Analysis of Auditing Standards: ASA 701 and ASA 315 for Sirtex

This report provides an in-depth analysis of auditing and assurance practices, specifically examining the application of ASA 701 and ASA 315 in the context of Sirtex Medical Limited's 2017 annual report. The report highlights Sirtex's non-compliance with ASA 701, particularly the absence of key audit matters in its independent auditor's report. It assesses the material misstatement risks inherent in Sirtex's operations in accordance with ASA 315, identifying areas of potential risk and the importance of disclosing key audit matters. The analysis emphasizes the need for companies to accurately reflect their financial positions in annual reports and the role of auditors in detecting and communicating material misstatements to investors. The report also examines the broader implications of these standards, including the impact on audit risk, the importance of internal controls, and the need for auditors to understand business risks and financial reporting requirements for ensuring transparency and preventing financial crises. The report concludes with recommendations for Sirtex Medical Limited to improve its financial reporting practices and adhere to the relevant auditing standards.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student:
Name of the University:
Author’s Note:
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Executive Summary:
In this report, the pertinent analysis of the auditing standard is carried out, in which
“ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report” is
evaluated in the context of Sirtex Medical Limited. According to the annual report of the
organisation in 2017, it has not conformed to the above-stated standard, in which the
independent audit report does not contain any type of key audit matter. The pertinent risk
assessment arising due to material misstatement in compliance with ASA 315 is analysed in
the context of Sirtex. This report would enable in identifying the actions that the organisation
needs to undertake in its financial statements for helping the investors to gain an insight of
the pertinent misstatements. After analysing the pertinent ASA standards like ASA 315, ASA
701 and ISA 260, firms are required to depict their real financial positions in their annual
reports. Thus, Sirtex Medical Limited is needed to develop key audit matters in its annual
report for detecting any type of material misstatement inherent in its business operations. In
addition, it needs to comply with ASA 315 and ASA 701 in its operations to adhere to the
audit assurance board. Furthermore, the organisation is required to gain an overview of the
pertinent regulations and standards, which needs to be complete to depict the actual financial
report. Such transfer of information from the auditors to the investors could enable in
understanding the real financial condition of the companies for making effective investment
decisions.

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Table of Contents
Introduction:...............................................................................................................................3
Evaluation:.................................................................................................................................3
Extent and application of the research:......................................................................................5
Conclusion and recommendations:............................................................................................6
References:.................................................................................................................................8

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Introduction:
In this report, the pertinent analysis of the auditing standard is carried out, in which
“ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report” is
evaluated in the context of Sirtex Medical Limited. According to the annual report of the
organisation in 2017, it has not conformed to the above-stated standard, in which the
independent audit report does not contain any type of key audit matter. The pertinent risk
assessment arising due to material misstatement in compliance with ASA 315 is analysed in
the context of Sirtex. This report would enable in identifying the actions that the organisation
needs to undertake in its financial statements for helping the investors to gain an insight of
the pertinent misstatements.
It has become necessary for the organisations to include the communication of key
audit matters in their annual reports after the financial crisis. This is because they were not
reporting the required data in their annual reports (Arens, et al., 2015). With the enforcement
of this standard, the accounting bodies have compelled the organisations to comply with the
regulation in order to minimise the happening of the next financial crisis. In addition, the
organisations are accountable primarily to disclose the explanatory materials in the
independent reports of the auditors. This revelation is carried out mainly due to the standard
depicted in ASA 701, which could signify the real financial position to the stakeholders.
Evaluation:
With the help of appropriate evaluation of the annual report of Sirtex in 2017, the
material misstatements could be identified that could raise complexities of the organisation.
After the financial crisis was over, the authorities identified issues in the financial reports of
the organisations, in which they did not disclose all the relevant information. Thus, this issue
has lead to the formation of ASA 701, which is a measure of revelation that is required to be
communicated in the annual reports. Thus, it has become crucial for the organisations to
make pertinent disclosures of key audit matters in their annual reports. The analysis of the
annual report of Sirtex enables in identifying considerable risk with ASA 315, which could
have influence on its business operations. As commented by Byrnes, et al. (2015), material
misstatement helps in estimation and pertinent analysis of the issues in future that could be
projected. In addition, after assessment of the annual report, any type of issue restricting the
business activities could be anticipated, this would allow the investors in identifying the
organisational problems.
However, as argued by Cuadrado-Ballesteros, Martínez-Ferrero and García-Sánchez
(2017), the unscrupulous measures of the company could increase, if the material
misstatements are not disclosed. The analysis of the annual report of the company could
eventually enable to represent greater risk, if the material misstatements are conducted in
compliance with ASA 315 as follows:
Evaluated areas of material misstatement containing greater risk:
After assessing the annual report of Sirtex, there is absence of any pertinent key audit
matter, which it could communicate to its shareholders. This minimises the adherence of the
company to ASA 701 in revealing the pertinent matters. The assessment of the annual report
primarily enables in representing disclosure to the users of financial reports of the
organisation. Sirtex is not complying with the rules of ASA 701 that has minimised the
feasibility of its annual report. The pertinent revelation of key audit matter is not shown in the

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annual report of the company. This signifies primarily the lack of adherence to ASA 315,
which the auditor and the organisation are not following. Along with this, if ASA 315 is used,
it could help the investors of the firm in identifying the risk of material misstatement inherent
within the organisation (Simnett, Carson and Vanstraelen, 2016).
The accounting policies that the organisation has implemented primarily enables in
representing its real financial position. However, if the key audit matters are not represented
in the annual report of Sirtex, it denotes primarily the non-adherence to ASA 701. In addition,
various corporate scandals have occurred in the past, in which the auditors have unethically
depicted the financial strength of the firm (Cohen and Simnett 2014). This might question the
credibility of the independent report of the auditor in the absence of key audit report. The
auditors of Sirtex are required to gain an insight of the business risk, in which the detection of
material misstatement is crucial to be carried out. Moreover, the auditors need to assess the
risks related to business environment, business operations and other types of risk before the
audit processes are dissected. The analysis of the top down approach that the organisation
uses could raise the probability of material misstatements, since there is no employee
participation in the decision-making process of the organisation. Hence, the organisation
needs to understand the business risk, as it might appear in the form of audit risk at a later
point of time. In this context, Farewell and Pinsker (2015) cited that it is vital for the auditors
to analyse each business process of the company for understanding the actual risk resulting in
material misstatement.
The enforcement of ASA 701 is made after the end of the financial crisis in 2007.
This crisis has enabled the board of audit assurance in identifying unscrupulous measures,
which the organisations and independent auditors conduct at the time of developing the
financial report. Such unscrupulous measure in developing financial report has depicted
mainly financial strength of the company that has enhanced share value. Thus, it has enabled
the firms in retaining additional capital from the market (Farooq and De Villiers, 2017).
During financial crisis, all organisations involved in using unscrupulous practices declined
and there were no investors to buy their shares. As a result, the financial stability of the
capital market and the global economy were shaken. Thus, it is clearly evident that the
enforcement of ASA 701 is primarily a step that the audit assurance board has undertaken to
minimise the unscrupulous practices of the organisations. In addition, the firms had used their
debts in the form of income for hiding their insolvency positions from the investors (Hay,
2015). The ASA 701 aims to restrict the firms in adopting unethical practices to develop their
annual reports, which would assure transparency in their financial positions.
Considerable risks detected in compliance with ASA:
Along with the non-representation of the key audit matters, there is no material
misstatement in the organisation according to the independent audit report of Sirtex.
However, in conformance to the auditing standard ASA 315 that the audit assurance board
has conducted, the auditors could realise the material misstatement risk in the financial books
of the organisation (Soh and Martinov-Bennie, 2015). According to ASA 315, it is necessary
for the auditors to follow the guideline laid out in the paragraphs from A9 to A11 and from
A27 to A30. As a result, the auditors could detect the material misstatement, which might
increase the overall audit risk. This pertinent evaluation could enable the auditors in
identifying frauds, which the companies might make for inflating their balance sheet
statements. In this regard, Junior, Best and Cotter (2014) remarked that the auditors could be
able to identify frauds with the help of measures laid out in ASA, which the companies make
in developing their annual reports. However, it has been argued that the management

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influences the independent auditor in using unscrupulous measures in the audit report for
inflating the overall financial performance of the organisation.
However, the latest annual report of Sirtex does not adhere to ASA 315, since the
auditor has not identified any material misstatement (Sirtex.com, 2018). Along with this, it is
required for the auditors to follow the paragraphs laid out in ASA 315 from A105 to A108, as
it would help them to detect the material misstatement risk inherent within the overall
business operations. Furthermore, the analysis could enable in asserting various levels of
classes of transactions at the time of identifying the audit process performance. The auditors
are able primarily to identify financial risks at the time of evaluating the financial statements
of the company in detecting material misstatement restricting its financial stability. Thus, by
enforcing the audit procedures, it is possible for the auditors to identify the financial
feasibility of the annual report of the organisation (Knechel and Salterio, 2016).
Extent and application of the research:
The annual report of Sirtex fails to adhere to the ASA standard, which is the utmost
requirement for every Australian organisation. Such non-adherence in developing the key
audit matters could lead to direct rise in audit risk of the company. This pertinent audit risk
could be detected through the audit procedures that the auditors are needed to follow. The
auditors need to follow the railways procedures for dissecting risk associated with the overall
business operations (Kend, Houghton and Jubb, 2014). Initially, the auditor needs to assess
detection of risk related to the business objectives, as laid out in the financial statements. As a
result, the material misstatement could be detected, which could represent the inaccurate
financial statements of the company. Secondly, the auditors are required to approximate the
significance of risk to the management of the organisation, which needs to conform to the
rules of the audit assurance board. Along with this, the probability of happening of certain
risks is required to be detected on the part of the auditors that might raise the material
misstatement of the organisation in future (Leung, et al., 2014). Furthermore, the pertinent
activities that the company has carried out are required to be assessed for detecting any type
of risk arising from such actions.
Financial areas in the report requiring considerable judgement of the management:
The organisations are required to carry out various levels of internal control in order
to minimise the risk arising due to material misstatement. Moreover, the assessment of
internal control for a particular entity is needed to be carried out on the part of the
independent auditors in order to detect the possibility of material misstatement. According to
the Paragraphs A36 to A41 laid down in ASA 315, pertinent insight of the industrial divisions
and risk related to the overall business operations are required to be assessed on the part of
the auditors. Such analysis could enable eventually in identifying the external factors, which
could be applied on developing the financial report (Li, et al., 2017). The auditors are needed
to gain an insight of the internal control procedures of the organisation for effective
completion of the audit procedure. This could enable the auditor eventually in gaining an
overview of the complicated internal control processes, which the organisation makes for
carrying out its business operations. Along with this, most of the internal control procedures
that the auditors assess are required to conform to the financial reporting process, since the
identification of material misstatement is the primary priority for the auditors. In accordance
with the paragraphs A42 to A65 laid down in ASA 315, the auditor could carry out the expert
judgement of the assessor in relation to specific control for detecting those controls, which
could result in material misstatement. In this regard, Marques, Santos and Santos (2016)

6AUDITING AND ASSURANCE
advocated that by analysing the business operations and annual report of the organisation, the
auditor could identify any type of risk that could result in material misstatement in the
financial report.
The auditor conducts the audit procedure, which should be comprehended in the
control environment where the business operations take place. This analysis could enable the
auditors to gain an overview of the total activities that the administration within the company
is involved in conduction. As a result, any type of material misstatement could be identified
inherent within the organisational governance. In addition, this would enable in identifying
the culture of integrity and ethical behaviour inherent within the staffs and management of
the organisation. Hence, it is of utmost significance for the auditors to dissect external as well
as internal control of Sirtex in order to detect any type of material misstatement, which could
be inherent in the business operations. However, both the independent auditors and directors
of the company have not identified any material misstatement in the overall business
operations (Martínez-Ferrero and García-Sánchez, 2016). Moreover, the identification of
material misstatement could help in depicting the real financial position of the firm. As a
result, the auditors could present the true picture of the financial position of the firm to the
associated stakeholders. Such material misstatement could be depicted directly in the section
of key audit matter in the annual report, which could raise the viability of the annual report.
Impact of significant transactions and events happened during the period:
The analysis of significant transactions and events that the organisation has conducted
during the accounting year is required to be assessed on the part of the auditors. This analysis
could enable the auditors to identify any kind of odd activities or risk that might raise the
possibility of material misstatement (Simunic, Ye and Zhang, 2017). At present, Sirtex is
involved in providing all the pertinent information about its activities in the annual report.
Henceforth, various influence of the transactions and event happened during the period could
be assessed on the part of the auditors. The various accounting standards like ISA 260 could
be violated on the part of the company and issues about internal audit processes might
increase eventually. As pointed out by Vanstraelen and Schelleman (2017), firms adopting all
the pertinent accounting standards are able to depict the real financial condition to the
stakeholders that signify the integrity of the organisation in carrying out its operations. In
addition, the analysis of considerable events could enable the auditors in detecting any type
of risk engaged in internal as well as external factors of the company. In addition, the external
and internal processes could be analysed on the part of the auditor during the year. This type
of detection of various kinds of risk detected from operations could enable the auditors in
understanding material misstatement of the firm. In the words of William Jr, Glover and
Prawitt (2016), organisations use the independent report of the auditor in the form of cover in
order to restrict the pertinent unscrupulous measures carried out in the financial year.
Conclusion and recommendations:
After analysing the pertinent ASA standards like ASA 315, ASA 701 and ISA 260,
firms are required to depict their real financial positions in their annual reports. Thus, Sirtex
Medical Limited is needed to develop key audit matters in its annual report for detecting any
type of material misstatement inherent in its business operations. In addition, it needs to
comply with ASA 315 and ASA 701 in its operations to adhere to the audit assurance board.
Furthermore, the organisation is required to gain an overview of the pertinent regulations and
standards, which needs to be complete to depict the actual financial report. Such transfer of

7AUDITING AND ASSURANCE
information from the auditors to the investors could enable in understanding the real financial
condition of the companies for making effective investment decisions.

8AUDITING AND ASSURANCE
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