Auditing and Assurance Services: ASA 701 and Australian Mining Report

This report provides a comprehensive overview of auditing and assurance services, with a specific focus on the application of ASA 701 and its significance in preventing corporate failures, such as the Lehman Brothers collapse. The report discusses the rationales behind ASA 701, emphasizing its role in enhancing the transparency and communicative value of auditor's reports. Furthermore, the report evaluates the efficiency of auditors in reporting key audit matters within the Australian mining industry, examining the practices of major companies like Newcrest Mining, Evolution Mining, Downer Edi Limited, Whitehaven Coal, Rio Tinto Limited, and BHP Billiton. The analysis highlights the key audit matters identified in their annual reports, such as asset valuations, provisions, and revenue recognition, and discusses the auditors' roles in assessing and communicating these critical aspects of financial reporting. The report also underscores the importance of the going concern assumption and its implications for both auditors and companies.

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

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Executive Summary
The first part of the report shows that the new auditing standard is majorly important for
disclosing additional information on the key audit matters that can prevent large corporate
failures like Lehman Brothers. The second part of the report shows that the auditors of the
mining companies of Australia are majorly efficient to report the key audit matters.

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Table of Contents
Introduction................................................................................................................................3
ASA 701 Rationales...................................................................................................................3
KAMs of the Australian Mining Industry..................................................................................5
Newcrest Mining....................................................................................................................6
Evolution Mining...................................................................................................................6
Downer Edi Limited...............................................................................................................6
Whitehaven Coal....................................................................................................................6
Rio Tinto Limited...................................................................................................................7
BHP Billiton...........................................................................................................................7
Conclusion..................................................................................................................................8
References................................................................................................................................10

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Introduction
Auditing is the profession where the auditors need to inspect the accounts of their
audit clients in order to ensure that they are prepared as well as presented in the truest and fair
manner in the absence of any kind of material misstatements (Knechel and Salterio, 2016).
There are instances where the auditors failed in discharging their professional responsibilities
in the appropriate manner that led to major consequences such as business failure of the
companies and corporate collapse. It can be seen that the new auditing standard “ASA 701
Communicating Key Audit Matters in the Independent Auditor’s report” was introduced after
the occurrence of the world financial crisis in the year 2008. It is considered that there are
certain key reasons that contributed towards the new auditing standard of ASA 701. For the
investors, it has become a major tool to gain increased understanding as well as information
on the significant matters in the financial statements of the companies in which they are
interested to invest in. At the same time, the financial crisis of 2008 has increased the
attention towards the assessment of the going concern assumptions of the companies. One of
the key aims of this report is to discuss the rationales for which the new auditing standard
was introduced and this part considered the collapse of Lehman Brothers. Another aim of this
report is to evaluate the efficiency of the auditors in reporting the key audit matters in the
Australian mining industry.
ASA 701 Rationales
Purpose – The main purpose of the new auditing standard ASA 701 can be seen in ensuring
the improvements in the auditor’s report’s communicative value by providing transparent
information on the audit performed. In addition, another crucial purpose of this can be seen in
ensuring the delivery of additional information on the significant audit matters that can
materially misstate the financial statements of the audit clients. Providing information on the
crucial accounting judgments used in the financial statements of the clients is considered as
another purpose of the new auditing standard ASA 701 (auasb.gov.au, 2019).
Objectives – There are some crucial objectives of this new auditing standard related to key
audit matters and most crucial one is to develop obligatory requirement for the auditors for
the correct determination of the key audit matters and then, form the appropriate audit
opinion on the basis of the outcomes of the determined key audit matters. It needs to be
mentioned that ensuring the appropriate communication of these key audit mattes to the users

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of the financial statements, investors and people charged with governance is another crucial
objective of this new auditing standard of ASA 701 (auasb.gov.au, 2019).
Importance of Key Audit Matters – The key audit matters have become vastly important
for the auditors and the clients due to the fact that it involves in the determination of the
significant matters in the financial statements of the clients that have all the potential to
materially misstate the financial statements and information. Key audit matters also help
various users of the financial statements to acquired additional knowledge, understanding and
information on these crucial aspects so that they can make decisions regarding the companies
in the most appropriate manner. All these aspects increase the importance of key audit
matters (Cordoş and Fülöp, 2015).
Requirements – There are three major requirements of the new auditing standard regarding
the key audit matters which the auditors are needed to adhere to.
1. Determination of the matters which are of great significance to the audit of the
financial statements it a major requirement because these aspects can materially
misstate the financial statements.
2. Communication of these key audit matters in the appropriate section of the auditor’s
report is regarded as another major requirement of this new auditing standard.
3. Correct documentation of the key audit matters in appropriate documents of the
auditor and the clients is the last requirement of the new auditing standard which the
auditors are needed to consider (Carson, Fargher and Zhang, 2016).
Application – Proper application of the key audit matters requires the appropriate
consideration of the significant events and transactions by the auditors. After that, for the
determination of the extent of material misstatements in the financial statements, the standard
of ASA 315 needs to be followed by the auditors. For the appropriate communication of these
determined key audit matters, the auditors are needed to provide the detailed description of
the key audit matters in the appropriate section of the auditor’s report (Xu, et al., 2013).
Lehman Brothers Collapse – It is one of the greatest collapses in the history of business
which largely contributed towards the occurrence of the 2008 financial crisis. The Repos
(repurchase agreement transactions) were illegally used by the management of the company
as sales with the aim to manipulate the financial position of the company in the balance sheet.
Repos were largely used for hiding the high leverage nature of the business of Lehman
Brothers about which the auditors of the company were aware of. In spite of the knowledge

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of this manipulation, unqualified audit opinion was issued by the auditors which the hugely
contributed to the collapse of the company (Lubben and Woo, 2014).
Role of ASA 701 – It can be seen that the new auditing standard was recommended after the
occurrence of the liquidation of Lehman Brothers. In case the new auditing standard was
there in the audit of the company, the auditors would have the obligatory requirement to
disclose the excessive and illegal use of Repos along with the used accounting judgments and
assumptions of the management of the company. After that, the auditors would be required to
adopt audit procedures to measure the extent of material misstatements in the financial
statements due to the use of Repos. In case these procedures were followed, it would be
possible to avoid the collapse of Lehman Brothers (Xu, et al., 2013).
Importance of Going Concern – It needs to be mentioned that there is major importance of
the going concern assumption due to the fact that the auditors use this as a tool to ascertain
the company’s ability to continue its operation for unforeseeable future. It implies that it is a
crucial tool to assess the financial stability of the companies to continue their operation as a
going concern. Increase in the importance of this concept can be seen after the occurrence of
the 2008 global financial crisis (Sundgren and Svanström, 2014).
Importance of Going Concern to the Auditors – ASA 570 puts the commitment on the
auditors for the collection of required adequate audit evidence so that they can assess the
ability of their clients to continue their businesses as going concern for unforeseeable future
(auasb.gov.au, 2019). The assessment of the going concern assumption is important to the
auditors because it provides major assistance to the auditor in analyzing the validation of the
used going concern basis of financial accounting for the purpose of the preparation as well as
presentation of the financial statement by the managements of those firms. The collected
audit evidences are crucially helpful for the auditors for the determination of the fact that
whether the company has any intention to abrupt its business operations due to some major
going concern related difficulties (Carson, Zhang and Fargher, 2014). Thus, the auditors are
needed to add an extra paragraph in the audit report showing their going concern related
concern in case there is any going concern risk in the clients’ businesses.
KAMs of the Australian Mining Industry
This part of the report involves in the analysis of the key audit matters of the main six
companies in the Australian mining industry listed under ASX top 100 companies. Among
the largest industries in Australia, the mining industry is regarded as one of the major

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industries because of its large contribution towards the country’s economic development. The
selected six companies for the discussion of key audit matters are Newcrest Mining,
Evaluation Mining, Downer Edi Limited, Whitehaven Coal, Rio Tinto Limited and BHP
Billiton.
Newcrest Mining
There are two key audit matters in the 2018 annual report of the company. They are
carrying value of the non-current assets, taxation and mine rehabilitation provision. The main
reason for the consideration of these matters as the key audit matter is the management’s use
of the accounting judgments as well as estimates for various purpose like the impairment
assessment of the non-current assets, presence of the company’s operation in jurisdiction
other than Australia, determination of the level of provision of the rehabilitation of mines and
others. There are reported in the ‘key audit matter’ section in the auditor’s report
(newcrest.com.au, 2019).
Evolution Mining
There are two key audit matters in the current annual report of the company; they are
the asset valuation related to Mungari and Cowal and the assessment of the carrying value of
the assets. One of the major reasons for the consideration of these key audit matters are use of
complex nature of assumptions as well as judgments in some crucial areas such as the
valuation of different assets, assessment of the indicators for ascertaining the impairment of
the assets, correct assessment of the cash generating units and others
(evolutionmining.com.au, 2019). These key audit matters can be seen in the appropriate
section of the auditor’s report.
Downer Edi Limited
There are three key audit matters in the latest annual reports of the company; they are
acquisition of control entities, goodwill valuation and revenue recognition and change to
AASB 15. The main reason for considering these matters as the key audit matters are the use
of complex nature of estimations as well as judgments in some of the crucial areas such as
recognition of revenue, assessment of acquisition analysis of the control entities,
determination of the cash generating units related to goodwill and others (downergroup.com,
2019).

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Whitehaven Coal
There are two key audit mattes as per the 2018 annual report of the company; they are
mine rehabilitation provision and impairment of property, plant and equipment. The use of
judgments and assumptions which are complex as well as subjective in nature is the main
reason for the consideration of these key audit matters in some of the crucial areas like the
calculation of provision for mine rehabilitation and closure and the management’s assessment
of the key indicators of impairment of property, plant and equipment. These key audit matters
are recorded in the section named ‘key audit matters’ in the company’s auditor’s report
(whitehavencoal.com.au, 2019).
Rio Tinto Limited
There are four key audit matters in the current annual report of the company; they are
closedown provision, tax uncertainty in provision, assessment of the indicator of impairment
and environment as well as restoration related obligations. The management of the company
has used some accounting estimates as well as judgments which are complex in nature in
some of the aspects like calculation for provision, assessment of the indicators related to
impairment, cash generating units identification, management’s assessment of the obligation
of the company towards environment and others (riotinto.com, 2019). These are the major
reasons for considering these aspects as key audit matters.
BHP Billiton
There are four key audit matters in the latest annual report of the company; they are
classification of the offshore assets, valuation of assets, taxation and provision related to
rehabilitation and provision. These are considered as key audit matters because of the major
use of certain complex nature of accounting estimates and judgments in some of the specific
areas like taxation operation in different jurisdiction, determination of the reasonableness in
the assessment of provision, calculation of the provision related to rehabilitation and closure
and others (bhp.com, 2019). These key audit matters can be seen in the auditor’s report in the
company’s annual report.
Efficiency of the auditors in the reporting as well as communication of the key audit
matters can be seen from the above analysis where the auditors have provided the name of
each of the accounts related to the key audit matters. In order to increase the
understandability of the general users of the auditor’s reports, the auditors have referred the
related notes to the financial statement to the key audit matters along with the name of the

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accounting standards that have been followed in some cases. The key audit matters are
reported in the appropriate section of the audit reports so that the users do not face difficulties
in accessing them (Sirois, Bédard and Bera, 2018). These aspects show the efficiency of the
auditors in dealing with the key audit matters.
The new auditing standard of ASA 701 demands the commitment from the auditors in
providing the required additional information of the key audit matters so that the users of the
auditor’s reports can know why these matters are of great significance to the financial reports
of those firms. According to the above discussion on the key audit matters of the companies,
it can be observed that the full description of the key audit matters are provided in the
auditor’s report which include aspects like account name, extent of the level of complexity in
the used assumptions as well as accounting judgements, reasons for the consideration of these
key audit matters and the undertaken audit steps for ascertaining the level of material
misstatement that can be caused by these key audit matters (Bédard, Gonthier-Besacier and
Schatt, 2014). All these aspects show the efficiency of the auditors in reporting the key audit
matters.
It can also be seen from the earlier discussion on the key audit matters of the
companies that the auditors have been very specific in the ascertainment of the key audit
matters in the presence of acceptable reasons which is an important aspect for the key audit
matters. Under the key audit maters, specific parts show the explanation of the auditors on
considering these aspects as the key audit matters. In addition, the auditors have ensured the
disclosure of the information on the undertaken audit procedures against the identified key
audit matters (Köhler, Ratzinger-Sakel and Theis, 2016). This implies that the auditors have
properly communicated the key audit matters in the appropriate section of the report of the
auditors.
Conclusion
The above discussion shows the compliance of the auditors with the requirement of
the new auditing standard ASA 701 for disclosing additional information on the key audit
matters. It needs to be mentioned that the key audit matter disclosure has provided the users
with the additional information on these issues. It can be seen from the above discussion that
the auditors have disclosed the key audit matters in such a manner so that the users can get
more information on these matters such as the underlying assumptions, estimates, judgments,
account names, note numbers and the extent of material misstatements. This information is

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helpful for the users of the financial statements in the assessment of the company’s financial
position as well as performance and how these issues can materially misstate the financial
statements. Hence, on the basis of the above discussion, it can be inferred that the key audit
matters of the mining companies have highlighted the issues faced by the companies in this
industry. In addition, the auditors have shown greater efficiency in reporting these key audit
matters.

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References
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2019].
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2019].
Auasb.gov.au. 2019. Explanatory Statement ASA 701 Communicating Key Audit Matters in
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