Auditors' Essay: Financial Statements Assurance Responsibilities In Australia.

The non-audit services refers to the various professional services that are provided by the qualified public accountant at the time of the of the audit engagement which are not concerned with audit or review of the financial statements of the organization.

The non-audit service in the company of AGL has been given during the year by the external auditor, Deloitte Touche Tohmatsu. The Board of AGL has a formal policy on the provision of auditing and its services. The external auditor is excluded from the services that might threaten the independence or conflict with its assurance and compliance role (Simnett, Carson and Vanstraelen 2016).From the annual report it can be seen that no non-audit services have been provided by the external auditor during the year.

The policy and procedures in place, and the review by the Audit and Risk Management Committee, enable directors to conclude that non-audit services provided did not compromise the external auditor’s independence requirements of the Corporations Act. There is also in place an agreed rotation policy for the senior auditor of Deloitte Touche Tohmatsu (Kilgore, Harrison and Radich 2014).The external auditor annually provides a letter to the Company Secretary on its independence within the meaning of relevant legislation and professional standards.

Calculate and find out the various responsibilities of the auditors in order to give the assurance of the various financial statements of the organizations in Australia.

Analysis of the Auditors’ Independence Report of AGL

The Discussion deals with the various issues that are connected with auditing. The process of auditing refers to the analysis of the various financial statements of the companies and verifies its compliance with the standards of the accounting. It si also a process to detect the several errors and material misstatements in the accounting statements made by the accountants of the firm. The auditors give assurance regarding the quality of the statements and communicate the same to the stakeholders so that they can invest with reliability (Libby 2017). However, there exist various issues that may turn up in the process which is to be analyzed in the following discussion considering the recent 2018 annual report of the Australian company of AGL energy limited that is the largest electricity generation company and has made their Audit report from Delloite for the year.

The auditors of the organizations need to comply with the various standards and principles of the Independence of the auditors at time of the service of audit. This refers to the auditors who are needed to be separate or independent from its client company during the job. In the present case the client company refers to AGL energy limited and the auditors is Delloite fir the year 2018 (Tepalagul and Lin 2015). As per the annual report by the company it can be seen from the independent auditors declaration report that the auditor of Delloite has complied with the requirements of the section 307C of Corporations Act 2001 .This has been done in  relation to the audit . It has also considered the various applicable code of professional conduct in the auditing process. Hereby, declaring the same in the audit report regarding the compliance.

The Non-audit services is the various business services that are given by the experienced public accountant at the time of the  engagement of audit which are not concerned with review or audit of the financial statements of the organization. The company of AGL’s Non-audit service has been given at the time of the year by the outside auditor, Deloitte Touche Tohmatsu. The board of AGL  has an auditing  policy (Simnett, Carson and Vanstraelen 2016).  It can be identified from the annual report that there has been no non-audit services that have been given by the outer auditor in 2018. The procedures and policy that are in enables the Directors to confirm that the  non-audit services given did not cooperate with the independent requirements of the outer auditor as per the Corporations Act. An approved rotation  policy also exists for Touche Tohmatsu,  the senior auditor of Deloitte (Kilgore, Harrison and Radich 2014).

Table 1: Remuneration to Auditors in 2018 and 2017

(Source: AGL energy.com.au 2018)

From the above table it can be seen from the auditor’s remuneration report of the chosen company if AGL for the year 2018 that there is an increase in the payment of audit services to Deloitte by AGL in the year 2018 as compared to the year 2017. However since there is non audit service, no remuneration for the same is being identified. As per the above table, on the overall basis, there is a decrease of the total payment to Deloitte by AGL in the year 2018 in comparison to 2017.

Non-Audit Services Performed by the Auditor

The independent audit committee refers to the primary component of better corporate governance. The audit committee is generally made by the board who also delegate their powers of operation (Humphery?Jenner Sautner, and Suchard 2017). The board operates in retaining the responsibility for performance decisions, and results of the audit committee and should therefore continuously supervise the activities of the audit committees. The composition, roles, and essential responsibilities and powers of the audit committee is set on the charter. The audit committee has an important responsibility in giving assistance to the board for fulfilling its duties in areas like financial reporting of the organization, systems for internal control, systems of risk management and the external and internal functions of audit.

 In the company of AGL, the Audit Committee consists of a minimum of 3 directors with majority of independent directors. The members of Audit Committee includes Chairperson shall be persons who can understand and interpret the various financial statement of the company.

As per the annual report of 2018 the board has made the Audit & Risk Management Committee that approves the policies of risk management of the company of AGL and providing a framework for identification, assessment and management of the risk (Louwers et al. 2015). The Audit Committee is also responsible for the updating along with reviewing the risk profile, supervising the risk management framework electiveness and reviewing the annual the application of framework of risk management and policy. The Committee has the obligation to regularly inform the activities to the Board of Directors.

The auditor for the present company Delloitte has declared that they have audited the financial statements  of AGL Energy Limited and its subsidiaries efficiently and effectively.. According to the auditor directors they have declared that the AGL Company has made the various financial statements according to the Corporations Act 2001. Hereby, confirming to the various stakeholders that the financial statement gives a true and fair financial position as on 2018. In addition to that, regarding the financial performance for the year, the auditor has confirmed and verified that they comply with Australian Accounting Standard Board.

The opinion of the auditor is on the basis of the Australian Auditing Standards (AASB).  Hence they declare that they have fulfilled the ethical responsibilities as per the code. In addition to that the auditors have faith that the audit evidence obtainable is appropriate and sufficient to provide an opinion basis of auditor

The Key audit matters are those that are of crucial significance in auditing the financial report for the present period.  This arises in the proficient judgment of the audit process. The audit matters are those matters that address the  context of the audit. It is alo helpful in forming a basis on the auditor’s opinion thereon.

 The key audit matters of AGL are as follows along with the respond of the auditors:

• Unbilled Revenues: The unbilled  revenue amounts to $938 million .It shows the value of gas  and electricity that is  provided to consumers at the end of the reporting period. Detailed financial models involving gas and electricity  and applicable pricing are used to estimate the unbilled revenue (Causholli, Chambers and Payne 2015). As a respond to this the procedures included, the understanding of the processes along with the key management controls  determine the approximation of unbilled revenue.  In addition to that the auditor must understand the assumptions of the management that relates to pricing and volume used in the determination of the unbilled revenue (Knechel  and Salterio 2016).
• Unbilled distribution cost: The administration of consumption estimates of energy are estimated for the reporting year. The elaborated financial models involving the estimation of  the electricity and gas consumption of customers of AGL and distribution tariff rates are used to determine the  unbilled distribution costs. These costs are  estimated to the amount of $412 million (Bena and Li 2014). The respond to this by the auditor delloitte includes the unbilled distribution costs and the management tariff assumptions and the unbilled costs of distribution.
  
  
• Financial instruments:  The chosen company of AGL makes entry into  various financial instruments. These instruments  include derivative financial instruments that  hedge AGLs exposure to the variability in  interest rates , movements in foreign exchange and prices of energy items. These financial instruments are considered  at fair value (Cordo? and Fülöp 2015). The response  of the auditor for this issue includes process of risk management, and management of the controls. These systems are attached with the maintenance and origination of accurate and complete information. This information  relates  to derivative  contracts. The auditors have obtained an evaluation  of the main terms that constitute the contract of financial instrument . It  examines the aptness of the accounting  standards that are relevant for resolving this key audit matter.  

It can be seen from 2018 Annual Report of AGL energy limited that there is difference between the responsibilities of the directors and the auditors in the development and presentation of financial report (Kachelmeier, Schmidt and Valentine 2017). It is required to tell that it is the responsibility of the directors to prepare the financial reports of the business that provides true and fair view as per the Corporations Act 2001 and Australian Accounting Standard. At the time to develop the financial reports of the business, it is the responsibility of the directors to assess the ability of the company in continuing as a going concern with the use of the going concern basis of accounting. However, the responsibility of the auditors is different from the directors (Kilgore, Harrison and Radich, 2014).

Analysis of the Auditors’ Remuneration

The primary responsibility of the auditors can be seen in obtaining the reasonable assurance about the fact that whether financial reports of the company are free from material misstatements as a result of fraud, error or other issues that need the opinion of the auditors). Other responsibilities of the auditors towards financial reporting are identification and assessment of risks of material misstatements, attain an understanding about the internal control, evaluation of the appropriateness of accounting policies, concluding the suitability of the directors’ use of going concern basis accounting, evaluating the overall preparation and presentation of the financial reports and obtaining sufficient audit evidence.

According to the third party stakeholder perspective, it can be said that the auditors of Delloite have assessed the material information of AGL in the most appropriate manner. In this process, the auditors have complied with all the required principles and regulations of Corporations Act 2001, the APES 110, Australian Auditing Standards and others (Earley, et al. 2016). It can also be identified that the auditors of Delloite have reported the three major key audit matters of the organisation along with the undertaken steps to mitigate them. All these aspects show the effectiveness of the auditors in dealing with the material (Lessambo 2018).

On the basis of the assessment of the 2018 Annual Report of AGL, it can be said that the auditors of Deloitte have taken into consideration all the material aspects as well as information that can have material collision on the financial reporting of the company (Lee, Mauer and Xu 2018). The auditors Deloitte have provided the required full explanation as well as disclosure of all the information about the material factors. It indicates there is not any material information missing or partially reported.

In the annual general meeting, the main purpose is to enquire the Deloitte auditors about the initial point of their procedures of audit in the organization (Junior, Best and Cotter 2014). After that, one can raise the question to the auditors about how they have determined the materiality level in the reported three key audit matters of AGL.  

Conclusion 

The discussion above indicates the fact that the auditors Delloite have complied with the Corporations Act 2001, APES 110 and Australia Accounting Standard for maintain auditor’s independence. From the annual report of AGL energy limited no non audit service has been identified. In addition to that, the analysis remuneration of auditors shows that there is a decrease of the total payment to Deloitte by AGL in the year 2018 as compared to the year 2017. The above discussion indicates towards the presence of three key audit matters in AGl. That has been dealt efficiently by Deloitte with the help of the audit procedures. It can be observed additionally that AGL has developed a sound Audit and Risk Committee for managing the audit risk and this committee. On the basis of the analysis on the whole, Deloitte has provided the opinion that all the financial reports of AGL have been developed by complying with the required standards and regulations.

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