HI6026 Audit Report: Embracing Enhanced Auditor Reporting in Australia

This report examines how companies listed on the Australian Stock Exchange (ASX) adhere to auditing standards, emphasizing enhanced transparency in financial reporting. It covers key aspects such as the auditor's independence declaration, opinion, non-audit services, remuneration, the audit committee's role and composition, the auditor's report to shareholders, and a review of key audit matters. The report analyzes Altium Limited's annual report to assess its compliance with auditing guidelines and standards, referencing the Corporations Act 2001 and relevant accounting standards. It highlights the importance of auditor independence, ethical conduct, and unbiased opinions in providing stakeholders with reliable information for decision-making. The analysis includes a discussion of different types of auditor opinions, the implications of non-audit services, and the role of the audit committee in ensuring financial compliance and internal controls.

Audit, Assurance and Compliance
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Executive Summary
This report is meant to highlight how companies listed in Australia Stock Exchange
conform to auditing standards. The report elaborates on auditing requirements and
reporting which is aimed at enhancing the transparency in financial reporting. The report
will touch on various issues including auditors opinion, auditors remuneration, the roles
and responsibilities of auditors and the management just to mention a few.
Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Background of the Report............................................................................................................3
Scope of the Report.....................................................................................................................3
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Discussion........................................................................................................................................4
1) Auditor’s Independence Declaration................................................................................4
2) Independent auditor’s opinion..........................................................................................5
3) Non-Audit services performed by the Auditor.................................................................5
4) Auditors’ Remuneration....................................................................................................6
5) Role, functions and composition of the Audit Committee................................................7
6) Independent Auditors report to the shareholders..............................................................7
7) Review all Key Audit Matters..........................................................................................8
Conclusion.......................................................................................................................................9
References........................................................................................................................................9
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Introduction
Background of the Report
The main purpose of audit reporting is to enhance transparency. The audit report targeted the
annual report of Altium limited so as to ascertain the conformance of that annual report to the set
standards. The audit report will be of use to all the stakeholders, both internal and external, with
regards to making prudent decisions going forward
Scope of the Report
This report is mainly aimed at analyzing various aspects as pertaining to audit reporting. The
report will mainly touch on seven key issues namely; Auditor’s Independence Declaration;
Independent Auditor’s Report; The report will also highlight the Non-audit services which are
performed by the auditor; Auditor’s Remuneration as per the financial statement; Audit
Committee, its makeup, roles and functions; Independent Auditor’s Report to the shareholders
and lastly the analysis of Key Audit issues. The report will focus on Altium Limited which is an
American based software company
Discussion
As earlier indicated, Altium Limited is an American based company, listed in the Australia stock
exchange (ASX). The company is a renowned software producer mainly specialized in PC-based
electronic design software (Altium Limited, 2018). By virtue of the organization being listed in
the ASX, it has to adhere to strict guidelines and conformance to quality standard auditing
reporting system it is through the evaluation of the financial annual report that one can be able to
ascertain whether the guidelines and standards of auditing have been followed.
1) Auditor’s Independence Declaration
The primary law that stipulates and governs the compliance of audit processes and reporting is
the Corporations Act, 2001(CCH Australia Limited, 2011). The conduct, rules and procedures of
how an auditor carries out his mandate is described in that act. The act also stipulates the
responsibilities of the management in facilitating the auditor when performing his tasks. The law
actually prohibits the interference of the management in the auditing process.
The issue of ethical considerations which governs the auditor has also been captured in the act,
where it stipulates that an auditor or the auditing committee for that matter is supposed to
produce an unbiased, professional and independent report. At times, there is a high likely hood
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that external interference might bar the auditor from achieving that which he is mandated to and
that’s which they ought to be vigilant and incorruptible in order to give a credible and reliable
audit report (CAANZ (Chartered Accountants Australia & New Zealand), 2016). From the
provisions of Corporations Act, 2001 mainly APES 110, indicate the ethical considerations
which are supposed to govern how an auditor performs his tasks that section of the Corporations
act stipulate that an auditor is required to declare that he/she acted in an ethical manner while
performing their roles and duties. This declaration by the auditor is supposed to be captured in
the declaration of independence which is a standalone section in the annual report of an
organization (Chartered Accountants (Australia-Newzealand), 2018).
It is paramount for the auditor to be independent preferably not working within the organization
in order to avoid such internal interference. One of the regulations which govern the
independence of an auditor is Section 307C of the Corporations Act, 2001, which in a nut shell
indicates that an auditor needs to state the declaration of independence and capture the same as
part of the organization’s annual report. This particular section of the law clearly states that an
auditor is supposed to display the highest level of independence from the organization (Wolters
Kluwer, 2018).
From the annual report of Altium LTD, it can be noted that the auditor has clearly declared their
independence from both internal and external influence and that they have carried out their
mandate with in an ethical manner. All this was captured in the auditor’s statement of declaration
of independence as stipulated in the Corporations Act of 2001 and also the code of ethics
(Altium Limited, 2017).
2) Independent auditor’s opinion
As indicated by (Porter et al., 2014), an audit processes is aimed at providing an honest unbiased
opinion with regards to the financial statement of an organization which are prepared initially by
the management. The reason for the auditor’s report is to provide the relevant stakeholders with
a reliable document which they can use to make key decisions, financial or otherwise with
regards to the organization (Basu, 2010). From the auditor’s report, the most essential
information to be obtained is the auditor’s opinion. An auditor’s opinion can be described as a
written statement which indicates the qualified, unbiased and independent analysis made by the
auditor with regards to the accuracy and completeness of an organizations financial statement.
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There are mainly four types of opinions that can be expressed by the auditor namely; unqualified
opinion, qualified opinion, disclaimer and lastly adverse opinion.
As indicated in the annual report of Altium LTD, the auditor gave an unqualified opinion
indicating that the organization conformed to the required accounting standards and practices and
that they have prepared their financial statements in a clear and transparent manner.
3) Non-Audit services performed by the Auditor
Non-audit services can be referred to as those services which are carried out by the auditor
outside of the prescribed audit services. Without proper judgment and a high ethical standing,
such services can elicit personal interest of the auditor to the business and in turn affect the
independence of the auditor (Frankel, 2018). In some countries, auditors are barred from taking
up such services in those companies which they are auditing. Some scholars argue that this is
indeed best practice in order to prevent cases of breech of independence. For example in the
United States of America, Sarbanes and Oxley act prohibit auditors from undertaking such non-
auditing services for the companies they are auditing (Mitchell, 2018). Currently there are no
such restrictions in Australia that prohibit auditors from undertaking the non-audit services in
companies they are auditing. The auditors are however required to declare their independence in
writing and in the instance of a possible conflict of interest, then the auditor must absolve
themselves from undertaking the task.
From the annual report, it can be seen that the auditors in Altium LTD carried out non-auditing
services such as tax consulting in the year 2016 however similar services were not done in 2017
It is assumed that since the auditors declared their independence statement in the report, they
carried out those services with regards to ethical considerations and high levels of objectivity and
independence (Altium Limited, 2017).
4) Auditors’ Remuneration
Just like any other expense, the auditor’s remuneration needs to be captured in the organizations
expenses. An auditor’s remuneration can be termed as the fee payable to the auditor for carrying
out his tasks for the organization. The remuneration is for both the audit and non-audit services
provided by the auditor (Caanz , 2015).
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From the information given in Altium LTD annual report, it was seen that the auditors of the
organization carried out both audit and non audit services. The remunerations for both the audit
and non audit services are as captured below.
Description Year
2017 2016
Audit or review of the financial report 310,587 368,367
Other non audit related services 384,981
(In relation other assurance, due diligence and taxation)
Total Remuneration 310,587 753,348
From the above information, we can depict the total remuneration for the auditors for both 2016
and 2017. From that information, it can be seen that there was a decline of about 16% in the
auditing fees in the year 2017. This is mainly attributed to the lack of non-audit related activities
and other expenses which were incurred in 2016, while the same was not incurred in 2017.
5) Role, functions and composition of the Audit Committee
The audit committee is a vital operating committee in charge of oversight on matters pertaining
to financial disclosure and reporting. The audit committee is formed in order to assist the board
in the scrutiny of financial compliance and any other task within their mandate accorded to by
the board. All this is to ensure the organizations internal checks and balances operate as they
should and to help cushion the organization from any liability which might originate from non-
compliance of standards (CAANZ (Chartered Accountants Australia & New Zealand), 2016). It
is a mandatory requirement by the Australian Stock Exchange that all listed companies are
expected to have a functional audit committee (Arens et al., 2016).
From the annual report of Altium LTD, it is indicated that there is an existing Audit and Risk
Management Committee which is composed of 3 non-executive directors which is a positive
feature as it depicts independence of the audit committee from the main board. The report
however does not indicate whether there is an audit committee chatter which is supposed to
indicate the role functions and duties of the audit committee members.
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6) Independent Auditors report to the shareholders
As stipulated by the Australian Accounting Standards, it is the responsibility of the auditor to
submit their report and express their professional view on the financial statements provided by
the organization. It is from the auditor’s report and opinion for that matter that various users of
the report are going to base their decisions on (Gay & Simnett, 2015).
On the other hand, it is the responsibility of the management through their accounting policies, to
prepare their financial statements. This is by no means the task of auditors as occasionally
mistaken (Knechel & Salterio, 2016). The management is supposed to ensure that they formulate
their reports in conformance to the set standards and avoidance of misstatements (Media, 2015).
Subsequent events are any identified activities which may occur after the completion of a
financial reporting period of an organization. Reporting of any subsequent events to the
stakeholders should also be done. This is done so as to ascertain their overall impact on the
financial statement for that particular period. One example can be obtained from the annual
report of Altium LTD where the organization undertook an acquisition of Upverter Inc in August
2017. The implications of that takeover were huge and the company was supposed to give an
issuance of ordinary shares. .
7) Review all Key Audit Matters
For the purposes of promoting transparency in audit reporting, compliance of new regulations are
required to be undertaken by the auditors. These requirements are known as the Enhanced Audit
Reporting Requirements. These requirements mandate the auditors contracted by the company to
report any other significant matter on a separate report.
At times there are key issues which might have a major impact on the financial statements of a
company and as such it is important to highlight such matters to the stakeholders. In the annual
report f Altium LTD, two such key matters were noted; Recoverability of deferred tax assets
 Carrying value of goodwill and other definite lived intangible assets(Altium Limited,
2017)
These two issues were addressed as follows:
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The first issue was recoverability of deferred tax assets- This actually pertains to the
identification of deferred tax assets n accordance to the Australian Accounting Standards. As
described in the standards, the level to which tax assets deferred can be known is by ascertaining
the future probability of the company, and by so doing calculating the taxable future profits. Of
key importance therefore is to ensure that the company remains on a profitable trajectory so that
the benefits of the tax deferred can be seen. The purpose of deferred tax assets is to lessen the tax
liability by providing tax benefits on future income, since those tax liabilities can be deducted
from future profits.
The amount of money involved in the deferred tax assets is what makes this to be a key audit
matter. It will be up to the prudence of the auditor to ascertain whether the profits to be generated
will be sufficient enough in future in order to avail the tax benefit later. It was therefore noted
that the auditors of Altium had to carry out test in order to ascertain the profits of the company
on the years to come before making their recommendation.
The second matter was Carrying value of goodwill and other definite lived intangible assets
whereby it is necessary for the assets of the organization to be taken through an annual
impairment assessment as stipulated by the Australian Accounting Standards. This is inclusive of
intangible assets like goodwill. At the end of the financial year, these assets are checked for the
impairment. Certain financial models like estimation of cash flows and discount rates were put in
place by the management in order to perform the impairment test. This prompted the auditors to
view this as a substantial audit matter.
Conclusion
This report aims at establishing whether the organization and the contracted auditor played their
role in ensuring that the accounting standards set were adhered to. The report was also aimed at
establishing the role played by audit reporting in ensuring there is transparency and
accountability within the organization. Various key issues were noted from the annual and
auditor’s report. despite the unqualified opinion by the auditor, which is a positive for Altium
LTD, it s important for the organization to consider displaying their audit committee chatter or
the key details pertaining to that committee to further strengthen the notion of auditors
independence to the stakeholders.
References
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Altium Limited, 2017. Annual Report. Altium Limited.
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Leung, P., 2009. Modern Auditing & Assurance Services. John Wiley & Sons Australia.
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