Analysis Of Auditor’s Assurance Services For CSR Limited: Annual Report Review

Compliance with Auditors’ Independence Requirement

In the process of auditing, the prime responsibility on the auditors can be seen in the examination as well as inspection of the financial reports and financial statements of the companies in order to ensure the fact that they are free from material misstatements (Louwers et al. 2015). In case there is any material misstatement in the financial statements of the companies, it is required for the auditors to find out the reasons for those material misstatements with the application of different analytical audit procedures. Thus, it can be said that that it is on the auditors of the companies to enhance the quality of audit reports with the help of the disclosure of the required information from the application of the audit procedures. At the same time, another prime responsibility of the auditors can be found in the communication of the audit information to all the related stakeholders of the business entities with the help of the audit report in simple language so that everyone can understand. In the recent years, there have been several initiatives taken with the aim to enhance the quality of the audit reports (Knechel and Salterio 2016). Thus, it is needed for the auditors of the companies to take into consideration all the material issue in the financial statements of the companies with the aim to enhance the quality of the audit reports. This report takes an honest attempt to examine the latest annual report of one of the Australian Securities Exchange (ASX) listed companies for the analysis of different dimension of their published audit report. Hence, CSR Limited is taken into consideration for this report.  

At the time to conduct the audit operations, it is the obligation on them to follow and comply with the required standards as well as principles of audit profession in order to avoid any violation of auditor independence; and there is not any exception of this fact for the auditors of CSR Limited (Tepalagul and Lin 2015.). It can be seen from the 2018 Annual Report of the company that Deloitte is the audit partner of the company for the year 2018. It can be seen from the Directors’ Declaration of CSR Limited in the 2018 Annual Report that the auditors of Deloitte have complied with all the principles and standards of auditor’s independence as per the requirements of Section 307C of the Corporations Act 2001 (csr.com.au 2018).  The directors of CSR Limited have also mentioned in their report that there has not been any contravention in the requirements of auditor’s independence according to the requirements of Corporations Act 2001. After that, in relation to the professional conduct of the auditors, the directors of CSR Limited have mentioned it in their declaration report that the auditors of Deloitte have applied all the required Code of Professional Conduct at the time to conduct the audit operations of CSR Limited.

Providing non-audit services is considered as one of the major aspect in the audit profession as the auditors of the companies use to provide the client companies with different kinds of non-audit service as per demand (Quick and Warming?Rasmussen 2015). From the analysis of the 2018 Annual Report of CSR Limited, it can be seen that the audit partner of the company, Deloitte, has provided the company with some non- audit services; they are Sustainability and carbon related assurance services and Other assurance and advisory services (csr.com.au 2018).  For sustainability and carbon related assurance services, CSR Limited has made the payment of $77,108 and $58,000 in the years 2018 and 2016 respectively to Deloitte. For other assurance and advisory services, CSR Limited has paid Deloitte with $9000 and 40600 for 2018 and 2017 respectively. In case of the delivery of non-audit services, one major concern of the directors of CSR Limited is that the auditors do comply with all he required standards for providing the non-audit services. It can be seen in the 2018 Annual Report of CSR Limited that the audit associate of Deloitte Touche Tohmatsu have complied with all the general standard of independence of the auditor provided by the Corporations Act 2001. At the same time, the auditors of Deloitte have also mentioned the fact that they have not compromise the requirements of auditor’s independence as per Corporations Act 2001 in relation to the materiality, the nature of services along with all the established processes in order to monitor the auditor’s independence (Krauss and Zulch 2013).   

Non-Audit Services

Auditor’s remuneration is a crucial aspect for the companies as it is needed for the business entities to pay the auditors for the services they provide and this aspect is also applicable for CSR Limited. The following table shows the remuneration of auditors in CSR Limited for 2018 and 2017 along with the change of remuneration in percentage.

Particulars Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2018 ($)	2017 ($)	% Change
Deloitte Touché Tohmatsu in Australia
Audit for the review of the financial Statements	742,000	788,400	-5.89%
Assurance services for sustainability and carbon	77,108	58,000	32.94%
Services related to other assurance and advisory	9,000	40,600	-77.83%
Total Payment	828,108	887,000	-6.64%

Table 1: Remuneration to Deloitte in 2018 and 2017

(Source: csr.com.au 2018)

It can be seen from the above table that CSR Limited has made the payment to their audit partner, Deloitte, for providing both the audit and non-audit services. As per the above table, CSR Limited has made the payment of $742,000 and $788,400 for the year 2018 and 2017 to Deloitte for providing the auditing services that is the review of their financial statements (csr.com.au 2018). Thus, it is evident that there is decrease in the payment of auditing services to Deloitte and the decreasing percentage is -5.89. Apart from this, Deloitte has provided CSR Limited with two other non-audit services. The above table shows that there is increase in the payment of sustainability and carbon related services that are $77,108 in 2018 from $58,000 in 2017. Thus, the change in percentage is 32.94. According to the above table, decrease can be seen in the payment for other assurance and advisory services in 2018 as compared to 2017 that is $9000 from $40,600. Hence, the decrease percentage is -77.83. Thus, in the presence of all these aspects, there is a decrease in the total payment to Deloitte by CSR Limited in 2018 as compared to 2017; that is $828,108 from $887,000; and the decreasing percentage is -6.64 (Sharma 2015).

According to the recent change in the accounting procedures, it has become the major responsibilities of the auditors to take into consider the major material issue of the companies and communicate them with the major stakeholders as Key Audit Matters in the annual report (Backof 2015). For the year 2018, Deloitte has reported about key audit matters for the financial statements of CSR Limited and they are discussed below:

Key Audit Matter 1: The first key audit matter can be seen in product liability position of CSR Limited that is worth $289 million as at 31 March 2018. The provision is related to the future claims of all known and foreseeable asbestos. The determination of the provision is done based on the expertise of outside experts from Australia and United States. As per Deloitte, the key audit matter is related to the size and complexity of the used assumptions for the determination of provision (csr.com.au 2018).

In order to treat this issue, Deloitte has undertaken certain procedures. They have done the assessment of management’s competence and independence for the external experts. After that, the auditors have undertaken the assessment of used assumptions and methodologies related to the reports of external experts. Moreover, they have undertaken the testing of samples for examining the basis for the inclusion and exclusion of asbestos claims. Deloitte has conducted the required enquiries related to the appointment of the external experts. After that, they have assessed the determination basis for the prudential margin through enquiries. Lastly, the auditors of Deloitte have assessed the appropriateness of financial statement disclosure. Hence, these processes can be classified as tests of control and analytical procedures (Ege 2014).

Auditor’s Remuneration

Key Audit Matter 2: The next key audit matter can be seen in the aspect of asset valuation. More specifically, this is related to the valuation of the assets like goodwill, other intangible assets and property, plant and equipment. The valuation of these kinds of assets involve major judgments as well as assumptions such as inflation, rate of discount, growth rate, changes in forecast and others. As per Deloitte, the management of CSR Limited uses impairment trigger analysis for identifying CGU and the auditors has considered this area as key audit matter due to the involvement of the judgment for cash flow forecast and the selection of assumption (csr.com.au 2018).

In order to treat this issue, the auditors have evaluated the process used by the management for the determination of CGU along with the analysis of their consequences. After that, the auditors have evaluated the analysis by the management of CSR Limited in relation to the Viridian CGU. In this process, they have done the assessment of rate of discount, terminal growth rate, inflation rate and forecast cash flows. They have also tested the sample for analyzing the mathematic accuracy of the cash flows. Lastly, they have also evaluated the process of management of CSR Limited related to testing control for the review and analysis of forecast.  They have also assessed the appropriateness of relevant disclosures of the financial statements of CSR Limited. All these actions of CSR Limited can be classified as substantive tests of details and analytical procedures (Kikhia 2014).  

It can be seen in the 2018 Annual Report of CSR Limited that the directors of CSR Limited has set up a Risk & Audit Committee with the aim to establish monitoring mechanism of the policies and procedures of internal control so that the integrity of the financial reporting can be maintained (Chan, Liu and Sun 2013). It needs to be mentioned that the Risk & Audit Committee of CSR Limited includes four non-executive directors as members; they are Mike Ihlein, Mathew Quinn, Penny Winn and John Gillam. In this context, it needs to be mentioned that there is not any Audit Committee Charter in CSR Limited (csr.com.au 2018).

In the report on the audit of the financial report in 2018 Annual Report, the auditors of Deloitte have expressed the opinion that all the financial statements of CSR Limited have complied with the standards of Corporations Act 2001. After that, the auditors have opined that all the financial statements of CSR Limited provide the true and fair view of the financial position as well as financial performance of the company. After that, it can also be seen from the opinion of the auditors that CSR Limited has complied with the Australian Accounting Standards and Corporations Regulations 2001 for the purpose of financial reporting (Newton et al. 2015).     

The report of the auditors of CSR Limited in the 2018 Annual Report includes the difference between the responsibility of the directors and management with the responsibilities and auditors for financial reports. The prime responsibility of the management and directors of CSR Limited can be found in the preparation and presentation of the financial reports by complying with the standards of Australian Auditing Standard and Corporations Act 2001 (Zietlow et al. 2018). At the same time, another major responsibility of the management and directors of CSR Limited is the assessment of the ability of the company to continue as going concern and thus, they are required to apply the going concern assumption (Gitman, Juchau and Flanagan 2015).

On the other hand, the main responsibility of the auditors towards financial reports is to obtain sufficient assurance on the fact that the financial statements of CSR Limited are free from material misstatements due to errors or fraud (Chong 2013). After that, they are needed to provide their opinion on the audit of the financial statements of the companies. Apart from this, major responsibilities of the auditors can be found in various aspects like the material misstatements identification and assessment, internal control analysis for gaining understanding, accounting policies evaluation, analysis of the company’s going concern status and others (Okafor and Otalor 2013).  

The 2018 Annual Report of CSR Limited has mentioned about two subsequent events. The first event is related to the payment of dividend that is to be paid after 31 March 2018. The second subsequent event is related to the sale of surplus land at Horsley Park under which it is expected for the company for the recognition of approximately $30 million of profit before tax in the statement of financial performance on 31 March 2019. However, on these two subsequent events, the auditors have mentioned that these two events do not have any effect on the financial operations of CSR Limited (AICPA 2017).   

From the point of view of a third party stakeholder, the analysis of the auditor’s report and financial statements of CSR Limited indicates towards the appropriate treatment of the material financial events by the auditors of Deloitte. As a part of their profession, Deloitte has followed the required standards of Australian Auditing Standards, Corporations Act 2001 and APES. After the analysis of the audit reports, Deloitte has reported about two significant key audit matters and the procedures they have adopted for treating them. Thus, this aspect sates that the auditors of Deloitte have effectively assessed and treated the material issues of CSR Limited (Stewart 2013).

The analysis of the 2018 Annual report and Auditors’ Report of CSR Limited indicates towards that Deloitte has effectively assessed and treated the key material issues of the financial statements of CSR Limited. After this, the auditors have effectively communicated these issues through their reports in the annual report of the company along with the required explanation and undertaken methods to minimize them. In the presence of all these aspects, it can be said that no material information is missing or partially reported in the annual report of CSR Limited (Escobar and Demeritt 2017).

In the general annual meeting, some major follow-up questions are as below:

• What procedures they have followed for the detection of material issues?
• Have they complied with all the required standards and principles of audit profession/
• Do they have any back-up plan for the audit of CSR Limited?
• What was the outcome of their discussion with the internal auditors? (Houghton et al.2013)

Conclusion

It can be seen from the above discussion that the audit partner of CSR Limited, Deloitte, has effectively assessed and treated the material issue in the financial statements of them. While doing this, they have followed the required standards and regulations like Corporations Act 2001, Australian Auditing Standard, APES 110 and others. The above discussion also indicates towards the fact that there has been decrease in the total payment of CSR Limited to the auditors in 2018 as compared to 2017 due to the decrease in the main audit program and some non-audit services. The above discussion also indicates towards the presence of a Risk & Audit Committee that includes four non-executive board members for assessing the internal control of the company. Hence, based on the above discussion, it can be concluded that Deloitte has analyzed and communicated the major material audit issues while compiling with all the regulations and standards.

References

AICPA, 2017. Statement on Auditing Standards, Number 126: The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (No. 126). John Wiley & Sons.

Backof, A.G., 2015. The impact of audit evidence documentation on jurors’ negligence verdicts and damage awards. The Accounting Review, 90(6), pp.2177-2204.

Chan, A.M.Y., Liu, G. and Sun, J., 2013. Independent audit committee members’ board tenure and audit fees. Accounting & Finance, 53(4), pp.1129-1147.

Chong, G., 2013. Detecting Fraud: What Are Auditors’ Responsibilities?. Journal of Corporate Accounting & Finance, 24(2), pp.47-53.

CSR. 2018. Annual Meetings and Reports. [online] Available at: https://www.csr.com.au/investor-relations-and-news/annual-meetings-and-reports [Accessed 11 Sep. 2018].

Ege, M.S., 2014. Does internal audit function quality deter management misconduct?. The Accounting Review, 90(2), pp.495-527.

Escobar, M.P. and Demeritt, D., 2017. Paperwork and the decoupling of audit and animal welfare: The challenges of materiality for better regulation. Environment and Planning C: Politics and Space, 35(1), pp.169-190.

Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

Houghton, K., Ng, J., Jubb, C. and Kend, M., 2013. The future of audit: Keeping capital markets efficient (p. 700). ANU Press. 

Kikhia, H.Y., 2014. Determinants of audit fees: evidence from Jordan. Accounting and finance Research, 4(1), p.42.

Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.

Krauss, P. and Zulch, H., 2013. Non-audit services and audit quality: Blessing or curse?. The Journal of Applied Business Research, 29(2), pp.305-325.

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.

Newton, N.J., Persellin, J.S., Wang, D. and Wilkins, M.S., 2015. Internal control opinion shopping and audit market competition. The Accounting Review, 91(2), pp.603-623.

Okafor, C.A. and Otalor, J.I., 2013. Narrowing the expectation gap in auditing: the role of the auditing profession. Research Journal of Finance and Accounting, 4(2), pp.43-52.

Quick, R. and Warming?Rasmussen, B., 2015. An experimental analysis of the effects of non?audit services on auditor independence in appearance in the European Union: Evidence from Germany. Journal of International Financial Management & Accounting, 26(2), pp.150-187.

Sharma, P.K., 2015. Codes and Standards of Corporate Governance. In Corporate Governance Practices in India (pp. 28-42). Palgrave Macmillan, London.

Stewart, T.R., 2013. A Bayesian audit assurance model with application to the component materiality problem in group audits.

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

Zietlow, J., Hankin, J.A., Seidner, A. and O’Brien, T., 2018. Financial management for nonprofit organizations: Policies and practices. John Wiley & Sons.