Evaluating Audit, Assurance, and Compliance in Origin Energy's Report

This report provides an assessment of the audit, assurance, and compliance practices of Origin Energy, based on its 2018 annual report. It examines several key aspects, including auditor independence, non-audit services provided by KPMG, auditor remuneration, key audit matters, and the role of the audit committee. The report analyzes the auditor's compliance with independence requirements, evaluates the impact of non-audit services on audit integrity, and discusses the rationale behind key audit matters such as unbilled revenues, network expenses, derivative accounting, and equity accounted investments. Furthermore, it differentiates between the responsibilities of management and auditors, notes the absence of material subsequent events, and concludes that the auditor's report provides stakeholders with valuable insights into the company's financial health. Desklib offers a platform for students to access this and other solved assignments.

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, Assurance and Compliance
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The main intention behind the preparation of this report is to conduct the assessment
on the major roles and responsibilities of the auditor and for the purpose of the report, the
latest annual report of Origin Energy has been taken into consideration. After taking into
consideration the main aim, the report is involved in the analysis and evaluation of all the
section related to audit in the 2018 annual report of Origin Energy. Some of the major parts
that have been considered in the analysis process are the compliance with the independence
requirements of the auditors, non-audit services along the remuneration of the auditors, the
explanation of the key audit matters, the presence of audit committee, responsibility of the
auditors and others. On the overall basis, it can be said that the outcome of this report will
make the third party stakeholders possible to assess the role and responsibly of the auditors in
enhancing the audit quality.

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Table of Contents
Introduction.....................................................................................................................................3
Auditors’ Independence Requirement............................................................................................3
Non-Audit Services..........................................................................................................................4
Auditor’s Remuneration..................................................................................................................4
Key Audit Matter..............................................................................................................................6
Audit Committee..............................................................................................................................8
Audit Opinion...................................................................................................................................8
Difference between Responsibilities...............................................................................................9
Material Subsequent Events............................................................................................................9
Analysis of the Material Information by the Auditors.....................................................................9
Material Information Missing........................................................................................................10
Follow-up Questions......................................................................................................................10
Conclusion......................................................................................................................................11
References.....................................................................................................................................12

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Introduction
The prime responsibility of the auditors lies in the inspection of the financial reports of
the business entities in the presence of the required compliance with all the needed audit
standards and principles for the ascertainment of the fact that there is not any material
missstements in the financial statements of the business entities (Schmidt, Wood and Grabski
2016). At the same time, the audit report is regarded as a major mechanism for the investors
and other users for understanding the truthfulness of the financial health of the business
entities. As audit report help the inventors, it has become the prime necessity for the
accountable audit committees to implement the required system for the enhancement of the
quality of the audit report. In the presence of the implemented initiatives by some of the audit
authorities like CPA, IAASB and AUASB, it has become a major necessity for the auditors and the
companies to publish the details about the major material issues in the financial statements;
and these issue can be called as Key Audit Matters (Wright 2016). Moreover, the increased
responsibility of the auditors is the effective communication of the assessed key audit matters
in the annual report in simple English language. The below discussion takes an attempt to
analyze these aspects related to the audit in the annual report of Origin Energy.
Auditors’ Independence Requirement
Both the internal and external auditors of the business entities must maintain the aspect
of independence from the parties that may have financial other interest in the audit client. For
this reason, the auditors should be honest in the audit profession to maintain the integrity.
KPMG, one of the top four audit firms, was the audit partner of Origin Energy in 2018. The

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declaration of independence of the lead auditors states that the gilding principles of the
standard of 307C of the Corporations Act 2001 are the main aspect to which the auditors had
compliance in the auditing process. The compliance with this standard is enough to assure the
maintenance of auditor’s independence in the audit profession (Originenergy.com.au 2018).
The lead auditor of KPMG also declared that the provided audit services did not breach the
audit code of conduct.
Non-Audit Services
There are some specific services that the auditors use to provide to their audit clients
and these services do not have any connection with the financial statements review; these
types of services are considered as the Non-audit services. There is mention about some
specific non-audit services in the annual report of Origin Energy that they have received from
KPMG. These services are legal services, taxation services, advisory services, lattice related
services, advisory services and others (Originenergy.com.au 2018). While providing the non-
audit services, it is expected that there will not be any negative effect on the integrity and
honesty of audit independence. The Chairman of the Audit Committee of Origin Energy has
announced that KPMG has adhered to Corporations Act 2001 that eliminates the possibility to
affect the negative impact on audit independence (Collings 2014).
Auditor’s Remuneration
It is needed for the business organizations to pay the auditors for receiving the audit as
well as non-audit services. The remuneration to KPMG by Origin Energy can be seen in below:

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Particulars 2018 $ 2017 $ Change in %
Audit Services
KPMG Auditors 2,360,000 3,042,000 -22.42%
Other Auditors 88,000 82,000 7.32%
Total 2,448,000 3,124,000 -21.64%
Non-Audit Services by KPMG
Advise for Accounting - 45,000 -100.00%
Services for Taxation 97,000 65,000 49.23%
Legal Services 37,000 211,000 -82.46%
Services related to Lattice 1,184,000 632,000 87.34%
Advisory Services 61,000 -
Other 179,000 18,000 894.44%
Total 1,558,000 971,000 60.45%
Total Audit Fees 4,006,000 4,095,000 -2.17%
The above table makes the disclosure of the payment to KPMG by Origin Energy for the
both audit and non-audit services. According to the above table, Origin Energy had to make
reduced payment for the services related to the audit services for the review of the financial
statements and the decreased percentage is 21.64 (Originenergy.com.au 2018). On the other
hand, Origin Energy had to make increased payment to KPMG for receiving six types of non-
audit services in 2018; and the increased percentage is 60.45. On the overall basis, Origin
Energy had to make the decreased payment of the total audit fees to Origin Energy and the
decreased percentage is 2.17 (Originenergy.com.au 2018).
Key Audit Matter
Unbilled Revenues: Major uncertainty for determining the energy volume makes this aspect a
key audit matter. Some major factors n this aspect are variation in product offering and

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customer rate in different markets, complexity in the process of demand estimation, physical
energy loss between the processes of purchase and delivery and others (Originenergy.com.au
2018).
The substantive audit procedures for this key audit matter are to assess the historical
accuracy of the estimation process; to test the aspect of purchased wholesale energy; to
reconcile the volumes of purchase in order to recognize the volumes of revenues and others as
the auditors have applied these procedures. The classification of these processes can be done
as analytical procedures and test of details (Velte 2018).
Unbilled Network Expenses: The presence of ambiguity in the volume energy estimation to
cater to the needs of the customers is the main reason for determining this aspect the key audit
matters. The crucial factors in this situation are the level of customer energy loss and demand
of the customers relevant to the unbilled revenue issue; and the volume of supplied energy to
the customers between the date of purchase and the date of last invoice in the business
activities (Originenergy.com.au 2018).
In order to address this key audit matter, the auditor has undertaken some major
substantive audit procedures. They are to assess the historical accuracy in the company with
the fees of the distributors; to test the volume of the wholesale energy against the AEMO
invoice; to reconcile the purchase volume with the unbilled revenue of the company and
others. The classification of these procedures can be considered as substantive test of control
(Sirois, Bedard and Bera 2018).

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Derivative Financial Assets and Liabilities Accounting: The major reasons for considering this
aspect as key audit matter are the presence of inherent difficulty in the valuation process. The
key aspects in this situation are the required judgment for the estimation of fair value of some
of the major financial institutes, the performed process related to hedge accounting related to
the exposure of risk; amendment of the company with the disclosure requirement of AASB 7:
Financial Instrument Disclosure and others (Originenergy.com.au 2018).
In order to address this issue, the auditors have performed some specific audit
procedures like to evaluate the methodology used for the valuation of financial instruments by
the valuation specialists; to test the inputs that have been derived on internal basis with the
help of valuation specialists; to test the results of hedge accounting with the help of valuation
specialist and others. These procedures can be considered as the test of control (Boolaky and
Quick 2016).
Equity Accounted Investment’s Carrying Value: The presence of certain reasons has
contributed towards this development of this key audit matter. They are the exposure of the
operations of the company with the ups and downs in the prices of the commodities; the
inclusion of some major intrinsic complex aspects in the process for the estimation of the future
cash flows and the inclusion of historical carrying value in the used adjustments
(Originenergy.com.au 2018).
With the aim to address this key audit matter, the major performed audit procedures
are assessment of the future cash flows of the company; comparison of the forecasted cash
flow including the used model by the company in order to approve the future production

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profile; comparison the used assumptions for the valuation of assets along with the verification
of the assumptions. These can be considered as the analytical procedures (Botez 2017).
Audit Committee
The inclusion of an Audit Committee can be seen in the Board of Directors of Origin
Energy and the inclusion of four non-executive directors can be seen in the committee. They
are Scott Perkins, Maxine Benner, Teresa Engelhard and Gordon Cairns. The major function of
this committee is to consider the issues related to the system and structure of the management
in order to protect the integrity of corporate reporting. In addition, this committee involves in
the review of the full year as well as the half-year result of Origin Energy so that they can
provide the recommendation in the financial statements. However, the Board of Directors of
Origin Energy does not have any audit committee charter.
Audit Opinion
The audit opinion from the auditor’s report in Origin Energy helps in ascertaining certain
facts. The first crucial factor in the presence of adherence with the Corporations Act 2001 with
the aim to provide the true and fair view of the financial statement of Origin Energy as at 30
June 2018. The second aspect shows the presence of adherence with Corporations Regulations
2001 and Australian Auditing Standard (Originenergy.com.au 2018). The third aspect is the
presence of the major components of financial reports like balance sheet, income statement,
and statement of comprehensive income, statements of change in equity and the statement of
cash flows (Originenergy.com.au 2018).

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Difference between Responsibilities
The prime responsibility of the management and directors of Origin Energy lies in the
preparation of all the components of financial reports in accordance with Corporations Act and
Australian Accounting Standard; implementation of effective internal control and the
assessment of the company’s ability to continue as a going concern. On the contrary, the prime
responsibilities of the auditors lie in gaining enough evidence and assurance so the
ascertainment of the material issue in the financial statements can be done. In addition, they
are needed to publish the audit report including the audit opinion (Davis and Hay 2012).
Material Subsequent Events
It can be seen from the 2018 Annual Report of Origin Energy that the auditors have
ascertained the fact that there is an absence of any material subsequent event in the financial
operations and reports of the company after the period of 30 June 2018 (Originenergy.com.au
2018).
Analysis of the Material Information by the Auditors
The auditors of Origin Energy, KPMG, have made it easier for the third party
stakeholders to obtain information and understanding about the material issues present in the
financial reports of Origin Energy in the year 2018. With the help of a specific table, KMG has
provide the information about the key audit matters of the company along with the information
about the performed substantive audit procedures. This indicates towards the efficiency of the
auditors in the effective communication of the material information to the third part

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stakeholders. All these aspects are majorly helpful for the third party stakeholders in the
assessment of the roles and responsibilities of the auditors in the auditing process (Legoria,
Melendrez and Reynolds 2013).
Material Information Missing
The assessment of the audit section in the 2018 Annual Report of Origin Energy states
that the auditors of KPMG has been successful in the effective identification of the major key
audit matters from the financial reports of the company. The absence of any material
subsequent event can also be seen from the auditor’s report in Origin Energy. Most
importantly, the auditors of KPMG have assessed all the material information of Origin Energy
in accordance with all the required standards (Sutanto 2014).
Follow-up Questions
In the Annual General Meeting of Origin Energy, the stakeholders can ask the question
about the process for the determination of the materiality level in Origin Energy by KPMG. After
that, they can ask the question that whether there is any major loophole in the internal control
of the company or not. Lastly, they can ask the question related to the future plans of KPMG for
the auditing of Origin Energy (Murphy and Yetmar 2015).
Conclusion
It can be prominently observed from the above discussion that the main way by which
Origin Energy has maintained the auditor’s independence by complying with Corporations Act
2001 and Australian Accounting Standard. The adherence of high-level of ethics can be seen by

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Origin Energy at the time to provide the non-audit services. The reduction in the overall
payment for the auditors has provided the company with major benefit. High compliance with
all the requirements can be seen from the side of the auditors of KPMG while dealing the
material information of the financial statements of the company. For this reason, they have
been able in the detection of the key audit matters and the application of the required
substantive audit procedures. The report has also provided the details of the follow-up
questions that can be asked to the auditors in the Annual General Meeting.

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References
Boolaky, P.K. and Quick, R., 2016. Bank Directors’ Perceptions of Expanded Auditor's
Reports. International Journal of Auditing, 20(2), pp.158–174.
Collings, S., 2014. Frequently asked questions in international standards on auditing,
Daniel Botez, 2017. UPDATES REGARDING AUDIT REPORTING. Studies and Scientific Researches:
Economics Edition, (25), pp.Studies and Scientific Researches: Economics Edition, 01 July 2017,
Issue 25.
David S Murphy and Scott Yetmar, 2015. Student Perceptions of Auditor Responses to Evidence
of Suspicious Activities: An Experimental Assessment. International Journal of Business and
Social Research, 5(11), pp.48–59.
Davis, M. and Hay, D., 2012. An Analysis of Submissions on Proposed Regulations for Audit and
Assurance in New Zealand. Australian Accounting Review, 22(3), pp.303–316.
Eko Madyo Sutanto, 2014. HUBUNGAN ANTARA JUDGMENT AUDIT DENGAN RESIKO DAN
MATERIALITAS. Jurnal Dinamika Akuntansi, 6(2), pp.142–152.
Legoria, J., Melendrez, K. and Reynolds, D., 2013. Qualitative audit materiality and earnings
management. Review of Accounting Studies, 18(2), pp.414–442.
Originenergy.com.au. 2018. 2018 Annual Report [online] Available at:
https://www.originenergy.com.au/content/dam/origin/about/investors-media/documents/
Origin_2018_Annual_Report.pdf [Accessed 19 Sep. 2018].

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Schmidt, P.J., Wood, J.T. and Grabski, S.V., 2016. Business in the cloud: research questions on
governance, audit, and assurance. Journal of Information Systems, 30(3), pp.173–189.
Sirois, L.-P., Bedard, J. and Bera, P., 2018. The Informational Value of Key Audit Matters in
the Auditor's Report: Evidence from an Eye-Tracking Study. Accounting Horizons, 32(2),
pp.141–162.
Velte, P., 2018. Does gender diversity in the audit committee influence key audit matters'
readability in the audit report? UK evidence. Corporate Social Responsibility and Environmental
Management, pp.Corporate Social Responsibility and Environmental Management, 03/23/2018
Wright, C., 2016. Fundamentals of information risk management auditing : an introduction for
managers and auditors,