ACC707 Auditing and Assurance: Key Audit Matters in Healthcare

This report provides a comprehensive analysis of auditing and assurance services within the healthcare industry, focusing on the application of ASA 701 and the identification of Key Audit Matters (KAM). The report examines the audit reports of several companies, including Sigma Healthcare Limited, Ansell Limited, and Ramsay Health Care, to illustrate the practical implications of KAM in financial reporting. It discusses the significance of KAM in improving the transparency and relevance of auditor reports for investors and other stakeholders. The report delves into specific examples of KAM, such as valuation of trade receivables, recoverability of goodwill, and taxation, highlighting their importance within the context of each company's operations and financial statements. The study also explores the trends and issues in auditing and assurance services within the healthcare sector and emphasizes the importance of auditors in meeting user requirements. The report is designed to provide insights into how auditors determine and communicate KAM in their reports, and how these matters impact financial decision-making.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student
Name of the University
Author Note

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Executive Summary
This current report has focused on the audit and assurance services that are provided to the
organizations of a particular industry. In this study, health sector industry has been chosen
which points out the different company that deals with health services. The requirement and
analysis of the ASA 701 has been described along with the trends and issues in auditing and
assurance services. The key audit matters in the report of the independent auditor have been
discussed along with analysis of the reports. The annual report of the selected companies
have been selected which mainly includes the report from the auditor and that has already
been addressed in the study.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
ASA 701 Communicating KAM............................................................................................3
Communicating Key Audit Matters in the recent annual report for –...................................5
 Sigma Healthcare Limited...........................................................................................5
 Ansell Limited.............................................................................................................6
 Ramsay Health Care....................................................................................................8
 CSL Limited................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................12

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Introduction
The auditor's reporting has been criticized many times for its less information about
the company in its report. Earlier, the investors or the users not find the reports prepared by
the auditors much relevant to them while making financial decisions. As they find it difficult
to understand and find the major areas of the company where the risk can be present with
their money. The Australian auditing board brought a concept of KAM that is Key Audit
matters as per the investors need in order to maintain transparency and provide by providing
relevant information to the users in the audit report. The new standard ASA 701 Key Audit
Matters (KAM) tends to represent those audit matters that have more importance in the audit
report prepared by an auditor while auditing a financial statement. The report aims to do
research and critically analyze the key audit matters in their independent auditor's report. The
discussion made within the report has explained ASA 701 KAM clearly. The report has
discussed several key audit matters of different organizations of an industry. The industry
chosen here for preparing this report is the health care industries that cover approx. 9% of the
market capitalization of Top ASX 100 listed companies. The health care industry is
considered as the fourth largest contributor to the GDP of the nation. The report is prepared
with a proper study of the annual report of the selected companies. At last, the importance of
ASA 701 has been suggested that is to be maintained by the auditors so that to meet the
requirements of the users.
Discussion
ASA 701 Communicating KAM
The Key audit matters can be defined as the matters that have more significance as
per the judgment of the auditor in the auditing of a company’s financial statement of a
specific period. Paragraph 8 of ASA 701 Communicating Key Audit Matters defines key

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audit maters as those matters have more importance in the auditing of the annual report of the
current period. KAM selects those matters, which is charged with governance.
The purpose of key audit matters as per Paragraph 2 of ASA 701 is to improve the
communicative value of the report prepared by the auditors with an intention to bring
transparency about the performed audit (Fernandez‐Feijoo, Romero and Ruiz 2015). The
report intends to provide relevant information in the financial report to the users so that to
assist them with the specific decision related to the matters that have more significance in the
financial report. The users of the report are supported in finding the decisional areas of the
auditors for an organization.
The AASB has ensured the ASA 701 with recent improvements and development in
the reporting of the auditor, and the standard has included one of the main features by
representing the revised ISA 570 that is about Going Concern (Toy and Hay 2015). The
differences from the revised ASA 570 have been made in accordance with the legislative
environment of Australia as well as to maintain the quality of the audit. As per Paragraph 9
of ASA 701, the auditor shall determine the matters that are charged with the governance
while performing the audit (Wilkinson and Coetzee 2015). The main requirement that the
auditors are to take into account while determining the key audit matters are as follows:
o The areas where the higher risk of material misstatement, or related risks is identified
that is in context to ASA 315,
o The transaction’s or the event’s audit effect arose during the period,
o The significant judgment of the auditors on the areas identified as high estimation
uncertainty.
Key audit matters can affect the company in its market value, revenue, or its existence
in terms of going concern. There are few things common in the key audit matters in reporting

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a financial report that are revenue recognition, loans, receivables, intangibles, taxation, and
investment valuation (Fernandez-Feijoo, Romero and Ruiz 2016). However, every industry
and its existing companies have their specific key audit matter that is in accordance with the
professional judgment of an auditor.
The healthcare industry is one of the leading industries in the present era that operates
through a chain of networks. The health care industry requires a good number of workforce
resources as well as better technology (Burton et al. 2015). The industry is driven in the
market through its goodwill. Therefore, the auditors have to involve a thorough study in
maintaining auditor’s reports of the organizations related to the healthcare industry. The users
or investors may require several key audit matters within the annual report.
Communicating Key Audit Matters in the recent annual report for –
 Sigma Healthcare Limited
Sigma Healthcare is one of the topmost wholesale and distribution business of
hospital pharmacy and community in Australia. The company and its controlled entities are
highly committed to delivering health care services of high quality (Sigma Co 2020). The
group has the largest network of pharmacies in Australia. The director and management of
the Sigma group ensure to conduct their business as per the standards and corporate
governance.
Key Audit Matters identified in 2018-19 annual report
Valuation of trade receivables
In the annual report of 2018-19, Sigma group has declared its total trade receivables
of amount $572.608 million on 31 January 2019. The group has acknowledged a trade
receivables provision of $17.962 million. There is the significant judgment of the auditor is
involved related to the exposure of the credit risks of each individual pharmacies as well as

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the pharmacy groups. Losses have been recognized in the prior periods in context to the
pharmacy groups.
The auditor’s response shall include the procedures to obtain the understanding of the
management’s process in identifying the balance of trade receivables, which is used to be
unrecoverable (Investorcentre.sigmahealthcare.com.au 2020). Further, the process shall
include the review of credit committee meeting minutes of the group as well as its monthly
reports so that to identify the potential doubtful or at risk balances (Vanstraelen and
Schelleman 2017). The auditors shall also assess the disclosure appropriateness related to the
qualitative and quantitative considerations in terms of the credit risk.
Recoverability of Goodwill
The group has revealed its total amount of $93.084 million as its goodwill on 31
January 2019. It has found that there is an existence of determining a high level of estimation
while evaluating the recoverable value of CGUs. Recovery of the huge amount of goodwill is
considered as a high level of judgment in the report of the auditors (Martínez-Ferrero and
García-Sánchez 2018). The company has used the approach of value in use in all its services
except for the Sigma and CHS where another approach has been used that is fair value less
cost of disposal. The differences can affect the determined amount for each CGU.
The auditors shall include the appropriateness of the disclosures within the financial
reports while assessing. The auditor’s report shall not be limited to the group’s determination
as per its nature and the reason for the arrival of the cash flows. The auditors shall respond to
the key audit matter if goodwill by testing key controls in the impairment assessment
procedure of the management.

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 Ansell Limited
Ansell Limited is a well-recognized brand in Australia for its surgical instruments,
such as surgical gloves that are used in the healthcare industry. In the annual report of 2018,
it has found that Ansell has its maximum shares of its asset is in the form of its brand name
and goodwill, which covered almost 41% of its total shares. Ansell has one of the prime
strategies of organic growth through new product development (Ansell Catalogue 2020). The
new products have more uncertainty for their performances that increases the risk of
impairment. Further, Ansell limited operates within a global tax environment within several
countries and its jurisdictions (Carter et al. 2015). The company’s structure reflects its nature
of operations that is primarily driven through acquisitions and mergers. The merger and
acquisition have always come with a tax litigated issue.
Key Audit Matters identified in 2018 annual report
Taxation
Taxation is a key auditor matter because Ansell is an operation within several
countries, and hence there is a number of jurisdictions involved in it. The auditor is required
to consider the complexity of tax and its rules varying with every jurisdiction, including
Australia, the US, and Belgium.
The auditor's procedures shall include the identification of main areas of tax that
impact the group. The process shall also include the proper evaluation of the tax rates. The
auditors shall consider the tax advice from an external tax advisor or tax advisors that are
from different tax jurisdictions (annualreports.com 2020). They also have to assess the
completeness of the tax provisions by proper communication from the tax authorities and
evaluating explanations.
Value of goodwill and brand names

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The group has shown its total value of goodwill and brand names of about $979.4
million that is 39%of its total assets. The Company’s value of goodwill and brand names are
always assumptions based. The valuation of goodwill and brand name of Ansell Ltd. is a key
audit matter because it inherits the complexity of forward-looking assumptions (Ajao,
Olamide and Temitope 2016). The main assumption in the cash flow is also included in
forecast revenue, material prices, and margin. Further, the group has restructured its global
business units during the year.
The auditor shall address this issue by auditing the previous year's cash flow
forecasted by the company. The auditors have to analyze the restructure of the business units
and evaluate the sensitivity of the group with respect to their key assumptions and estimation
uncertainty.
 Ramsay Health Care
The audit matters that have been mentioned in the annual report of the company have
been pointed in the following part and opinions of the auditors in the annual report.
Carrying value of goodwill
The requirement of the accounting standard help in determining the recoverable value
that are associated with the assets which exceeds with the carrying amount at the ending of
the year. The evaluation of recoverable amount generates the cash which would be useful for
the company in future years. The requirement of AASB 136 mainly points out the
impairment of assets which have to be associated with the unallocated group of goodwill and
indicates the impairment of assets (Ramseyhealth.com 2020). The audit matters which extent
the audit effort assess the reasonable forecast of the cash flow along with rate of growth and
rates of discount. The impairment review mainly points out the requirement of Australian
Accounting Standards which have to be tested with models of cash flow. The preparation of

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cash flow forecast considers the accuracy which have to be associated with the previous
budgets and trading performance that are current in nature (Cao, Chychyla and Stewart
2015). Performing the sensitivity analysis also help in evaluating the reasonable change that
that assumes the carrying amount of the cash generating units.
Provision of insurance
The disclosure of financial report includes the insurance provision which have to be
associated with the insurance policy that points out the uninsured claims which are potential
in nature. The significant judgment that are required by the company mainly predicts the
future claims which have to be included with the outcomes and claiming the costs (Cuadrado-
Ballesteros, Martínez-Ferrero and García-Sánchez 2017). This particular matter is mainly
considered as the key audit matters which estimates the overall value of the liability. The
procedures of audit that are required to be followed are the assessing of the key assumptions
which determines the value provision and claims the amount that are claimable. Assessing the
competence along with qualification and objectivity is included in the independent report
from the auditor (Klumpes, Komarev and Eleftheriou 2016). Moreover, the disclosure of the
provision within the financial report is also to be reviewed and estimates the judgment with
the key assumptions.
 CSL Limited
CSL Limited is an Australian company that works within the healthcare industry.
CSL is engaged in the research activity, marketing, manufacturing, and development of
pharmaceutical products, especially biopharmaceuticals. The annual report of 2018 of CSL
limited reflects the company has its major shares in the form of inventory (Csl.com 2020).
The pharmaceutical inventory has generally limited the life of its products. Therefore, there

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can exist a major chance of realizing less value than the expected realizing value by the
company’s management.
Key Audit Matters identified in 2018 annual report
Valuation of inventories
The company has a complex accounting for its inventories as it has a very strict
quality and effectiveness requirements. There is a risk involved that inventories are valued
more than the recoverable amount. Further, the operation of the group is expanded in several
locations. The auditors shall assess the carrying value and net realizable value of the
inventory.
Tax complexities
The group has recognized deferred tax assets in terms of its carry forward tax losses
of $178.3 million. The group operates within the different tax rates jurisdiction as it is
operating in different geographical locations.
The auditor shall conduct an audit process over the recoverability of the tax assets
included in assessing the cash flow forecasting based on different assumptions. Further, the
process is including assessing several uncertain tax positions.
Acquisition accounting
The group has made three acquisitions during the year. The key audit matter is
included with accounting for the acquisition of Ruide and Calimmune because the group
judgment is considerable with the call and put options as well as contingent consideration.
The auditor shall address the issue of acquisition accounting as a key audit matter by
going through all the agreements that are applicable to the acquisitions (CSL.com 2020). The

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auditor shall further consider the accounting treatment for call and put option for Ruide and
Contingent consideration for both the acquisitions made.
Conclusion
The above study can be concluded by the help of matters of audit which highlights in the
report of independent auditor. The report intends to provide relevant information in the
financial report to the users so that to assist them with the specific decision related to the
matters that have more significance in the financial report. There are few things common in
the key audit matters in reporting a financial report that are revenue recognition, loans,
receivables, intangibles, taxation, and investment valuation. The health care industry requires
a good number of workforce resources as well as better technology. The industry is driven in
the market through its goodwill. The auditor’s response shall include the procedures to obtain
the understanding of the management’s process in identifying the balance of trade
receivables, which is used to be unrecoverable. The auditor’s report shall not be limited to the
group’s determination as per its nature and the reason for the arrival of the cash flows. The
auditors shall consider the tax advice from an external tax advisor or tax advisors that are
from different tax jurisdictions. The audit matters which extent the audit effort assess the
reasonable forecast of the cash flow along with rate of growth and rates of discount.

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