BHP Billiton Audit, Assurance, and Compliance Analysis Report 2017

This report provides a comprehensive analysis of audit, assurance, and compliance procedures, with a specific focus on BHP Billiton Limited's financial year 2017. It delves into key aspects such as auditor independence, non-audit services provided by KPMG, and a detailed examination of key audit m...Read More

Audit, Assurance and Compliance
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Executive summary
The process of audit has become an integral part of business management and it is useful for
every stakeholders that is interested directly or indirectly in a particular business. This report
is focused on new regulation implemented on business organisations operating in Australia
and New Zealand to disclose key audit matters faced during the process of audit. Main
objective of this regulation is to improve quality of audit conducted for business
organisations. This report has successfully identified all the key audit matters and discussed
reason of their inclusion and Audit procedures used by auditor in relation to such matters.
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Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................4
Report.........................................................................................................................................5
Conclusion................................................................................................................................10
Reference..................................................................................................................................11
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Introduction
Audit is a process of giving objective expression of financial information provided in
financial statements of a particular company. Process of audit for a large organisations takes
around 30 days to be completed which involves detailed examination of financial statements
and internal controls implemented by management. Final outcome of this audit process is
expressed and audit report prepared and presented along with financial statements to
stakeholders at the Annual General Meeting. The information provided by auditor and Audit
opinion paragraph of audit report might not be very sufficient to take important decisions by
stakeholders. This resulted in inclusion of key audit matters paragraph in financial reporting
framework of the company. This paragraph provides the information in relation to audit
procedures conducted by auditor on special and important key matters discussed with
management. This requirement was included in audit reporting framework in December 2016
i.e. every company has to include key audit matters in their annual report starting from
financial year ending 2017 (Carson, Fargher and Zhang, 2016). Inclusion of this paragraph as
elaborated the quality of audit report in conducted by management and auditor. This report
has a conducted financial statement and Audit procedures analysis for BHP Billiton Limited
for the year ending 2017. Numerous factors in relation to audit procedures and Audit
engagement will be discussed in this report.
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Report
Auditor's independence
For the financial year ending 2017 audit of the company was conducted by KPMG which is
one of the big four audit firms in the world. KPMG is known for providing Quality
Assurance and Audit services for any organisation. During the year under consideration
KPMG has provided directors and Audit committee of the company a declaration certificate
that states auditor of the company has conducted their function with Independence and
unbiased state of mind. All the rules and regulations in relation to Corporation Act 2001
along with ethical and professional standards has been followed by auditor. Corporation Act
2001 and professional and ethical standards issued by auditing and assurance standard board
comply is that auditor should be independent while giving opinion financial statement of the
company (Higgins, Milne and Van Gramberg, 2015).
There are various rules and regulations in relation to business activities conducted by auditor
with their clients such as non-audit services provided by auditor during the financial year.
There are various restrictions provided in these rules and regulation and all these restrictions
are complied with during the Year and in 2017.
Non audit services
As already mentioned that there are various restrictions in relation to non-audit services
provided by auditor during the same financial year that auditor is conducting External Audit
services for the same company. It is primary responsibility of Management to check that
services provided by auditor are not in contravention with any of the rules and regulation in
relation to non-audit services. This is the reason that audit committee is formulated by board
of directors of a company. One of the important functions of audit committee is to check that
independence of auditor is maintained throughout the financial year in which such auditor is
conducting statutory audit and providing restricted non audit services are one of the
contravention (Tepalagul and Lin, 2015). There are some services that are allowed to be
provided by external auditor to business organisation.
During the financial year under consideration auditor has provided some non-audit services to
Limited. All the services are within the permitted definition of Non audit services and it does
not affect independence of auditor. Proper precautions has been taken by auditor and audit
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committee of the company. Following are some of the services that are provided in the nature
of non-audit services during the financial year-
Audit and Audit related services- the services are the extension of audit services provided by
auditor such as preparation of tax report, filing of report, tax compliances, tax consultancy
etc. proper agreement has been made by management and auditor to conduct these services
and there has been no contravention of any legal obligations.
Advisory services- During the process of audit or determined find some loopholes or
deficiencies in internal control of the company (Causholli, Chambers and Payne, 2015). In
addition to reporting these deficiencies in audit report, auditor might also give some advice to
management in order to correct and improve the efficiency of the company.
Remuneration paid to auditor for audit as well as non-audit services
Amount of remuneration paid to auditor along with their description are provided in the
following table.
Particular
2015
(USD
million
)
2016
(USD
million
)
% change
(compariso
n with last
year)
2017
(USD
million
)
% change
(compariso
n with last
year)
Remuneration paid to auditor for audit
services
Audit of Consolidated financial
statements 4.30 3.13 -27.29 3.38 8.16
Audit of subsidiaries, JV and
Associates 11.19 7.72 -31.02 7.04 -8.75
Fees for assurance services 5.38 3.49 -35.04 3.60 2.98
Other fees 1.58 1.51 -4.38 1.85 22.61
Total 22.44 15.84 -29.40 15.87 0.16
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Remuneration paid for non-audit
services
Corporate finance services 6.87 0.28 -95.98 0.04 -84.78
Other services 1.09 0.82 -25.43 0.59 -27.73
Total 7.96 1.09 -86.30 0.63 -42.16
Total fee 30.40 16.93 -44.30 16.50 -2.57
It can be analysed that there has been drastic decrease for audit services paid in 2016 as
compared to 2015 as total remuneration paid to KPMG has decreased by 45%. This fall in
remuneration is very substantial and it is important for auditor to analyse the reason for this
cutting of auditor's remuneration. This has further increased in 2017 by 2.5% but this
decreases not that substantial.
Key audit matters
Following are all the matters that are mentioned by Auditor in the paragraph key audit
matters or the financial year ending 2017-
Valuation of assets during the financial year under consideration carrying value of acquired
by company increased as compared to last financial year due to fluctuations in commodity
prices (Backof, Bowlin and Goodson, 2017). For example plant property and equipment has
decreased from $84 billion to $80.5 billion and intangible assets has decreased from 4.1
billion to 4.0 billion. This downfall in fair valuation is very substantial therefore it is included
in key audit matters. Sample testing has been conducted by Auditor evaluate the efficiency of
internal controls implemented for estimation of fair value of these assets. Reasonable
resistance are taken by Auditor in order to predict the commodity prices in future that has
affected prices of these assets (Sirois, Bédard and Bera, 2018).
Taxation
Different rules and regulations in relation to tax policies has to be followed by company as
they are operating in more than one countries. Auditor of the company has successfully
evaluated rules and regulations applicable on company and different jurisdictions. After
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search evaluation auditor has been able to collect sufficient audit evidence that all that rules
and regulations are properly followed by the organisation.
Samarco
Management of the company has taken some Complex accounting measures uses in order to
account for losses incurred on Samarco Dam failure. Auditor has examined all the key
assumptions made by management in order to record the losses occurring from this project
(Cordoş and Fülöp, 2015). Consultation has also been taken with auditor of Samarco Dam
project who identify any material misstatement or audit matters identified during audit
process conducted on Samarco dam.
Closure and rehabilitation provision
It is one of the main functions of business to close, restore and rehabilitate sites. Accounting
procedures in relation to such business activity can be very complex and therefore it is
included in the audit matters discussed with management. Complexity of this accounting
process increases due to various assumption that are required to be made in relation to
valuation (Brasel, Doxey, Grenier & Reffett, 2016). All these assumptions and internal
controls implemented in accounting for rehabilitation provisions are properly examined by
auditor. Calculation of discount rates exchange rates and net present value evaluated by
Auditor in order to identify accuracy of these provisions. Final outcome of these provisions
are compared with market available data for checking its accuracy.
Audit committee
Audit committee risk and Audit committee of established in 2011 and first person that was
appointed in this audit committee was Lindsay Maxsted that was also appointed as chairman
of this committee. Formal charter has been maintained by board of directors for define
structure, scope and roles and responsibilities of the audit committee. According to this
charter, audit committee is responsible for conducting meetings with internal auditor and
external auditor for defining scope of audit. In addition to that this audit committee is also
responsible for all the functions in relation to preparation of financial statements and process
of audit conducted on such financial statement.
Audit opinion
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After examination of all financial statement auditor of the company has provided unqualified
audit opinion on financial statements. Unqualified opinion means that financial statements of
the company are clean and presenting position of company in market. There were some
difficulties faced by Auditor in conducting the process of audit which are mentioned in audit
matters paragraph. It can be said that financial statement of the company are free from
material misstatement, frauds and error and presenting true value of company.
Difference between management and auditor's responsibility
There is a clear and distinct difference between responsibilities of an auditor and
Management in relation to internal controls and financial statements of the company.
Management of the company is responsible for implementation of internal control and
improving the efficiency of these internal control. On the other hand auditory is only
responsible for checking the efficiency of these internal control and giving their opinion on
efficiency evaluated by them (Chan and Vasarhelyi, 2018). Similarity in case of preparation
of financial statements, management is responsible for preparation whereas auditor is
responsible for checking accuracy of such financial statements.
Subsequent material events
Board of directors of the company has approved an investment of 2.5 million dollars for the
purpose of developing Spence growth options and construction of copper concentrate which
can increase the life of Spence mine by around 50 years. This is a material event that
occurred after the closing of balance sheet. This event will have positive impact on financial
position of the company and it can also increase market valuation of company in stock
exchange (AICPA, 2017).
Analysis of audit report
All rules and regulations issued in Corporation Act 2001 and professional and ethical or code
of conduct or properly followed by the organisation and auditor. It can be said that external
audit conducted for the year 2017 is very effective and efficient. All the material
misstatement car properly disclosed and chances of under reporting are very low. At the
Annual General Meeting auditor of the company can be asked about the future plans of the
company that can affect decision making process of stakeholders.
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Conclusion
This report has evaluated all the functions of auditing that are conducted in the financial year
2017. Activities like disclosure of key audit matters, declaration of auditor’s independence,
audit committee and their functionality, etc. are discussed in detail with respect to BHP
Billiton. At the end of this report it is expected that a reader will get all the information in
relation to efficiency of financial statements and Audit procedures from annual report of the
company.
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Reference
AICPA. (2017). Statement on Auditing Standards, Number 126: The Auditor's Consideration
of an Entity's Ability to Continue as a Going Concern (No. 126). John Wiley & Sons.
Backof, A., Bowlin, K., & Goodson, B. (2017). The impact of proposed changes to the
content of the audit report on jurors’ assessments of auditor negligence.
Brasel, K., Doxey, M. M., Grenier, J. H., & Reffett, A. (2016). Risk disclosure preceding
negative outcomes: The effects of reporting critical audit matters on judgments of auditor
liability. The Accounting Review, 91(5), 1345-1362.
Carson, E., Fargher, N., & Zhang, Y. (2016). Trends in auditor reporting in Australia: a
synthesis and opportunities for research. Australian Accounting Review, 26(3), 226-242.
Causholli, M., Chambers, D. J., & Payne, J. L. (2015). Does selling non-audit services impair
auditor independence? New Research Says,“Yes”. Current Issues in Auditing, 9(2), P1-
P6.
Chan, D. Y., & Vasarhelyi, M. A. (2018). Innovation and practice of continuous auditing.
In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing
Limited.
Cordoş, G. S., & Fülöp, M. T. (2015). Understanding audit reporting changes: introduction of
Key Audit Matters. Accounting & Management Information Systems/Contabilitate si
Informatica de Gestiune, 14(1).
Higgins, C., Milne, M. J., & Van Gramberg, B. (2015). The uptake of sustainability reporting
in Australia. Journal of Business Ethics, 129(2), 445-468.
Sirois, L. P., Bédard, J., & Bera, P. (2018). The informational value of key audit matters in
the auditor's report: evidence from an Eye-tracking study. Accounting Horizons.
Tepalagul, N., & Lin, L. (2015). Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), 101-121.
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