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Discuss About The Audit Firm Tenure Non?Audit Services, And Internal Assessments Of Audit Quality.

Auditors’ independence declaration

The responsibilities of an auditor are to review and assess the financial tracks and accounting methods by examining the compliance of an organisational strategy and analysing the effectiveness of internal operations.  In this aspect, the responsibilities of an auditor also include assessment of employees’ performances and identifying their progress towards organisational objectives. In the statement of Tepalagul and Lin (2015), the reports framed by auditors are considered important in a company as it informs users whether or not companies' statements were fairly state or manipulative methods are included in it.  Audit and assurance are regarded as the on-site verification action, for instance, examination, reviewing, monitoring of a procedure or quality system to make sure conformity to prerequisite. According to Christensen et al. (2016), the foremost purpose of a statutory auditing is offering an autonomous feedback to shareholders on the verge of fairness and truth of its financial statements, whether it has been fairly designed as per organisational act or abided by the laws or not. The project aims to determine the audit, assurance and compliance methods followed in the Webster Limited, which has its operation in the agronomy sector and listed amongst the ASX 300 companies.  The evaluation would be conducted based on the details highlighted in the company’s annual report. Depending on which the final conclusion would be derived.

As per the consideration of Tepalagul and Lin (2015), independence declaration of an auditor necessitates for certain integrity an objective-based approach to the auditing procedure. The specific task requires an auditor to conduct or carry out its accountabilities in a free manner and in an objective manner. However, it can be stated that the independence of an auditor also represents independence from parties whose perception, estimations and interests can be harmed by the audit results. In the case of this company, Webster Limited, information gathered from the annual reports underscores the fact that the auditor has managed to conduct an independent declaration in its audit process. As per the annual report, the audio has framed the audit reports as per the alliance of section 307C of the Corporations Act 2001, which the company abides (Annualreports.com., 2018).

The auditor has managed to scrutinise the audit function thoroughly and framed the financial audit statement of Webster Limited for its fifteen months period, which ended on 30th September 2017. The auditor using his experience and knowledge in its field has found not such contraventions in the internal system and account related methods. It has been identified that the auditing and assurance methods are designed with a loyal and true view of the company’ financial position for 30th September 2017 (Annualreports.com., 2018). Thus, the auditing of its financial performances for the past 15 months period has been conducted in a wide manner, which highlights the integrity and uprightness approach of the auditor. Hence, the independence declaration of the auditor in the case of the chosen company has been wise and true. As per the chosen sources, the audit reports have also been conducted by following the laws of Australian Accounting Standards and the Corporations Regulations of 2001. Moreover, the auditors also claimed the fact in the annual reports stating that the provided independence declaration utterly mitigates the requirements of the Corporations Act 2001, which has also been given to the organisational directors as well. Hence, the audit reports presented in the Webster Limited’s annual reports is strongly feasible and reliable. Hence, the audit evidence obtained from the annual report, 2017 is adequate and accurate to offer a basis for one's opinion.

Non-Audit services performed by the Auditor

As per the statement of Bell et al. (2015), non-audit services are the not included in the audit system of an organization's financial statements. It represents any sort of professional services offered by any of the issuers by a listed accounting firm, rather than the ones offered to issues associated with a review or audit of the issuers' financial statements. It has been assessed from the chosen company’s annual reports that the director has shown a sigh of satisfaction and relief by the not-audit service standards performed by the auditor of Webster Limited. It has been identified that the non-audit service lines of the company of the current year are strongly compatible with the generic standards of auditor' independence compel led by the Corporations Act 2001.  The amount details payable or paid to the auditor for the provision of its non-audit service lines during the 15 months period are thoroughly and effectively outline in the financial statements records of note 4. As per the chosen sources, it has been assessed that the directors of the organization carried the opinions that the non-audit service lines revealed in the note 4 standards of financial statement merely compromise the independence of an external auditor, as per the claims of the Risk and Audit Committee (Annualreports.com., 2018).  

The committee has placed the opinions that the entire non-audit service lines had been examined and commended to make sure that it does not create any impact on the objective and integrity sides of the auditor.  Moreover, it has also claimed by the Risk handling and auditing committee that none of the non-auditing services tends to undermine the usually followed principles connecting to the auditor’s independence declaration methods as designed in the ‘Code of Conduct APES 110 Code Of Ethics’ framed by the Accounting Professional & Ethical Standards Board. That also involves the activities like monitoring and reviewing the auditor's individual works, decision-making capabilities for the company, acting in a management, sharing economic rewards and risk in a joint manner and acting like an advocate for the company.  Henceforth, it can be determined from the previous statements that the non-audit service lines of the company have been conducted in a professional manner and objectively, which never come between or hampered the auditor's independence declaration process or affected his integrity to frame the financial report for 30th September 2017 in a trustworthy manner.

The remuneration of the auditor for the company has been increasing substantially in last two years. The figure in the appendix below shows that the total remuneration paid to the auditor for audit, review, taxation and other related services was $492,200 in the year 2016, which increased to $711,017 in the next year.  In other words, the audit and related fees have increased almost 44.46% in the current year. Such an increase is due to the fact that the auditor audited 15 month's accounts in the year 2017. The financial statements for 2016 have been restated to include audit fees and review related service fees as well.

Auditors’ remuneration

Webster Limited board members are considerably supported by its Risk and Audit Committee. This committee, in general, contains its individual operating and charter methods and helps its Board in the process of discharging its obligations formed through the review and assessment of financial records, risk, audit, assurance and compliance. In addition to the latter statement, the directors of Webster Limited often meet outside in its usual Board and Committee Meetings on time to time basis, in order to follow the superior corporate governance practices.

The Risk and Audit Committee in the particular organisation reviews the internal direct strategies and methods designed in order to defend corporation assets and to make sure that the truthfulness of its financial reporting is retained efficiently. The committee further instructs on the development and continuance of a structure of in-house controls and suitable moral principles for the administration of this combined Group. This Committee is in addition accountable for recognising the areas of noteworthy production threat and guaranteeing preparations are effectively managed. Both the committees also monitor both the half-yearly and annual financial statements of the organisation for its definite period before the consideration process of the Board members. The risk and the audit committee is moreover in charge for pertaining conformity as per the ASX Listing Rules, Corporations Act 2001 and the other forms of regulatory abidance with the statutory bodies or external governing.

Information gathered from its 2017, annual reports highlight the further fact that amongst the allotted accountabilities, the committee tends of advising and assess the Board on the recommendation and payment of outdoor auditors and its satisfactoriness of present exterior and interior audit preparations counting the range and excellence of audits methods. It has been noted that the Audit and Risk Committee Charter is considerably accessible on its corporate website that also contains valid and noteworthy information regarding the procedures for selecting and appointing an external auditor.  The committee usually meets three times in the fifteenth month period that ended on 30th September 2017. The existing members of the Risk and Audit Committee are BD Cushing and C D Langdon, who is the Chairman of the corporation.

It has been discussed in the previous section that the auditor of this company has been efficient in retaining its integrity and truthfulness to review the financial records of 2017 without initiating any form of data tampering or manipulation. Hence, it can be determined that the auditor has conducted a biased free process in terms of auditor the entire records and people involved (Annualreports.com. 2018).

Role, functions and composition of the Audit Committee

Moreover, for the referred time period, the stated goodwill of the company and whether the financial records justifying the goodwill or not has also been evaluated by the auditors. Using his understanding and market knowledge, the auditor has used key control methods and valuation models to gauge whether the Goodwill of Webster has actually been retained or not. Therefore, it can be stated that the Independent Auditors’ report to the shareholders can be to some extent reliable as the application of useful and knowledgeable tools are used to derive the audit findings. Moreover, by testing on a sample basis the auditor has derived the cash flow models of mathematical accuracy. And the relevant data is passed to the boards based on which the approval is made.

On the overall, it may be asserted that the audit opinion is unqualified and without any objection. In other words, the financial statements of the company present a true and fair view of the resulted of operations and also the position of assets and liabilities of the business. 

The key audit matters which have been identified by the Auditor while conducting the audit process may briefly be enumerated as below:

For 30th September 2017, the Consolidated Financial Statement of the company involves its permanent water rights which sum up to a total of $ 212.9 million. In this process, the management and board's usage of the current market price as its accurate methodology for estimated recovery amount has also been reviewed. The auditor has applied the tests of controls to check the internal control function installed in this regard. In addition, the audit team has challenged the assumptions undertaken by the management in estimating the fair value of the assets.

Secondly, the company has $23.3 million of goodwill arising out of the agricultural activity as assets in its balance sheet for 2017. Auditors have been inquisitive with respect to the presumptions undertaken by the management in evaluating the fair value of the goodwill. Also, the related impairment has also been checked for its validity in terms of management's assertions.

Lastly, it may also be noted that the company has changed its accounting policy relating to the Bearer Plants valuing almost $50.5 million as on 2017 balance sheet date.  Being the auditor, the Deloitte has raised observations as to the management’s methodologies with respect to the determinations of useful lives of such orchards and also the validity on the expected pattern of consumption.

The preparation of financial statements is the primary responsibility of the management and hence the directors may need to ensure a strong and efficient internal control in place so that the operational part of the book-keeping and accounting may be complete in all respects. However, it may also be noted that sound corporate governance is also necessary in order to achieve the corporate goal of fair financial reporting in the most timely and cost-effective manner.

The annual report shows that there is no such subsequent event.  Such events may be such that may have taken place after the balance sheet date but before the finalization of the financial statements. However, the directors are of the representation that the events that have taken place during the given time frame may not have a material impact on the books of accounts and hence have not been accordingly disclosed.

Note 21 to the financial statements show that the company does appropriately disclose related party transactions in their annual reports. Such disclosure mainly consists of compensation of key management personnel (KMPs) and other transaction with KMPs. A closer look into the annual report shows that such compensation has been well disclosed along with the all the transactions made with related parties. The disclosure contains the declaration that all such transactions have been made at arm's length prices.

Conclusion 

The study has arrived at a concluding statement, which underscores the fact that the auditor of the organization has effectively conducted a sensitivity analysis of its key assumptions and tallied the assumptions with feasible models and equipment to judge its reliabilities. A perusal of the annual report for the year 2017 suggests that the information contained therein truly represents the fair value of the assets and liabilities position of the business. In other words, there is no material misstatement in the books of accounts that have been identified while performing the audit work.  However, the Audit and Risk Committee may consider the key audit matters as raised by the auditor in the Annual General Meeting (AGM) as a follow-up question as those are the areas of management actionable. Finally, it may be concluded that the audit process follows a systematic approach to check and verify the authenticity of the financial data as contained in the financial, statement. Auditor attestation places the reliability of the financial, statements on a much higher a scale. External stakeholders also put much reliance on the audited accounts. In other words, the independent audit records can be trusted by the third parties or shareholders. In the given instance, the company has effectively conducted in audit, assurance and compliance programs, in which the accuracy of data is valid to be relied upon. A well-structured audit plan along with the strong corporate governance and management perspective towards audit significantly contribute towards the achievement of the corporate goal of sustainability and long-term value creation in most efficient manner.

References:

Annualreports.com (2018) [online]. Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_WBA_2017.pdf [Accessed 15 Sep. 2018].

Bell, T.B., Causholli, M. and Knechel, W.R. (2015) Audit firm tenure, non?audit services, and internal assessments of audit quality. Journal of Accounting Research, 53(3), pp.461-509.

Christensen, B.E., Glover, S.M., Omer, T.C. and Shelley, M.K. (2016) Understanding audit quality: Insights from audit professionals and investors. Contemporary Accounting Research, 33(4), pp.1648-1684.

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

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

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