Detailed Audit Report: Financial Analysis of Adelaide Brighton Ltd

This report presents a detailed analysis of the audit conducted on Adelaide Brighton Limited, an Australian construction materials company, for the year 2017. The audit, performed by PWC, resulted in an unqualified opinion on the company's financial statements, despite several key audit matters identified, including accounts receivables, recoverability of goodwill and property, plant, and equipment (PPE), estimation of restoration provisions, accounting for business combinations, and measurement of inventory quantities. The report also examines the auditor's independence, non-audit services provided, and remuneration, highlighting a decrease in non-audit service fees compared to the previous year. Furthermore, it discusses the responsibilities of both the directors and auditors in relation to the financial reports, the role of the audit committee, and the consideration of subsequent events. This analysis provides a comprehensive overview of the audit process and its implications for Adelaide Brighton Limited's financial reporting.

Audit of Adelaide Brighton limited
Auditing

Audit of Adelaide Brighton limited
Executive Summary:
This report presents the case of Adelaide Brighton limited which is an Australian entity
engaged in the business of producing and supplying the construction materials. For the
purpose of this report financial report of the company for the year 2017 has been examined.
The audit of the firm was conducted by PWC which is a leading auditing firm. The firm has
provided an independent audit opinion on the financial statements of Adelaide Brighton
limited. The auditor has also provided certain non-audit services to the company and
company has paid the total remuneration of $ 875,863. There are various key audit matters
reported by the auditor in case of the company because of their significance. However, the
auditor has provided an unqualified opinion on the financial statements of the company (Roy
and Saha, 2018)
.

Audit of Adelaide Brighton limited
Table of Contents
Executive Summary:..............................................................................................................................2
Introduction:..........................................................................................................................................4
Auditor’s Independence........................................................................................................................4
Non-audit services.................................................................................................................................5
Auditor’s Remuneration:.......................................................................................................................5
Key audit matters..................................................................................................................................6
Audit Committee...................................................................................................................................8
Audit opinion.........................................................................................................................................9
Responsibilities:...................................................................................................................................10
Responsibility of the directors towards the financial reports:.........................................................10
Responsibility of the auditors towards the financial reports...........................................................10
Subsequent events..............................................................................................................................10
Follow up questions:............................................................................................................................11
Conclusion:..........................................................................................................................................11
References...........................................................................................................................................12

Audit of Adelaide Brighton limited
Introduction:
Adelaide Brighton limited is an Australian company which is listed on the Australian stock
exchange. The company commenced its operations in 1882. Headquarter of the company is
based at Birkenhead, Australia. The company is involved in the business of manufacturing
and supply of construction materials in the Australian country. ABC operates through two of
its main segments: Cement, Lime and Concretes and Concrete products. The products of the
company are offered to both residential as well as non-residential construction units and to
energy constructions, alumina productions and other various mining market. This report is
prepared after overviewing the annual report of the company with the purpose of highlighting
various matters related to the audit of the company. The audit of the company for the year
2017 has been conducted by one of the leading auditing firm-Price Water Cooper.
Auditor’s Independence
One of the most fundamental principles of auditing is the auditor’s independence.
Independence is achieved when the auditor provides the opinion on the true and fair view of
the financial statements of the company without getting influenced by the management of the
company (Basu, 2010).
In the instant case of Adelaide Brighton limited, auditors have stated in its audit report that
independent audit opinion on the Group’s financial statements have been provided. The
auditors have complied with the relevant provisions of corporations act, 2001 as well as with
the ethical requirements as prescribed in APES 110 Code of Ethics for the Professional
Accountants. The auditors have also complied with the other ethical requirements of the
auditing profession.

Audit of Adelaide Brighton limited
Hence, it can be said that the principle of independence has been duly complied by the
auditors of Adelaide Brighton limited.
Non-audit services
Non-audit services are those professional services offered by the auditor during his audit
engagement which are not linked to the audit of entity’s financial statements.
In case of Adelaide Brighton limited, the auditing firm has provided various non-auditing
services along with the service of reviewing the financial statements. The non-audit services
are of such nature where experience and expertise of auditor was important. The auditing
firm has provided those services which have no connection with the assurance and auditing
services.
Auditor’s Remuneration:
Auditor’s Remuneration is the amount of fees paid to the auditors in consideration of the
services provided by them during a particular financial year. Remuneration can be paid for
both auditing services as well as non-auditing services.
Remuneration of
Auditor 2017 2016 Change Impact
Audit Services $ 855,313.00 $ 748,359.00 14.29% Increase
Non Audit
Services $ 20,550.00 $ 40,949.00 - 49.82% Decrease
Total $ 875,863.00 $ 789,308.00

Audit of Adelaide Brighton limited
In the instant case of Adelaide Brighton limited, the auditing firm has been paid a total
amount of $ 875,863 as the remuneration for the provision of their services in 2017. The fees
for the audit services totalled to $ 855,313 in 2017 and for non-audit services, it totalled to $
20,550. However in 2016, the total fee paid for audit services was $ 748,359 and for non-
audit services it amounted to $ $40,949. This shows that the company has paid more fees in
consideration of audit services but there is a decline of around 50% in the non-audit services.
The decline in non-audit fees shows that Adelaide Brighton has availed less of non-audit
services in 2017 and more of audit services as compared to 2016.
Key audit matters
Key audit matters (KAM) are those matters that demanded significant attention of the auditor
while conducting the audit of the entity. Therefore, auditor requires these matters to be
communicated to the readers of audit report in details so that they can understand the effect of
such items on the overall financial statements of the company.
In the instant case of Adelaide Brighton Limited, the auditor has reported following key audit
matters:
 Accounts Receivables:
The auditor has identified accounts receivables as the key audit matter because the ABC
Group had encountered certain discrepancies in this respect as the amount was less paid to
the suppliers. Due to the discrepancies there was high risk of material misstatements and
hence auditor had to apply detailed audit procedures in this respect. The auditors have
gathered addition audit evidences to confirm the balances of accounts receivables of the
company (Millichamp, 2002). The external substantive test of balances was applied as the

Audit of Adelaide Brighton limited
audit procedures to check the validity of the balances of accounts receivables. Auditors used
external confirmation from few of the major debtors of the company.
 Recoverability of goodwill and property, plant and equipment (PPE):
Due to the very nature and significance of goodwill and PPE for the business, the
management of accountant had to use various judgements as well as assumptions for the
determination of discounted cash flows. Hence, the recoverability of these assets became the
KAM for the auditor. To evaluate the valuation of goodwill and property plant and equipment
present in the financial statements of the company auditor had to use the analytical
procedures in this respect. For this purpose, they compared the budgets of 2018 prepared
using growth models with the budgets approved by the directors. The comparisons of
assumptions in relation to growth rate were made with the external forecasts. Also, the
auditors carried sensitivity analysis in this regards and it was found that the rates and other
assumptions used by management are accurate enough.
 Estimation of restoration provisions:
This was reported as the key audit matter because of the involvement of material judgements
for the estimation of future costs related to rehabilitation provisions. For this purpose auditor
had applied analytical procedures to evaluate the validity of the values of restoration
provisions (Puncel, 2007). The auditor compared the nominal cost of current year with that of
previous year, wherever there was significant doubt on the estimation.
 Accounting for business combinations:
This was reported as the key audit matter because of involvement of significant amount of
judgements. The auditor checked the authenticity of the valuations made for the business
combinations by applying substantive tests in this regards. They consulted the external

Audit of Adelaide Brighton limited
experts to examine the appropriateness of the valuation. The valuation experts were the
independent parties and hence the result of their valuation exercises was compared with the
actual valuation of the fixed assets from the financial statements (Adelopo, 2016).
 Measurement of inventory quantities for raw materials and work in progress:
The measurement of inventories for the stockpiled inventory of the company was quite
complex in nature. Therefore, this matter is reported as the KAM by the auditors. To verify
the inventory valuation, the auditor applied substantive audit procedures (test of balances) by
referring to the valuation reports of experts in this particular field. Before relying on the
surveyor’s report, the auditor also checked the authenticity of the methods and approaches
used by the surveyors and also their objectivity and integrity.
Apart from the above matters, there were no other key audit matters discovered by the
auditor.
Audit Committee
There was an audit, risk and compliance committee in the board structure of the Adelaide
Brighton limited. The said committee was formed for the audit risk management functions as
well as to oversee the functions of financial reporting, internal as well as external audit of the
company (Roy & Saha, 2018). The committee comprises of various non-executive directors
who are independent. The charter of committee is as follows:
 Notice of the meetings shall be given to all the committee members. However, there is
no particular requirement of minimum notice period days. The quorum of the meeting
is 2 and the audit committee must conduct at-least one meeting per quarter. Also,
there is no such requirement of acknowledging the notice of the meeting, by the
members.

Audit of Adelaide Brighton limited
 The main function of the audit committee is to support the board in the financial
reporting function of the company by selection of appropriate accounting policies and
the appointment as well fixation of remuneration of company’s external auditor.
 The committee is further responsible for the compliance with the accounting
standards and various rules and laws applicable to the company. Moreover, the
committee has the responsibility to review the plans of the internal auditors of the
company.
 The evaluation of performance of internal as well external auditors of the company is
also to be undertaken by the audit committee.
 Further, the committee has to make recommendations for the appointment and
remuneration of company’s internal as well as external auditors.
Audit opinion:
Audit opinion is the auditor’s professional judgement on the true and fair view of the
financial statements of the company. There are basically 4 types of audit opinion: unqualified
audit opinion, qualified opinion, adverse opinion and disclaimer of opinion (Knechel and
Salterio, 2016).
In the present case, the auditors of Adelaide Brighton limited have provided the unqualified
opinion by stating that the financial statements of the company for the year ending 2017 are
presenting the true and fair view of the company’s financial position. The auditors have
stated that the company’s financial statements are prepared in accordance with all the
applicable provisions of Australian corporations act, 2001 and the relevant accounting
standards.

Audit of Adelaide Brighton limited
The auditors have mentioned in their report that the financial statements of the company does
not contain any material misstatement due to error or fraud and hence they depict true
financial position of company’s financial affairs.
Responsibilities:
Responsibility of the directors towards the financial reports:
The financial statements of the company are prepared by the directors of the company. The
directors of the company are responsible to ensure that financial statements are prepared in
accordance with all the relevant laws and regulations and the accounting standards that are
applicable on the company.
Responsibility of the auditors towards the financial reports
The auditors of the company are responsible to provide the opinion the opinion on the
financial statements by reviewing those financial statements on the yearly basis. The auditors
have to provide a reasonable assurance on the authenticity of the financial statements.
However, the auditors are not responsible to detect all the frauds and errors of the financial
statements. While providing opinion on the financial statements auditor has to determine
whether the financial statements of the company are reflecting true and fair view of its
financial performance and whether there is the existence of any material misstatement due to
error or fraud.
Subsequent events
Subsequent events are those events or transactions that occur after the date of finalisation of
financial statements but are related to the circumstances that existed before the finalisation
date. Thus such events require the adjustment in the current year’s financial statements
(Ozdemir & Gokcen, 2016).

Audit of Adelaide Brighton limited
There did not take place any material event subsequent to the date of balance sheet which
needs to be reported in the current financial statements of the company for the year ending on
31st Dec, 2017.
Follow up questions:
Whether there were some instances of insider trading identified or reported by any party in
case of Adelaide Brighton limited.
Whether the company has paid any significant amount of dividend during the year?
Whether there were any significant weaknesses in the internal control system of the company
that was identified by the auditor?
Conclusion:
From the above examination of annual report of Adelaide Brighton limited for the year 2017
it can be said that PWC, the auditing firm of the company has applied all the audit procedures
that were necessary to conduct the audit. Also, the firm has complied with all the regulations
of laws applicable under corporation act, 2001 to the company. Further, auditors have
adhered to the relevant auditing standards that were applicable to it.

Audit of Adelaide Brighton limited
References
Adelaide Brighton Ltd. (2017). Annual Report. Retrieved from:
https://adbri.com.au/-/adbri/lib/pdfs/2016/reports/AR%202017%20-%20Annual%20Report
%20complete.pdf
Adelopo, I. (2016) Auditor Independence: Auditing, Corporate Governance and Market
Confidence 3rd ed. U.S: Routledge.
Basu (2010) Fundamentals of Auditing 1st ed. India: Pearson Education.
Knechel, W.R., and Salterio, S.E. (2016) Auditing: Assurance and Risk 4th ed. U.S: Taylor &
Francis.
Millichamp, A.H. (2002) Auditing 2nd ed. U.S: Cengage Learning.
Ozdemir, Z., and Gokcen, B.A. (2016) Auditing of Subsequent Events: A Survey of Auditors
in the City of Istanbul in Turkey, Journal of accounting and financial research, 5(2), 42-52.
Puncel, L. (2007) Audit Procedures 2008 2nd ed. U.S: CCH.
Roy, M.N., and Saha, S.S. (2018) Statutory Auditors’ Independence in Protecting
Stakeholders’ Interest: An Empirical Study 1st ed. Germany: Springer.
Tricker, R. (2016) ISO 9001:2015 Audit Procedures 4th ed. U.S: Routledge.