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ACC707 Auditing And Assurance Services01

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Question:

Association between audit-partner quality and engagement quality: Evidence from financial report misstatements.

Do IT matters matter? IT-related key audit matters in Dutch annual reports.

Role of Internal Audit in Australian Local Government Governance:

Key considerations in the audit of inventory: A practice-oriented learning case utilizing??

Does auditor explanatory language in unqualified audit reports indicate increased financial misstatement risk?

 

Answer:

Introduction

“The Auditing and Assurance Standards Board (AUASB)” is seen to be make the key judgements as per “Auditing Standard ASA 701” to facilitate the “Key Audit Matters” in the “Independent Auditor’s Report” pursuant to “section 227B” of the “Australian Securities and Investments Commission Act 2001” and “section 336 of the Corporations Act 2001” (Singh, Woodliff, Sultana, & Newby, 2014).

The auditor’s decisions in the areas of the financial report is considered with the significant development of the new standards pertaining to “ASA 701 involving Key Audit Matters in the Independent Auditor’s Report”. The areas of the present research are able to ensure the representation of the financial statement is consistent with “ISA 701”. The implementation of “ASA 701” is depicted with the AUASB’s commitment which is in conformity as per the present enhancement of the auditor’s report and “International Auditing and Assurance Standards”. The main issues in the report has been identified with “ASA 701” standards (Kim, Lee, & Lee, 2015).

The learnings of the study aim to communicate the KAM which are inside the scope of the “auditor’s report” along with the well listed entities. The revised standards are based on assisting the auditors to decide on the KAM which are considered in the “auditor’s report”. The conduction of the new standards as per the “ASA 701” has been implemented in Boral Limited (Singh et al., 2014).

 

Areas of higher assessed risk of material misstatement and risk as per ASA 315

Auditing Standard “ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment” is read in concurrence with “ASA 101 Preamble to Australian Auditing Standards” which is seen to set on the intentions of AUASB for the financial reporting periods commencing after 1st January 2010. The auditing standard is also in agreement with the “ASA 200 Overall Objectives of the Independent Auditor” and conduction of the audit in agreement with “Australian Auditing Standards” (Martinov-Bennie, Soh, & Tweedie, 2015).

The main form of the depictions as per the “A31 under Auditing Standard ASA 315” is seen to include the consideration of the nature of the revenue sources such as risks associated to the “joint ventures, industry segmentation, geographic dispersions, sales and marketing”. The success factors of Boral Limited may be adversely impacted with the severity of the risk which are beyond the control of the organization. Some of the main form of the risk factors for Boral Limited has been taken into account with the material business risks which includes OFR. The broader risk aspect of Boral is also set with the CG statement sated in pages 30-43 of the annual report (George-Silviu, 2014).   

The discourse of “Auditing Standard ASA 315” is based on the “Conditions and Events That May Indicate Risks of Material Misstatement” for the volatility of markets. In addition to this the assessment as per “A13 under Auditing Standard ASA 315” such category of the risks is evident in form of noncompliance and the applicable laws. The deficiency in the financial reporting and the internal control are also considered as significant factors for these risks. The industry and market risks for Boral are mainly considered to be residential and non-residential. The consideration of the factors as per the non-residential and infrastructural risk in the construction industry and financial performance is closely tied to residential risks. The geopolitical effects and the performance of the national economies are discerned in the countries where Boral operates. The allocation and the timing of the funding of the public is considered as another risk aspect. In addition to this, the demand for the building products and construction materials are also closely associated to the main risk factor (Contessotto & Moroney, 2014).

 


The competitive market against the domestic suppliers in some cases are seen among imported products and suppliers. The competitive environment of the company is significantly affected from “new market entrants, production capacity utilisation, product demand and economic conditions along with product demand”. This type of competition is seen to affect the overall price volatility risk. The environmental, health and safety risks are seen to be considered as per the several types of the depiction made with “losses and liabilities” pertaining to the regulations. The functioning scale, construction and building material risk is seen with the various incidents which may cause injury to the staff and contractors at Boral. The main operation of Boral Limited is seen to be spread in over 2800 on road heavy vehicles which are exposed to the risk of traffic accidents. These incidents are considered to be having an adverse impact on the reputation of Boral (Czerney, Schmidt, & Thompson, 2014).

Some of the other risk factors are viewed with the high nature of the fixed costs related to the construction and building material. The interruptions associated to the production capabilities are seen to be some of the main form of the considerations which may affect the results of the operations of the group. The manufacturing process of the group is associated to the significant nature of the depictions which are related to the considerations of the manufacturing process and the related services which are taken into account with the unanticipated failures, major events or incidents (Hill, 2015).

The significant nature of the foreign exchange related risks is further based on the operations at Australia, Asia and USA. This is due to the fact that the products are imported from the products plants and equipment’s divisions of the aforementioned locations. The operations of the group is seen to be significantly affected by the macro economic conditions along with the significant nature of the movement in the foreign exchange currency (Beattie, Fearnley, & Hines, 2014).

Judgement of auditor relating to areas of financial report involving important management decisions

The management of the market and industry risk is based on the implementation of the key initiatives pertaining to reducing the cost and the improve the overall efficiency. Boral limited also seeks to encourage the sustainable performance as per the different types of the considerations which are based on the “organisational restructuring, geographic diversification and appropriate allocation of capital expenditures” to the business with the possibility to deliver strong growth earnings. Boral is observed to manage the different types of the risk aspects which is seen to be related to the geographic diversification and allocation of capital expenditures to the business. The short-term fluctuations pertaining to the fuel costs is managed with hedging instrument along with electricity demand management (Ghafran & O’Sullivan, 2013).

In order to the combat the competition risks Boral Limited is seen to be prudent in terms of introducing the commercial excellence and customer centric programs which seeks to sustain and improve the margin thereby reducing the cost, optimisation of capacity which are in line with the higher margin in business thereby increasing size and share in the business. Boral Limited is also taking the relevant initiatives to develop the products in the core markets (Brasel, Doxey, Grenier, & Reffett, 2016).

 


The management of the health, safety and the environment risks are subjected to the application of strict operating standard, procedures and training to ensure the compliance of the health, safety and the environmental laws. The company is seen to be focused to achieve a better safety outcome as a part of the broader strategy delivery for world class safety performance. The company has been also able to establish reserves for the known environmental liabilities including the consideration for quarry remediation. The mitigation of the business interruption risks is seen against the potential losses against such risks. The company is further seen to instigate the comprehensive risks for the Group based on local site of operating level. The continuity and emergency response of Boral is seen with the regular stimulated crisis response training which is undertaken at the group level (Wang, Yu, & Zhao, 2015).

The business continuity and the and crisis management training is undertaken at a group level. The major risk exposures are covered with the comprehensive group insurance program. This is seen to cover the damage to the facilities and  associated risk of the business interruption along with the product performance (Green, 2013).

The manufacturing assets, commercial systems and financial systems are taken into account with the dependent information technology which has been seen to be considered as per depending on the “information technology systems, capabilities and assets”. These organisations are seen to be vulnerable to cyber security risks, however Boral has been able to mitigate these forms of the risk factors by placing the adequate “risk awareness training, market leading defence and firewall system” (Thompson, Ravindran, & Nicosia, 2015).

In order to tackle the various perspectives of the foreign exchange risks Boral Limited is able to match the net assets with the US dollar denominated debt and hedge the same against the fluctuations in USD. The group is also able to utilise the forward exchange contracts with the equipment supply to manage the contracts for the equipment supply and material against any short term and medium-term fluctuations (Pilcher, 2014).

Effect on the audit of significant transactions which took place during the period

The discourse as per “para 9 of ASA 701”, the decision-making considerations of the KAM is designated to the small elements taken from the auditor’s judgement on the matters having significance of the finance report in the current period. The audit risk is created on the documentation and assessment of the “material misstatement” risk in financial report. The particular consideration on the account balance, disclosures and the account balance is considered on the risks which are assessed as per the material misstatements along with the suitable assertion level. The significant judgement is considered with planning and performing of the significant audit process. By the consideration of the “Matters that Required Significant Auditor Attention” influential evidence for the higher assessment of the risk areas are also considered. The persuasive audit evidence is included with the relevant or reliable evidence along with the emphasis on obtaining third party evidences (Baker, 2015).

The inclusion of “para 9 of ASA 701” has also inferred that the auditors may be able to develop the significant nature of the preliminary views as per the planning stage on the matters related to the areas pertaining to KAM. In addition to this, the auditors will be able to impart the information on “ASA 260”. The standard determination for the “key audit matters” are based on the evidences in the entire audit report. The requirement as per “ASA 260” is able to also state that the company need to communicate the important risk factors suggested by the auditors. This particular evidence is further seen to be confirmed as per the “Paragraph A13 of ASA 260” which is able to communicate the governance plans along with addressing the vital risk assessment areas (Cordo & Fülöp, 2015).

The audit and risk committee at Boral Limited comprises of formal charter which sets the important role and responsibility, structure and composition. The responsibilities of the auditors are able to ensure that the financial information is presented to the public and the shareholders. They are also able to ensure integrity and quality of the Boral’s financial statement along with the relevant disclosures. The processes and the systems have been further established to manage and identify broad range of the significant risk areas. Boral’s accounting and auditing committee is responsible for the evaluation of the entire accounting and financial reporting process (Sneller, Bode, & Klerkx, 2017).

The evaluation of the “annual report of Boral Limited” has stated that the EBIT before the non-IFRS measure is able to provide a greater understanding of the associated business performance of the group. The significant form of the disclosures is extracted and depicted from the audited financial statements. The headwaters acquisition is responsible to review the study on the environmental and safety exposures including the post completion of the capital allocation to bring the operation up to the mark of Boral standards (Kachelmeier, Schmidt, & Valentine, 2015).

The main form of the focus is further seen to be given to the safety observations and near miss reporting. Safety of the company is regarded as the forefront of the headwaters integration of the activities. The audit process at Boral limited has included the consideration of the “clear accountability, training, internal and external audits”. In the year 2016, Boral conducted 85 environmental license conditions which are in compliance with the audits in Australia along with 105 developed action plans.

 

Conclusion 

The discourse of the report has identified the main issues of Boral are in compliance with risk of material misstatement and risk as per “ASA 315”. These are viewed with deficiency in the financial reporting and the internal control industry, market risks, on-residential and infrastructural risk along with allocation and the timing of the funding of the public. The competitive environment of the company is seen to be significantly affected from new market entrants, production capacity utilisation, product demand and economic conditions along with product demand. This type of competition is seen to affect the price volatility risk. The environmental, health and safety risks are seen to be considered as per the several types of the depiction as per the losses and liabilities pertaining to the regulations. Boral Limited has addressed with initiatives such as to sustain and improve the margin thereby reducing the cost, optimisation of capacity in line with the higher margin in business, increasing size and share in the business.

 

Reference List

Baker, R. J. (2015). Measure What Matters to Customers: Using Key Predictive Indicators. Measure What Matters to Customers: Using Key Predictive Indicators. https://doi.org/10.1002/9781119201779

Beattie, V., Fearnley, S., & Hines, T. (2014). Boundary spanning and gatekeeping roles of UK audit committees. Accounting and Business Research, 44(3), 315–343. https://doi.org/10.1080/00014788.2014.898434

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. Current Issues in Auditing, 10(2), P1–P10. https://doi.org/10.2308/ciia-51546

Contessotto, C., & Moroney, R. (2014). The association between audit committee effectiveness and audit risk. Accounting and Finance, 54(2), 393–418. https://doi.org/10.1111/acfi.12010

Cordo, G.-S., & Fülöp, M.-T. (2015). Understanding audit reporting changes?: introduction of Key Audit Matters. Accounting and Management Information Systems, 14(1), 128–152.

Czerney, K., Schmidt, J. J., & Thompson, A. M. (2014). Does auditor explanatory language in unqualified audit reports indicate increased financial misstatement risk? Accounting Review, 89(6), 2115–2149. https://doi.org/10.2308/accr-50836

George-Silviu, C. (2014). Analysis of Internal Audit Practices on FTSE100. Procedia Economics and Finance, 15, 1265–1272. https://doi.org/10.1016/S2212-5671(14)00587-5

Ghafran, C., & O’Sullivan, N. (2013). The governance role of audit committees: Reviewing a decade of evidence. International Journal of Management Reviews, 15(4), 381–407. https://doi.org/10.1111/j.1468-2370.2012.00347.x

Green, W. J. (2013). Key considerations in the audit of inventory: A practice-oriented learning case utilizing????diamonds??? Issues in Accounting Education, 28(4), 945–973. https://doi.org/10.2308/iace-50516

Hill, A. (2015). Moving from “matters of fact” to “matters of concern” in order to grow economic food futures in the Anthropocene. Agriculture and Human Values, 32(3), 551–563. https://doi.org/10.1007/s10460-014-9576-5

Kachelmeier, S. J., Schmidt, J. J., & Valentine, K. (2015). The Disclaimer Effect of Disclosing Critical Audit Matters in the Auditor’s Report. Available at SSRN 2481284.

Kim, H., Lee, H., & Lee, J. E. (2015). Mandatory audit firm rotation and audit quality. Journal of Applied Business Research, 31(3), 1089–1106. https://doi.org/10.1080/09638180.2014.921446

Martinov-Bennie, N., Soh, D. S. B., & Tweedie, D. (2015). An investigation into the roles, characteristics, expectations and evaluation practices of audit committees. Managerial Auditing Journal, 30(8/9), 727–755. https://doi.org/10.1108/MAJ-05-2015-1186

Pilcher, R. (2014). Role of Internal Audit in Australian Local Government Governance: A Step in the Right Direction. Financial Accountability & Management, 30(2), 206–237. https://doi.org/10.1111/faam.12034

Singh, H., Woodliff, D., Sultana, N., & Newby, R. (2014). Additional evidence on the relationship between an internal audit function and external audit fees in australia. International Journal of Auditing, 18(1), 27–39. https://doi.org/10.1111/ijau.12009

Sneller, L., Bode, R., & Klerkx, A. (2017). Do IT matters matter? IT-related key audit matters in Dutch annual reports. International Journal of Disclosure and Governance. https://doi.org/10.1057/s41310-016-0017-0

Thompson, N., Ravindran, R., & Nicosia, S. (2015). Government data does not mean data governance: Lessons learned from a public sector application audit. Government Information Quarterly, 32(3), 316–322. https://doi.org/10.1016/j.giq.2015.05.001

Wang, Y., Yu, L., & Zhao, Y. (2015). The association between audit-partner quality and engagement quality: Evidence from financial report misstatements. Auditing, 34(3), 81–111. https://doi.org/10.2308/ajpt-50954

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