Adelaide Brighton limited is an Australian company which is listed on the Australian stock exchange. The company commenced its operations in 1882. Headquarter of the company is based at Birkenhead, Australia. The company is involved in the business of manufacturing and supply of construction materials in the Australian country. ABC operates through two of its main segments: Cement, Lime and Concretes and Concrete products. The products of the company are offered to both residential as well as non-residential construction units and to energy constructions, alumina productions and other various mining market. This report is prepared after overviewing the annual report of the company with the purpose of highlighting various matters related to the audit of the company. The audit of the company for the year 2017 has been conducted by one of the leading auditing firm-Price Water Cooper.
One of the most fundamental principles of auditing is the auditor’s independence. Independence is achieved when the auditor provides the opinion on the true and fair view of the financial statements of the company without getting influenced by the management of the company (Basu, 2010).
In the instant case of Adelaide Brighton limited, auditors have stated in its audit report that independent audit opinion on the Group’s financial statements have been provided. The auditors have complied with the relevant provisions of corporations act, 2001 as well as with the ethical requirements as prescribed in APES 110 Code of Ethics for the Professional Accountants. The auditors have also complied with the other ethical requirements of the auditing profession.
Hence, it can be said that the principle of independence has been duly complied by the auditors of Adelaide Brighton limited.
Non-audit services are those professional services offered by the auditor during his audit engagement which are not linked to the audit of entity’s financial statements.
In case of Adelaide Brighton limited, the auditing firm has provided various non-auditing services along with the service of reviewing the financial statements. The non-audit services are of such nature where experience and expertise of auditor was important. The auditing firm has provided those services which have no connection with the assurance and auditing services.
Auditor’s Remuneration is the amount of fees paid to the auditors in consideration of the services provided by them during a particular financial year. Remuneration can be paid for both auditing services as well as non-auditing services.
|
Remuneration of Auditor |
2017 |
2016 |
Change |
Impact |
|
Audit Services |
$ 855,313.00 |
$ 748,359.00 |
14.29% |
Increase |
|
Non Audit Services |
$ 20,550.00 |
$ 40,949.00 |
– 49.82% |
Decrease |
|
Total |
$ 875,863.00 |
$ 789,308.00 |
In the instant case of Adelaide Brighton limited, the auditing firm has been paid a total amount of $ 875,863 as the remuneration for the provision of their services in 2017. The fees for the audit services totalled to $ 855,313 in 2017 and for non-audit services, it totalled to $ 20,550. However in 2016, the total fee paid for audit services was $ 748,359 and for non-audit services it amounted to $ $40,949. This shows that the company has paid more fees in consideration of audit services but there is a decline of around 50% in the non-audit services. The decline in non-audit fees shows that Adelaide Brighton has availed less of non-audit services in 2017 and more of audit services as compared to 2016.
Key audit matters (KAM) are those matters that demanded significant attention of the auditor while conducting the audit of the entity. Therefore, auditor requires these matters to be communicated to the readers of audit report in details so that they can understand the effect of such items on the overall financial statements of the company.
In the instant case of Adelaide Brighton Limited, the auditor has reported following key audit matters:
The auditor has identified accounts receivables as the key audit matter because the ABC Group had encountered certain discrepancies in this respect as the amount was less paid to the suppliers. Due to the discrepancies there was high risk of material misstatements and hence auditor had to apply detailed audit procedures in this respect. The auditors have gathered addition audit evidences to confirm the balances of accounts receivables of the company (Millichamp, 2002). The external substantive test of balances was applied as the audit procedures to check the validity of the balances of accounts receivables. Auditors used external confirmation from few of the major debtors of the company.
Due to the very nature and significance of goodwill and PPE for the business, the management of accountant had to use various judgements as well as assumptions for the determination of discounted cash flows. Hence, the recoverability of these assets became the KAM for the auditor. To evaluate the valuation of goodwill and property plant and equipment present in the financial statements of the company auditor had to use the analytical procedures in this respect. For this purpose, they compared the budgets of 2018 prepared using growth models with the budgets approved by the directors. The comparisons of assumptions in relation to growth rate were made with the external forecasts. Also, the auditors carried sensitivity analysis in this regards and it was found that the rates and other assumptions used by management are accurate enough.
This was reported as the key audit matter because of the involvement of material judgements for the estimation of future costs related to rehabilitation provisions. For this purpose auditor had applied analytical procedures to evaluate the validity of the values of restoration provisions (Puncel, 2007). The auditor compared the nominal cost of current year with that of previous year, wherever there was significant doubt on the estimation.
This was reported as the key audit matter because of involvement of significant amount of judgements. The auditor checked the authenticity of the valuations made for the business combinations by applying substantive tests in this regards. They consulted the external experts to examine the appropriateness of the valuation. The valuation experts were the independent parties and hence the result of their valuation exercises was compared with the actual valuation of the fixed assets from the financial statements (Adelopo, 2016).
The measurement of inventories for the stockpiled inventory of the company was quite complex in nature. Therefore, this matter is reported as the KAM by the auditors. To verify the inventory valuation, the auditor applied substantive audit procedures (test of balances) by referring to the valuation reports of experts in this particular field. Before relying on the surveyor’s report, the auditor also checked the authenticity of the methods and approaches used by the surveyors and also their objectivity and integrity.
Apart from the above matters, there were no other key audit matters discovered by the auditor.
There was an audit, risk and compliance committee in the board structure of the Adelaide Brighton limited. The said committee was formed for the audit risk management functions as well as to oversee the functions of financial reporting, internal as well as external audit of the company (Roy & Saha, 2018). The committee comprises of various non-executive directors who are independent. The charter of committee is as follows:
Audit opinion:
Audit opinion is the auditor’s professional judgement on the true and fair view of the financial statements of the company. There are basically 4 types of audit opinion: unqualified audit opinion, qualified opinion, adverse opinion and disclaimer of opinion (Knechel and Salterio, 2016).
In the present case, the auditors of Adelaide Brighton limited have provided the unqualified opinion by stating that the financial statements of the company for the year ending 2017 are presenting the true and fair view of the company’s financial position. The auditors have stated that the company’s financial statements are prepared in accordance with all the applicable provisions of Australian corporations act, 2001 and the relevant accounting standards.
The auditors have mentioned in their report that the financial statements of the company does not contain any material misstatement due to error or fraud and hence they depict true financial position of company’s financial affairs.
Responsibility of the directors towards the financial reports:
The financial statements of the company are prepared by the directors of the company. The directors of the company are responsible to ensure that financial statements are prepared in accordance with all the relevant laws and regulations and the accounting standards that are applicable on the company.
Responsibility of the auditors towards the financial reports
The auditors of the company are responsible to provide the opinion the opinion on the financial statements by reviewing those financial statements on the yearly basis. The auditors have to provide a reasonable assurance on the authenticity of the financial statements. However, the auditors are not responsible to detect all the frauds and errors of the financial statements. While providing opinion on the financial statements auditor has to determine whether the financial statements of the company are reflecting true and fair view of its financial performance and whether there is the existence of any material misstatement due to error or fraud.
Subsequent events are those events or transactions that occur after the date of finalisation of financial statements but are related to the circumstances that existed before the finalisation date. Thus such events require the adjustment in the current year’s financial statements (Ozdemir & Gokcen, 2016).
There did not take place any material event subsequent to the date of balance sheet which needs to be reported in the current financial statements of the company for the year ending on 31st Dec, 2017.
Whether there were some instances of insider trading identified or reported by any party in case of Adelaide Brighton limited.
Whether the company has paid any significant amount of dividend during the year?
Whether there were any significant weaknesses in the internal control system of the company that was identified by the auditor?
Conclusion:
From the above examination of annual report of Adelaide Brighton limited for the year 2017 it can be said that PWC, the auditing firm of the company has applied all the audit procedures that were necessary to conduct the audit. Also, the firm has complied with all the regulations of laws applicable under corporation act, 2001 to the company. Further, auditors have adhered to the relevant auditing standards that were applicable to it.
References
Adelaide Brighton Ltd. (2017). Annual Report. Retrieved from: https://adbri.com.au/-/adbri/lib/pdfs/2016/reports/AR%202017%20-%20Annual%20Report%20complete.pdf
Adelopo, I. (2016) Auditor Independence: Auditing, Corporate Governance and Market Confidence 3rd ed. U.S: Routledge.
Basu (2010) Fundamentals of Auditing 1st ed. India: Pearson Education.
Knechel, W.R., and Salterio, S.E. (2016) Auditing: Assurance and Risk 4th ed. U.S: Taylor & Francis.
Millichamp, A.H. (2002) Auditing 2nd ed. U.S: Cengage Learning.
Ozdemir, Z., and Gokcen, B.A. (2016) Auditing of Subsequent Events: A Survey of Auditors in the City of Istanbul in Turkey, Journal of accounting and financial research, 5(2), 42-52.
Puncel, L. (2007) Audit Procedures 2008 2nd ed. U.S: CCH.
Roy, M.N., and Saha, S.S. (2018) Statutory Auditors’ Independence in Protecting Stakeholders’ Interest: An Empirical Study 1st ed. Germany: Springer.
Tricker, R. (2016) ISO 9001:2015 Audit Procedures 4th ed. U.S: Routledge.
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