Over a period, as the companies evolved from being closely held companies to those who securities are widely held and traded with the growth of the capital markets. This meant that unlike earlier times the companies now needed to attract funds from people other than its promoters which would require a level of trust to be built between the company and its investors (Axelsen, et al., 2017). The regulatory authorities had taken a note of these demands over a period and therefore to bring in more transparency and building the confidence of the stakeholders, came up with regulations and compliance norms regarding enhanced reporting standards.
After its acceptance globally in many other countries, the Australian Auditing and Assurance Standard board (hereinafter would be referred as “AUASB”) came up with the standards in the Australian context which is in line with the global practices. One of the principle areas that are dealt in enhanced audit reporting is the “Key audit matters”. The company which has been selected here is AMCOR Limited which is listed on the Australian Stock Exchange
Determination of Compliance Related to Auditor’s Independence
The word “independence” in all its grammatical variations and cognate expressions means freedom. With reference to an auditor, the significance of independence is paramount. An auditor being a person who is to provide opinion on the state of financial reporting and the internal controls system of the company is expected to be have independence from the organization of whose audit he undertakes as well as independence from any party who either directly or indirectly has interest in the affairs of the company (Fay & Negangard, 2017).
The primary reason to have the independence is to make sure that the opinion expressed by the auditor is not made under any sort of influence and the opinion expressed is unbiased and objective so that the confidence of the shareholders and various other stakeholders on the work of the auditor remains unaltered. To confirm the facts, the auditors are required to make a declaration in the audit report stating they are independent. The auditors PriceWaterhouseCoopers have made a declaration about it in the prescribed manner stating that they have acted within the regulatory framework of the Corporation Act. In addition to the above compliance, the declare that they have adhered to the ethics related to their professional code.
Rendering of non-audit services
In addition to rendering audit assurance services for its client, the auditors PWC have also provided some their services which fall under the category of non-audit services. The provision of non-audit services provided by the statutory auditors are strictly governed by the independence related requirements mentioned in the Corporations Act 2001. The audit committee needs to vet the type of work to be performed under the umbrella of non-audit services so that it complies with the act and its guidelines.
This then needs to be approved by the board of directors (Kachelmeier, et al., 2018). They will only do so if they are of the opinion and have reasons to believe that none of the provisions related to the independence requirements of the auditors are getting hampered by the performance of these other duties. The table below shows the categories of services performed by the auditors, fee paid to them and the increase or decrease in the remuneration paid both in percentage as well as absolute terms.
|
Particulars |
Amount in $ ‘000 |
Change in Percentage terms |
Change from PY |
||
|
FY 2018 |
FY 2017 |
Difference (Absolute) |
|||
|
Assurance services rendered Auditors: PriceWaterhouseCoopers LLP – Audit of financial statements – Assurances Related services Member firms in PwC Australia network – Audit of financial statements – Assurances Related services – Other assurance services |
368 140 2328 4208 4 |
404 – 2207 3808 3 |
(36) 140 121 400 1 |
8.91% 100% 5.48% 10.50% 33.33% |
Decrease Increase Increase Increase Increase |
|
Non – audit services rendered Auditors: – PriceWaterhouseCoopers LLP – Tax compliance, arm’s length transaction related advice for tax purpose and due diligence – Other advisory services Member firms in PwC Australia network – Tax compliance, arm’s length transaction related advice for tax purpose. – Other advisory services |
76 40 767 34 |
692 – 127 120 |
(616) 40 (360) (86) |
89.02% 100% 31.94% 71.67% |
Decrease Increase Decrease Decrease |
The table of audit fees for AMCOR Limited presents a view that which is an increase in the fee paid in respect of audit services compared to last year. However, the fee paid to PWC has declined. The reason for this is though not clearly stated in the report but could be attributed to the increase quantum of services obtained from the other member firms of PWC Australia which may have distributed the work flow as well as the fee paid (Sirois, et al., 2018).
An analysis of the fee paid to auditors for rendering non-audit services shows that there has been a sharp declined in them as compared to last year. No clear reasons for this has been stated but one of the possible reasons for this could be the increase in the self-reliance of the company on its own personnel. They might have been tasked to the same job by providing those enhanced trainings and knowledge. An advancement of the technology infrastructure of the company may be one more reason. The things they might not have been technically sound to perform earlier could have been done by them owing to new enhanced technology at their disposal.
List of Key audit matters and the subsequent audit tests performed on them
The company has an enormous global presence across the globe and hence indulges in transaction at a large scale across the world. It is inevitable that tax consequences of varied nature would arise out of it depending upon the nature of the transaction. A lot of estimation and judgment and careful analysis is required to meet with correct ascertainment of the tax liabilities as failure to do so would attract severe penalties and interest on the defaulted amount as well as it will bring disrepute to the company.
It was observed that the company lacks policies related to tax compliances region wise and there are no defined set of parameters that are followed in making the tax provisions and estimates (Fukukawa & Mock, 2011). The auditor in his analysis has compared to the tax estimates for prior periods and then compared it to the actual tax liabilities that arose for those years. A fluctuation in the methodologies used would severely impact the estimates and its deviation from the actual liability, which makes it an area of key audit matter.
Brazil has a complex network of indirect taxes including excise laws. The company has been facing challenges in evaluation of the liabilities of these tax components and hence approached for legal counsel outside the resources the organization already has. The auditor in his efforts to verify these matters has approached the auditors of the Brazilian division of the company to know more about the changes in the regulatory tax compliance environment in Brazil as well as to have the knowledge of the work done by the legal counsel appointed by the company (Farmer, 2018).
The company holds a little over 47 percent shares of AMVIG which is listed on the Hongkong stock exchange. The concern over here is the valuation of these shares done by AMCOR. The price as per the valuation significantly higher than the price of these shares quoted on the stock exchange. Since long term investments are subjected to test of impairment every year, it becomes imperative on part of the auditor check for this risk as the market value is lower than the ascertained carrying value. As part of his procedures the auditor has verified the arithmetical accuracy of the calculations as well as an assessment of the future and current performances of the company whose shares has been held (Bumgarner & Vasarhelyi, 2018).
About Audit Committee
The committee is formed from amongst the members of the board of directors. Their main role is to assess analyze and monitor the financial reporting framework of the company, application of the laws and accountings standards and reviewing the work of the internal and statutory auditors. The members must have knowledge of business and financial reporting aspects. All the member of the committee are independent members. The committee works to flow the principles laid out in the charter (Segal, 2017).
Opinion expressed by the auditor
The auditor has stated that the financial statements of the company present a true and fair view of the related to the financial position of the company. As per the audit evidence evidences obtained by the auditor which are sufficient given the volume of the transaction and its nature, the accounting standards have been followed and the rules and regulations of the corporation act has also been complied with. The auditor states that the financial statements are free from any material misstatement whether due to fraud or error (Bailey, et al., 2017).
Differences between the responsibilities of the management and that of the auditor
The primary duty of the management is to present financial statements that comply with the accounting standards as well as the statutes applicable for the country. They should review the processes and procedure periodically from time to time and assist the auditor in so far as providing adequate information and evidence is concerned.
Whereas the reasonability for the auditor is to express an opinion on the authenticity and correctness of the financial statements and whether they present a true and fair view or not. He will instead of simply relying on management assertions and declaration, conduct his own evaluation on the internal controls and the reporting standards through the audit evidences and employing other tools and audit procedures (Mun, 2018).
Material subsequent events if any
These are those events that take place after the reporting period, i.e., the balance sheet date but must be reported by the auditor and the management as they are of importance to the stakeholders of the entity.
Viewpoint from a third-party perspective
As a third party who has interest in the operations of the company, I would be pleased with the job done by the auditors. They have adhered to the guidelines laid out for them and have operated within the framework and discharge their duties in an appropriate manner.
Possibilities of missing or inadequate information and follow up question
Conclusion
Overall the annual report can be considered as satisfactory and covers all the necessary avenues that are critical to the operation and existence of the entity.
References
Axelsen, M., Green, P. & Ridley, G., 2017. Explaining the information systems auditor role in the public sector financial audit. International Journal of Accounting Information Systems, 24(1), pp. 15-31.
Bailey, C., Collins, D. & Abbott, L., 2017. The Impact of Enterprise Risk Management on the Audit Process: Evidence from Audit Fees and Audit Delay. Auditing: A Journal of Practice & Theory, 37(3), pp. 25-46.
Bumgarner, N. & Vasarhelyi, M., 2018. Continuous auditing—a new view.. Continuous Auditing: Theory and Application, 20(1), pp. 7-51.
Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of Media Ethics, 33(1), pp. 1-12.
Fay, R. & Negangard, E., 2017. Manual journal entry testing : Data analytics and the risk of fraud. Journal of Accounting Education, Volume 38, pp. 37-49.
Félix, M., 2017. A study on the expected impact of IFRS 17 on the transparency of financial statements of insurance companies. MASTER THESIS, pp. 1-69.
Fukukawa, H. & Mock, T., 2011. Audit risk assessments using belief versus probability. Auditing: A Journal of Practice & Theory, 30(1), pp. 75-99.
Kachelmeier, S., Schmidt, J. & Valentine, K., 2018. The disclaimer effect of disclosing critical audit matters in the auditor’s report. SSRN, 2(1), pp. 1-39.
Mun, K. a. S. I., 2018. A close look at the role of regulatory fit in consumers’ responses to unethical firms.. s.l.:s.n.
Segal, M., 2017. ISA 701: Key Audit Matters-An exploration of the rationale and possible unintended consequences in a South African. Journal of Economic and Financial Sciences, 10(2), pp. 376-391.
Sirois, L., Bédard, J. & Bera, P., 2018. The informational value of key audit matters in the auditor’s report: evidence from an Eye-tracking study.. Accounting Horizons., 32(2), pp. 141-162.
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