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You are member of an investigation team to research and report on the “true and fair” status of the financial statements of a high profile international company and to critique on the opinion given in the “Independent Audit report” by this company’s Auditor.


You need to investigate the facts of the case study and using the risk-based auditing approach, auditing concepts, auditing standards and case laws and other information which you have learnt in this unit, such as:

ASA 315 - Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
ASA 320 - Materiality in Planning and Performing an Audit
ASA 330 – The Auditor’s Responses to Assessed Risks
ASA 560 - Subsequent Events
ASA 570 - Going Concern
ASA 700 - Forming an Opinion and Reporting on a Financial Report
ASA 705 - Modifications to the Opinion in the Independent Auditor’s Report
ASA 706 – Emphasis of Matter Paragraph and Other Matter Paragraphs in the Independent Auditor’s Report
APES 110-Code of Ethics for Professional Accountants 

The above list is only illustrative and your case study report is not required to address all the above mentioned topics. You can include other auditing standards covered in this unit, as related to this company.

You need to discuss the impact and relationship of the auditing standards so determined above, in the context of auditing theories, concepts, regulations, practices and other topics which you have learnt in this unit, such as:

Business risk
Corporate Governance
Ethics and culture
Inherent and control risks
Action by creditors, shareholders and regulatory agencies
Internal control
Reporting obligation of auditors
Auditor’s negligence and contributory negligence 
Auditors independence, duties and continuity
Aggressive accounting policies used in financial statement
Fraud and misappropriations
Regulatory bodies


Australian Auditing Standards provides requirements and specification relating to responsibilities of an auditor relating to the audit of financial report as well as complete set of books of accounts. As per assertions of Abu-Ras, (2015), it acts as a guidance tool for auditor in conducting an audit of any company or organization. It establishes requirement and explanation relating to the obligations of an auditor and the assurance practitioner while performing audit, assurance or similar service engagements. In the present report analysis of the annual report of Austal Ltd has been done through the application of the descriptive methodology. The company is the world’s biggest aluminium shipbuilder, leading the global market for high-speed craft (Austal Limited Annual Report 2017). Further, the significant variants related to the risk audit procedure, i.e. corporate governance, internal control, auditor negligence and reporting obligations have been discussed in detail in order to report on the true and fair status of financial statements of Austal Ltd (Austal Limited Corporate Governance Report 2017). Initially, provisions which are required to be followed by management, as well as auditor, have been discussed. Further, with the assistance of descriptive methodology findings relating to same of Austal Ltd have been ascertained. The report concludes with the opinion that the audit has appropriately complied with required provisions and after attainment of sufficient appropriate evidence had specified his opinion relating to the financial report.

The methodology applied in the present study is a descriptive research method which not fits efficiently into the definition of quantitative and qualitative research methodologies. Although it could use constituents of both, often within the same study. Further, Kemp, Hort and Hollowood, (2018), assert that descriptive research consists of assembling of data which explains the data collection.  Since the mind of a human being cannot remove full import of a large mass of raw data, descriptive statistics are extremely significant in decreasing the data to an understandable manner. In addition to this, description emerges following creative examination and serves up to organize the findings to fit them with explanations and then test or certify those explanations (Larcker and Tayan, 2015). The explanation often elucidates knowledge that may not otherwise be observed or even encounter.   Furthermore, the same method has been applied for the assessment of the financial report of Austal Ltd. In order to assess whether Austal Ltd has complied with specified provision and regulation or not, the core of related provision will be ascertained. Further, in case compliance with the same has been made it will be assumed that auditor has made an appropriate opinion. As an application of descriptive research methodology leads to provide a result on the case to case basis. Thus, the same method will be applied for evaluating assessment of corporate governance, internal control, auditor regulatory obligation, auditor negligence and contributory negligence and independence of auditor on an individual basis. If compliance has been made for each of the above-specified variants than valid assertion can be made relating to the truthfulness of opinion of auditor relating to financial report of Austal Ltd.


Ethics and Culture: Accounting Professional and Ethical Standards Board (APES) 110 had issued the code of principles for professional accountants, signifies that associates of the company are expected to work with the courage and the regulations. In accordance with the study of Duska, Duska, and Kury (2018) code of ethics provides that ethics are an attitude of mind on primary basis rather than compliance with written rules of conduct. It also sets out key ethical statements concerning the responsibility of an audit (Hay, Knehcel and Willekens, 2014).  It is necessary that auditors must operate with the relevant ethical obligations. Moreover, APES 110 comprises three segments, and they are:

  • General Application of code
  • Associates in public practice
  • Members in organisation

The five fundamental principles which are required to be followed by all the members are integrity, objectivity, confidentiality, professional behaviour and professional competence and due care. Thus, an audit is to be conducted on the basis of specified variants.

Corporate governance: It can be specified as a system through with companies are managed as well as directed. It comprises a relationship between management, shareholders and board and obligations of the board of directors. There are some principles which are described under the council of ASX related to the corporate governance, and same are required to be followed by the companies in developing their corporate governance structure:

The first principle of the corporate governance states that lay a solid basis for administration and supervision. As per assertions of Husnin, Nawawi and Puteh Salin (2016), it specifies that the organisational structure should be prepared in such a way so that it creates value for the organization. Further, this principle states that the company should encourage fair and responsible decision making (Armstrong, Blouin, Jagolinzer and Larcker, 2015). According to the fourth principle of corporate governance, it is necessary that the company must make safeguards reliability in the financial reports. According to Tricker and Tricker (2015), there should be timely and fair disclosure of the financial reports. In accordance with the principles of corporate governance, the rights of shareholders should be esteemed. Moreover, the risk which is to be availed by the stakeholders should be identified and managed also. Lastly, employees of the company should be compensated in a reasonable and responsible manner.  

 Internal Control: In accordance with provision specified in ASA 315, auditors are obliged to have an understanding of internal control related to the audit.  Thus, at the financial statement level, the auditor’s assessment of the risk of material misstatement is influenced by their understanding of the control environment. Further, as per study of Di Pietr, Ay, Art and Ronen (2014), at the assertion level, it is necessary to evaluate the control risk while analyzing the related to the risk of material misstatement that is to consider equity’s, i.e. control risk. As per the study of Camfferman and  Zeff (2015), in order to provide audit evidence relating to internal controls relating to the risk of material misstatement at assertion level, the auditor should assemble audit evidence about the existence, efficacy and stability of controls. Proof of availability of controls is usually gained when the auditor is evaluating control risk. Further, internal controls exist and are properly designed to prevent, identify and correct the material misstatement. In accordance with ASA 330 eventually, a test of controls are applied in their efficacy and to assess whether IC has functioned effectively during the relevant period or not (Brasel, Doxey, Grenier and Reffett, 2016).

Perry and Nöelke, (2015), asserted that the main aspect of internal control for evidence is effectiveness that is whether the control is functioning in an effective manner or not.  The same implies that does the control prevent or identify the misstatements that it is established to prevent or detect.  As per assertions of DeZoort and Harrison, (2018) effectiveness is assessed as the constituent of a test of controls. The process for testing of internal control includes re-considering of control such as examining the price, quantities , maths on the invoice and detecting documents to perceive that controls were compiled with, for instance, examining that a voucher consists supporting documentation (Euchner and Ganguly, 2014). In case the control is programmed for example examining authorisation codes, run unauthorised business transaction by the program to ensure they are recognised appropriately and excluded.    

Reporting obligation of auditor: According to ASA 200, the main goal of an audit of the financial statement is to acquire reasonable assurance regarding whether the financial report which is used use as a whole is without material misstatement thus facilitating the auditor to express a view as to whether the financial statement is produced in all material respects in according with an appropriate financial framework (Ghosh and Tang, 2015). It is required that the inspection of financial reports is conducted according to the regulated Australian auditing standards (Barth, Landsman and Lang, 2018).

Section 308 of Corporate Act 2001 specifies that the audit report should state the auditor’s opinion regarding compliance with accounting standard and true and fair view. Further, section 308 (3 (b) specifies that auditor is obliged to form a view on the issues noted during the audit. Along with this, Martinov-Bennie and Mladenovic, (2015), asserts that it is required to include the same points in the reports of the auditor if there is a shortage, failure or deficiency regarding any those of those specified issues.

Auditor negligence and contributory negligence – A successful negligence claim entails only in case the plaintiff are in a position to prove various issues (Chartered Accountants Australia and New Zealand (CAANZ), 2015).  Firstly, the defendant should owe the plaintiff a responsibility of care, based upon the valid foreseeability of the defendant’s act or oversight causing plaintiff loss and physical, casual or incidental proximity between the two. Further, As per assertion of Hentati-Klila, Dammak-Barkallah and Affes, (2017), the defendant’s behaviour may not succeed to reach a dispassionately determined of the care. In addition to this, the defendant’s failure to attain the standard of care must cause the plaintiff’s loss, and finally, the loss occurred should be reasonably predictable. Moreover, according to Bamber and McMeeking (2016), the auditor who provides his statement to the organisation in the usual manner could not be accountable till his objective or one of his goals, in preparing the reports that are to induce the plaintiff or a class which comprises the plaintiff.

Further, in accordance with division 2A section 331AA,  of Corporation Law 2001, a published audit report increases the reliability of the published financial reports which it escorts for the advantages of the individuals, those who have no other reasonable way of acquiring this information. The main objective of this division is to substantiate the right of the individual to take action in opposition to an auditor where the auditor’s conduct in preparing an audit statement has caused the person reasonably predictable loss. In addition to this, as per study of Griffiths (2016), it is the responsibility of an auditor to make sure that company is not publishing the financial reports of the company of the year which is deceptive or unreliable. Moreover, as per specification provided in section 331AC of Corporations Act 2001 individual suffering loss or damage because of reasonable dependence on the conduct of an auditor’s breach with provision of section 331 AB might recuperate the sum of that loss or damage by action against the auditor or any other individual involved in the contravention (Barth, Landsman and Lang, 2018). It has been specified in section 331AD that the court might have regard to the following matters in ascertaining whether it is reasonable for an individual to depend on the audit opinion and same are:

  • The accessibility of other sources of information in order to provide reliability to the organisation’s financial reports.
  • The capability of an individual to search for other sources of information.
  • Any other issue which courts considers fit.

Policies followed by Austal Ltd.  specifies that the company attempts to develop positive and healthy culture. It can be accessed through its main approach named as ‘Zero Harm’ underscoring Austal’s commitment with its customers, employees, regulators and other organizations with which it works.  The success in same can be evaluated by the achievements of the company as it made a significant reduction in frequency rate of injury, i.e. 15% in five consecutive years (Austal Limited Annual Report 2017). The company believes that the safety of employees, customer and another significant stakeholder importance for the company. In order to attain the same, the company focuses on (Health, Safety, Environment and Quality) HSEQ, which is more than a metric for Austal Ltd.

Figure 1: Graph representing frequency rate of attainment of success in safety measures for employees

(Source: Austal Ltd. Annual Report, 2017)

Moreover, in order to develop the required culture HSEQ is part of the mindset of management. A sincere attempt is made to indulge the same in every activity so that the goal of zero-waste and zero- harm could be attained and it is done by developing an appropriate culture within the organization. Even the remuneration framework developed by the company in order to provide support to the Group’s culture and aims. Employees of the company are rewarded on fair and competitively based in accordance with the requirement of performance level by the employees. Remuneration structure of Austal Ltd.  is developed in accordance with fixed as well as variable remuneration which is in accordance with position and role in the organization . Moreover, it is aligned in accordance with the long-term performance of the company so that ethical behaviour can be promoted and no incentives are developed to expose the company to inappropriate risk. Further, the individual remuneration approach follows the provision of total remuneration based approach. Even practice of encouraging meritocracy is being followed by the company for the ascertainment of individual performance with focusing on contribution, ethics and safety. Thus, it can be concluded that the company has followed provisions relating to ethics and culture in an appropriate manner which are necessary for an organization in order to comply with the specified provision.

Corporate governance statement of the company asserts that Board of Director and senior executives of the company are committed to the best practices of corporate governance, risk management and ethical standards (Austal Limited Corporate Governance Report, 2017). However, the company has provided its corporate governance statement at its website rather than annual report. Board of the company is made responsible for assisting and assessing the consolidated entity on behalf of shareholders. Further, the structure of corporate governance has been developed in accordance with ASX Corporate Governance so that both the structures could be aligned. It can be accessed from the corporate governance statement of the company that the company has followed the majority of the provision of ASX corporate governance Austal Limited Corporate Governance Report, 2017). A few of provision which has been partially complied have been appropriately discussed in the related report in order to provide justification behind same.  Ethical standards which are followed by Board of directors comprise the specified variants:

  • Behave honestly and in good faith.
  • Implement due care and diligence in order to accomplish obligation relating to the organization.
  • Application of their powers to act in best interest of Austan Ltd.
  • Ignorance of conflict and provide full disclosure relating to possible conflict of interest
  • Compliance with the provision of law
  • Taking independent judgements in order to assure the soundness of Board decision.

The existence of the above variants represents that appropriate corporate governance structure is developed as well as complied in Austal Ltd.

Board Management is responsible for developing as well as maintaining internal control, and the auditor is responsible for the assessment of the existence of internal control through understanding the business environment. In the present case of Austal Ltd. Board has shaped as well as reviewed the risk appetite along with the internal process and procedure in order to assure that management has succeeded in development and implementation of risk management and internal control (Austal Limited Annual Report 2017). Even the Audit and Risk Committee has specified that they are responsible for assuring the appropriateness of system and procedure relating to internal control. Moreover, they are also liable for internal control programs and policies which are to be aligned by management relating to the company’s reporting system. Thus the above specifications specify that the company has developed and implemented an appropriate structure in order to monitor the existence of internal control. It has been provided in the annual report of Austal Ltd that no contravention has been made relating to auditor independence requirement as per Corporations Act 2001 and applicability of code of professional conduct relating to audit (Adelopo, 2016). As the opinion has been formed after compliance with provisions of APES 110 code of ethics for professional accountant and corporation act 2001. Thus, it can be analysed that all the provision relating to reporting obligation and auditor negligence and contributory negligence have been compiled by the auditor. Further, provision of Corporation Act 2001 has been followed in order to develop a report and conclude audit procedure in accordance with the same. It has also been stated that audit evidence which has been obtained by the auditor are sufficient and appropriate in accordance with their opinion (Austal Limited Annual Report 2017). Moreover, they have also fulfilled the obligations specified in Auditor’s Responsibilities for the Audit of Financial Report section relating to the audit report.

Even the audit procedures have been developed in such a manner that they are able to assess the risk of material misstatement relating to the financial report.  Further, Key Audit matters have also been specified by the auditor along with the manner in which same have been dealt with.  Above specified facts represent that auditor has accomplished their duties in an appropriate manner and a sincere effort has been made to assure compliance with related provision and regulations. The audit of Austal Ltd has been conducted in accordance with Australian Auditing Standard. The auditors have ascertained and analyzed the risk of material misstatement in the financial report relating to fraud or error (Austal Limited Annual Report 2017).

Figure 2: Type of Audit procedures

(Source: Gay and Simnett, 2015)

Further, the design of the audit procedure has been developed as well as implemented in a manner so that sufficient and appropriate evidence could be attained for the purpose of opinion. The substantive test has been applied by the auditor in order to assess the underlying documents relating to the flow of transaction through the system. Further, the analytical procedure has been applied to test the amount of misstatement in account balances. The same practice implies that auditors have complied with all the provision relating to regulating the obligation of an auditor.

Figure 3: Directions in which assertion of an auditor are made

(Source: Gay and Simnett, 2015)

The appropriateness of accounting policies has been accessed along with reasonableness of estimation practices by the auditor which have been presented in disclosure made available by the management. The overall framework of financial report comprising, structure, content, and disclosure has been analyzed in order to assess whether the same attains fair presentation or not. An appropriate statement has been provided to the director of the Austal Ltd, in order to specify that all the significant matter relating to audit in relation with financial report of current year along with key audit matter. Further, it has been stated by the auditor in the annual report of the company that Remuneration Report is in accordance with section 3001 of the Corporation’s Act 2001. The same specification signifies that internal control exists in the company on a continuing basis as all the required provision and regulations have been compiled by the management of Austal Ltd.

A clear specification has been provided with a financial report of Austal Ltd does not cover other information such no assurance relating to same has been provided by auditors (Austal Limited Annual Report 2017). The directors of the company have specified that they are responsible for other information which has been provided in the Annual Report. However, the same does not comprise financial report and audit report.  Austal Ltd continues the active evolvement of reviewing the development of Group strategy provided by executive management. The management assures that necessary control and governance is in place and amended when required. The specification represents that appropriate internal control is maintained by the management in all required perspectives.

Conclusion and recommendation 

The above study depicts that opinion on the financial report provided by the auditor of Austal Ltd is appropriate. The reason behind same is that it has been provided after attainment of sufficient appropriate evidence. Moreover, the auditor has complied with the required provision and regulations in order to attain sufficient appropriate evidence for the development of opinion on the financial report of the company. The even appropriate corporate governance structure has been framed by the Board of director of the company as it is aligned with the specification provided by ASX relating to corporate governance. It has been analysed that no contravention of auditor independence requirement as per the specification of Corporation Act 2001 are available in respect with the audit as well as an applicable code of professional conduct in auditor independence declaration statement. It is appropriate to assume that independence was made available by the management and they cooperated to the required extent with the auditors.

An auditor is required to attain sufficient appropriate evidence for providing opinion on the financial report of an organization. Thus, it is recommended that compliance procedures should be applied to acquire reasonable assurance relating to internal controls on which audit dependence is to be placed in effect. As an auditor requires being assured that internal control is in existence and that internal control is being exercised in an effective manner, as well as that it is constantly functioning throughout the period under the audit to make sure that they could be relied upon. Further, by performing compliance tests auditor could be capable of evaluating the existence, efficiency as well the stability of internal control system. The substantive procedure can be defined as a process, step, or test which created decisive evidence relating to completeness, subsistence, disclosure, rights or assessment of assets, accounts in the books of accounts. In order to meet the requirements of substantive procedure, adequate documentation must be accumulated so that another skilled auditor can exercise the same procedure on the same documents and make same decisions. The same should be applied to produce evidence which is collected by an auditor to support the statement that there are no material misstatements regarding the completeness, legitimacy as well as the accurateness of financial reports of an organisation. Furthermore, in case internal control is fragile then more substantive procedures will be utilised than the compliance procedure.  Evidence attained from third parties can be proven as vital assistance for assuring that whether statements provided by the internal staff of the company are viable and can be trusted or not. Thus, an auditor is required to make an appropriate attempt to attain evidence from external sources as they are believed to be more significant comparatively.


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