. 14(1). pp.71-86.
Sarkar, J. and Sarkar, S., 2012. Auditor and audit committee independence in India.
Greiner, A., Kohlbeck, M. and Smith, T., 2013. Do auditors perceive real earnings management
as a business risk?
Nicolăescu, E., 2013. Understanding Risk Factors for Weaknesses in Internal Controls over
Financial Reporting. Journal of Self-Governance and Management Economics. 1(3).
pp.38-43.
Online
what is auditing. 2017. [Online]: Available Through:
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