Essay: Auditor Independence In Apollo Tourism | Audit Committee Analysis

Based on your analysis of the auditors’ sections and other areas pertaining to the auditor, as included within the Annual Report, submit a report which summarises and
evaluates the auditor’s assurance services performed for the client company.

As part of your review of the assurance services provided, consider the following:

1. Has the auditor complied with Independence requirements?

2. If there were non-audit services provided, what was the nature of such services?

3. Provide an analysis of the Auditor’s remuneration in a table with prior year comparisons. Include percentage changes and explanations of the remuneration.

4. In relation to the key audit matters, which audit procedures were performed to provide assurance over each matter? Summarise and paraphrase each key audit matter. Correctly classify each audit procedure listed as: tests of controls, substantive tests of detail, substantive test of balances or analytical procedures.

5. Is there an Audit committee? Are there any non-executive directors on the audit committee? Is there an Audit Committee Charter? If so, summarise the main points of the charter including: the structure, function and responsibilities of the Audit Committee.
6. What type of Audit Opinion was expressed? 

7. How do the Directors’ and Management’s responsibilities differ from the Auditor’s responsibilities in relation to the financial report?

8. Were there any material subsequent events? If so, briefly outline them and paraphrase and summarise how they were treated.

9. As an interested third party stakeholder, make an assessment of the effectiveness of the material information reported by the Auditor in your conclusion.

Consider whether there is any material information which could be missing, under-reported and/or not fully explained or disclosed in an effective way for the intended users?What follow-up questions would you ask the Auditor at the company’s Annual General Meeting?

In the present corporate world, enhanced auditor reporting requirement has been effective and due to same enhanced transparency is available to the users. The changes in the audit requirements have been made in accordance with Australian Auditing Standards. Present report emphasizes on assessment of the existence of auditor independence in Apollo Tourism and Leisure Ltd. Further, analysis of key audit matter along with the audit committee and opinion provided by auditor has been done to conclude the manner in which auditor has performed their responsibility. An attempt has been made to ascertain any material information which should have been provided but not provided in the annual report of Apollo Tourism and Leisure Ltd. The report ends up with a discussion of follow up question which could be asked from the auditor in company annual general meeting.

The IAFC Code of Ethics specifies independence in detail manner.  Meaning of independence provided by IAFC Code of Ethics is: independence of mind which can be referred as the state of mind which allows the provision of an opinion without being influenced by influences that cooperates professional judgment, permitting people to act with reliability, exercise independence and professional judgment (Auditing Standard ASA 200, 2017). Moreover, independence in appearance is can be defined as the evasion of facts and conditions that are very important a reasonable and informed third party, having data of all pertinent information, will reasonably conclude an organization or a associate of assurance team’s integrity, objectivity or professional scepticism had been cooperated (Australian Auditor Independence Requirements, 2017). The definition which is specified here for independence in appearance is applicable to all the qualified accounting bodies in Australia and in the pertinent overseas jurisdictions that are member firm of IAFC (AUDITOR INDEPENDENCE, 2013).

Yes, the auditor has compelled with independence requirements. The same can be assessed by the auditor independence statement of annual report Apollo Tourism and Leisure Ltd. 

Tepalagul and Lin, (2015) asserted that non-audit services are usually considered as an engagement in which an audit firm offers professional services to the client of audit other than pursuant to the inspection of financial reports. Further, the Australian Code of Ethics for professional Accountants APES 110 which is based on the IAFC Code sets forth the traditional rationale on behalf of an audit client offering audit services to audit clients. Non-audit services provided by auditors of Apollo Tourism & Leisure Inc comprise taxation services, due diligence and services in connection with the initial public offering.

Compliance with Independence Requirements

Further, the directors contend from the provisions of non-audit services provided by the auditor is in compliance with the general standard of independence for auditors which is obligatory as per provision of Corporation Act 2001. In addition to this, it has been stated in the Director Report of Apollo that all non-audit services have been assessed to make sure that they do no impact the reliability and objectivity of the auditor. Moreover, none of the services weakens the general principles of auditor independence as defined in APES 110 Code of Ethics for Professional Accountants specified by the Accounting Professional Standards Board. The same comprises assessing or auditing auditor’s own work in administration or decision-making ability for the Company, acting as an advocate for an organization or mutually sharing economic risks and incentives.c

Auditor’s Remuneration	2017 $’000	2016 $’000	Change in  %
Audit services-Ernst & Young Auditor review of financial statements	244110	129890	87%
Other services-Ernst &Young Taxation Services Due diligence Service in connection with the Initial Public Offering	220840 383504 498727	-         -         -	0 0 0
	1103071
Difference % of total payment to auditors	1347181	129890	937.17%

It can be accessed from the above table that in the year 2016, the auditor received only auditing fees. However, in the year 2017, they have also received payment relating to non-audit services which comprise taxation services, due diligence and payment relating to services regarding IPO.

The matters which require professional judgement in the most significant manner in view of the auditor of the company can be specified as Key audit matter (Cordo? and Fülöp, 2015). Further, in accordance with the study of Sirois, Bédard and Bera (2018) the matters are addressed in context with their impact on financial report as a whole. Key audit matters specified in the annual report of Apollo Tourism and Leisure Ltd are as follows:

Acquirement of entities into common control:  The specified issues have been considered as key audit matter since it was an important transaction relating to specified period because of its quantum as well as due to the amount of audit effort required. It is assessed that whether the treatment adopted by the Group was stable with Australian Accounting Standards and also in accordance with the acquisition contract. Analytical procedures have been applied as in order to analyze the transaction in detail both financial and non-financial data is required.

Accounting for transaction costs: The same has concluded key audit matter since the transactions are important as well as there is judgement applied in assigning costs among share capital and consolidated report of comprehensive income. It has been assessed that they involved their tax professionals in evaluating the cause of tax and accounting conduct of the transaction costs. The substantive procedure has been applied in order to assess the transaction in an appropriate manner.

Accounting of restructuring of the group is considered as key audit matter because the reorganize was an important transaction and also the evaluation of tax base creates a material tax credit. They assess the treatment regarding capital re-organisation of Apollo Tourism & Leisure Ltd during the period in order to evaluate if it was in accordance with Australian Accounting Standards.  The substantive test has been applied in order to attain evidence in support of the specification that no material misstatement or fraud exists at assertion level.

Business acquisition: It has been evaluated that in order to acquire adequate audit evidence the procurement contract to find out any items which might impact on the acquisition price and re-evaluate the pertinent disclosures in the financial statement. Test of control audit procedure has been applied to the ascertainment of control on the acquired entity.

Yes, an audit and risk committee is available in Apollo Tourism and Leisure Inc. There are two non-executive directors. First one is Stephen Lonie, and another one is Sophie Mitchell. Both of them hold directorship from last three years. Apollo Tourism and Leisure Ltd. Inc has specific audit committee charter which distinguishes it’s role and responsibility and distinguished them appropriately from those duties which are delegated to the management.

In accordance to Organization’s constitution and Board charter Audit and Risk Management Committee has been developed by Board in order to assist them regarding the roles, exercising responsibilities, defined in this Charter else as demanded by the Board (Adelopo, 2016). Further, the main aim of this Charter is to give framework according to which Committee will function in order to bring lucidity, focus and autonomous judgment in problems in the Committee responsibility.  

Composition and size: The committee will comprise only non-executives executives.  Further, it will also comprise most of the autonomous executives and no less than two members. In addition to this organization will reveal the pertinent qualifications and skills of the associates of Committee (Audit and risk committee charter. Apollo Tourism & Leisure Ltd, 2017). Membership is evaluated occasionally as well as re-appointment to the Committee is not automatic. Apart from this, selections and acknowledgements are determined through the Board.

• The committee is accountable for corporate reporting, analyzing administration’s procedures for compliance with rules, regulations and other necessities regarding the preparation of accounts and corporate reporting through the Company of financial and non-financial information (Apollo Tourism & Leisure Ltd. Annual Report 2017. 2017). Further, making suggestions related to the adequacy of the Organization’s corporate reporting procedures.  The committee is also responsible for overseeing the procedure which is executed to detain issues for constant reporting to ASX.
• Further, the committee is also responsible for external audits which comprise making suggestions to the board regarding choosing of procedure, appointment and payment of external auditor. Along with this, agreeing on the conditions of engagement of external auditor prior to the start of every inspection.  
• Moreover, they are also accountable for the risk management framework that is managing administration’s designs and implements the suitable and efficient risk management framework which concentrates on recognizing, protecting against, detect, respond to and recover from risks as well as to review and enhance the framework. It also comprises pertinent issues defined in the schedule (Brasel et al. 2016).

The auditor has provided an unqualified opinion in the audit report of Apollo Tourism & Leisure Ltd. An unqualified opinion can be specified as a judgment of independent auditors that financial reports of the organization are presented accurately and fairly without any exemptions and also according to the accounting standards (Ghosh and Tang, 2015). The opinion which has been provided in the financial report of the company comprises that a correct and fair value of the consolidated financial position of the Group has been presented. It also comprises that the financial report which has been presented is made according to the Australian Accounting Standards and the Corporations Regulations 2001.

Audit and Risk Committee in Apollo Tourism and Leisure Inc.

The directors and management of the company are responsible for preparing the financial statement and the proper disclosure in the financial report. Further, they are primarily responsible for the fairness and correctness of the data reflected in the financial statement.  Further management is responsible for implementing the proper accounting policies in the organization and establishing the internal sound control in the organization so that the chances of fraud can be minimized (DeZoort, and Harrison, 2018). Along with this operation of the entity related to its assets, liabilities are under the control of the management. Therefore the fair presentation of the financial statement according to the generally accepted accounting principle is the responsibility of the management and directors of the company.

On the other hand, the main responsibility of the auditor is to express an opinion on the financial statement, whether the financial statement in all material respect presents the true and fair view of the company. Further, it is the responsibility of the auditor to plan and perform the audit in a manner by which auditor can get the reasonable assurance about whether any material misstatement is contained in the financial statement, either due to fraud or the error (Griffiths, 2016). Therefore the responsibility of the auditor is limited to the opinion expressed in the financial statement.

Therefore it is concluded that management and directors are responsible for making and preparing the financial statement and the auditor is responsible for expressing the opinion on the financial statement, which is provided by the management.

Subsequent event is the event which is occurred after the reporting period but before the financial statement are issued to the public. In case of Apollo tourism & Leisure Ltd, company acquired the remaining shares of the Canadream Corporation for $ 28,084,000 on 11 July 2017, the company already held 20.22% ordinary shares of this company. However, at the date of the financial report, it is not practical to provide the fair value of the assets and the liabilities acquired by the company.

Another subsequent material event is that company entered into a binding agreement for acquiring the assists of George day Caravans business for $ 9,100,000 dated 23 August 2017.

Both the events that are described above will significantly effect the operations of the entity. The disclosure of both the events is described properly in the director’s reports of the company, which is the part of the financial report.

Unqualified Opinion Provided by Auditor

 Material information is the information which could affect the decision of the user if they are informed of the information. By analysing the financial report of the Apollo tourism & Leisure Ltd, it has been seen that all the material information related to the user of the company are disclosed by the directors and managers of the company in a proper manner. Disclosures which are essential for the user are fully explained and disclosed in an effective way (Griffin, 2014). There is no material information which could be missing, underreported or not fully explained by the managers and directors of the company.

Auditors report is regarded as an important part at the time of the reporting of the financial statement as the many external user rely only on the certification given by the auditor on the financial statement and on the basis of this they make the decision regarding the investment in the company. Further, in the audit report, there is proper disclosure regarding the responsibility of the management, the responsibility of the auditor and opinion on the financial statement by the auditor is given. Therefore the third party get informed through the auditor’s report that whether accounting policies are followed as per the generally accepted accounting principle, internal control system of the entity, any material fraud has been detected in the company, practices followed by the management and so on. Moreover, the information provided by auditor will enhance the reliability; accuracy and the transparency of the operations, at the time of the third party evaluate the material information provided by the auditor.

At the annual general meeting of the company, shareholders have an opportunity to ask the question from the Auditors of the company directly. Some questions are given below-

1. Whether any issue related to the internal investigation of the company, has been discussed between the manager and the auditor and if yea, then what was the outcome of that investigation.
2. In the internal control of organization, whether any significant inefficiency found by the auditor, if yes then detailed description regarding the deficiency, and whether it is a material weakness or not, if not then criteria about the materiality, which has been considered by the auditor of the company (Lakis, and Masiulevi?ius, 2017).
3. If there is any accounting treatment of any item which is considered by the management was correct, but in the opinion of the auditor, it was not correct. If yes, then detailed description and error of the accounting treatment (Brasel et al., 2016).
4. If any investigation regarding any accounting fraud has been noticed by the auditor

All the above are some question which can be asked by the shareholder at the annual general meeting of the company.

References

Apollo Tourism & Leisure Ltd. Annual Report 2017. 2017. [PDF]. Available through <https://wcsecure.weblink.com.au/pdf/ATL/01898718.pdf>. [Accessed on 9^th September 2018].

Audit and risk committee charter. Apollo Tourism & Leisure Ltd 2017. [PDF]. Available through < https://apollotourism.com/wp-content/uploads/AUI_930168970_1_Audit-Risk-Committee-Charter_SJ.pdf >.[Accessed on 9^th September 2018].

Auditing Standard ASA 200 .2017. [PDF]. Available through < https://www.auasb.gov.au/admin/file/content102/c3/ASA_200_Compiled_2015.pdf > [Accessed on 9^th September 2018].

AUDITOR INDEPENDENCE. 2013. [PDF]. Available through < https://www.cpaaustralia.com.au/professional-resources/audit-and-assurance/auditor-independence > [Accessed on 9^th September 2018].

Australian Auditor Independence Requirements .2017. [PDF]. Available through< https://archive.treasury.gov.au/documents/1184/PDF/Australian_Auditor_Independence_Requirements.pdf  >. [Accessed on 9^th September 2018].

Brasel, K., Doxey, M.M., Grenier, J.H. and Reffett, A., 2016. Risk disclosure preceding negative outcomes: The effects of reporting critical audit matters on judgments of auditor liability. The Accounting Review, 91(5), pp.1345-1362.

Cordo?, G.S. and Fülöp, M.T., 2015. Understanding audit reporting changes: the introduction of Key Audit Matters. Accounting & Management Information Systems/Contabilitate si Informatica de Gestiune, 14(1).

DeZoort, F.T. and Harrison, P.D., 2018. Understanding auditors’ sense of responsibility for detecting fraud within organizations. Journal of Business Ethics, 149(4), pp.857-874.

Griffin, J.B., 2014. The effects of uncertainty and disclosure on auditors' fair value materiality decisions. Journal of Accounting Research, 52(5), pp.1165-1193.

Lakis, V. and Masiulevi?ius, A., 2017. ACCEPTABLE AUDIT MATERIALITY FOR USERS OF FINANCIAL STATEMENTS. Journal of Management, 2(31).

Sirois, L.P., Bédard, 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.

Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.