The main discussions of the report aim to analyse the standards which are in compliance with “ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report”. The main evaluations in this context are taken from the annual report published by “Sirtex Medical Limited” in 2017. Based on the depictions of the annual report has ensured that the company does not contain any Key audit matter with reference to the aforementioned principles. The main risk assessment has been further performed which are in compliance with ASA 315. The study aims to address the actions which the organisations aims to undertake within the financial statement thereby assisting the investors in gaining useful insight of the material misstatements.
Post financial crisis, it has been made crucial for the organisations to include the audit matters in the annual report. This is due to the fact that there was no reporting required data in this annual report. The enforcement of appropriate standard has compelled the organisation to adhere to several regulations which will be able to minimise the risk factors in the next financial crisis. Additionally, the organisations have been seen to be responsible for disclosing the explanatory materials as for the Independent reports of the auditors. In this context, the main standard depicted constitutes of ASA 701 which is able to signify the relevant financial position for the stakeholders (Australia and Australia 2015).
The analysis of annual report of Sirtex published in 2017, the various material misstatements can be clearly seen with areas where the organisation did not disclose appropriate information. Therefore, this has led to the formation of “ASA 701”, which is considered as a measure for revelation and the same is communicated in the annual reports. Therefore, it is of prime importance for the organisations to make appropriate disclosures for key audit matters. Based on the analysis of annual report Sirtex enables in identification of considerable amount of risk which are associated to ASA 315. This risk is directly relevant to the operations of the business. The material statement is conducive in pertinent analysis and examining the various future issues which can be projected. Moreover, the annual report assessment has issued the restriction of business activities which can be duly anticipated with allowing the investors to identify the organisational problems (Marques, Santos and Santos 2016).
In case, the material misstatements are not revealed the company is more exposed to unscrupulous measures. The depictions of annual report have enabled the representation of greater risk in case material misstatements are conducted as per ASA 315 based on following evaluations:
Post-assessment of annual report for Sirtex, there are several party and key audit matter which can be communicated to the shareholders. This reduces the compliance of company with ASA 701 for revealing the pertinent matters. In addition to this, the analysis of annual report has enabled disclosure to the users for financial report of the organisation. Moreover, the feasibility of annual report for Sirtex has reduced due to non-compliance with the rules of ASA 701. The revelation of the key audit matter is also not seen to be depicted in the annual report of the company. This signifies lack of compliance of the company with ASA 315, which could have assisted the investors in identifying the inherent material misstatement risk within the organisation (Martínez-Ferrero and García-Sánchez 2016).
The several types of accounting policies are further seen to be implemented with real financial positioning. Despite of this, in case the key audit matters are not disclosed in the annual report as it is the case in the selected company, it signifies that it has not adhered to the principles of ASA 701. Moreover, the corporate scandals have taken place in the past which clearly signifies that auditors have unethically evaluated the financial strength. This is seen to be a critical question about the credibility of independent auditors due to the absence of KAM. It is mandatory for the auditors of Sirtex to get an insight of key business risks which are associated with detecting material misstatement issues. Furthermore, the auditors are required to evaluate the risks of the business environment, business operations and various other types of risks before conducting the audit process. The top-down analysis approach raises the probability of material misstatement as there is no participation of employees in decision making process for the organisation. Henceforth, it is necessary for the organisation is to understand the nature of business risk which may take place at a later stage. This particular consideration, the auditors are needed to understand the actual risks pertaining to material misstatement (Simnett, Carson and Vanstraelen 2016).
The implementation of ASA 701 depicted at the end of financial crisis in 2007. This has enabled the audit committee and the board to identify unscrupulous measures which are taken by the independent auditors and organisation in the preparation of financial statements. These unscrupulous measures and financial reporting are considered with the financial strength of the company which have enhanced the overall value of the share. It has further enabled the forms to “retain additional capital from the market”. At the time of financial crisis, the organisations which we are involved in taking unscrupulous practices headed for a negative growth and no investors were ready to buy such shares. Due to this, the financial stability for the global economy and capital market where seriously affected. Henceforth, it can be clearly stated that the enforcement of ASA 701 is depicted with the primary step for the audit and assurance for four organisations is to reduce the adherence of unscrupulous practices. Moreover, the firms have been seen to be using debts as income for hiding the insolvency provisions from the investors. The ASA 701 have further aimed to restrict the unethical practice in the annual report thereby ensuring transparency in the financial position (Simunic, Ye and Zhang 2017).
Apart from the non-representation of KAM, there has been no material misstatement published in the Independent audit report of Sirtex. Despite of this, the conformance of the “auditing standard ASA 315” have revealed that auditors are able to realise material misstatement risk in the financial books of the organisation. As per the directions of ASA 315, it is necessary for the auditors ready to the guideline as stated in paragraph “A9 to A11 and from A27 to A30”. As a result of this, the detection of material misstatement is possible, that is able to evaluate the overall audit risk. This particular fact is pertinent with the evaluation of auditors in identifying the frauds and other issues related to inflating the balance sheet statements. In this particular consideration, the auditors are able to identify the frauds which assists in measuring out the guidelines as laid out in ASA and which allow the companies in developing the annual reports. Despite of this, the arguments of management has influenced the role of independent auditors in undertaking unscrupulous measures for inflating financial position and organisational performance (Sirtex.com 2018).
The latest annual report for Sirtex is for the depicted with nonadherence to ASA 315 as the auditors have not been able to identify any material misstatement. Moreover, the auditors are required to follow the “paragraphs laid out in ASA 315 from A105 to A108” as it would have been conducive for them to detect any inherent material risk associated with overall business operations. In addition to this, the analysis could have enabled in asserting several levels of transaction classes and identification of audit process performance. The auditors are however able to identify the financial risk during the evaluation of financial statements thereby restricting the financial stability. Henceforth, the enforcement of auditing procedures has made it possible for the auditors to take note of financial feasibility from the annual report (Leung et al. 2014).
The annual report of the company adheres with the standards prescribed by ASA standards which is considered as mandatory requirement for every Australian company. Such non-compliance in the requirement of KAM can lead to significant issues in terms of audit risk of the company. The main audit risk is detected with audit procedures with the auditors need to adhere. The overall business operations need to be considered by following of railway procedures for dissecting risk. In the initial stages, the auditor needs to be determine the risks associated to overall operations of the business as prescribed in the financial statements (Chintrakarn et al.2017). Due to this procedure material risk can be assessed which is responsible for any inaccuracy in the financial statement. Secondly, the auditors need to undertake the approximate significance of risk of the management business to be confirmed with the overall risk of audit assurance board. In addition to this, the probability of incidents for certain risk need to be detected which may increase the material misstatement. In addition to this, the persistent activities are carried out for detecting any risk due to such action (Moroney and Trotman 2016).
Typically, organisations need to carry out certain level of internal control to lower the risk level pertaining to material misstatement. The internal control of particular entity is seen to be a part of independent auditors will need to identify any possible material the statement. As suggested in “Paragraphs A36 to A41 laid down in ASA 315”, the industrial relations and risks which are associated to business operations need to be taken care of by the auditors. Such an evaluation is also able to identify the various types of external factors which can be implemented in developing a financial report. It is also discerned that auditors need to gain an insight of internal control procedures in order to complete audit procedure. This is beneficial for the auditors eventually in gaining an understanding of complicated internal control processes related to business operation. Furthermore, the internal control procedures assessed by the auditors need to comply with financial reporting process as the identification of material misstatement is fundamental priority of the auditors. As per the guidelines laid down under “paragraphs A42 to A65 in ASA 315”, it is auditors responsibility to carry out expert judgement of the specific control and detecting the same which may result in material misstatement in future. In this particular consideration, the analysis of business operation by the auditor will be able to raise the risk factors which may result in material misstatement and overall financial report (Leung et al. 2014).
Moreover, the auditor needs to conduct procedures as for the control environment situations where the business operations take place. This analysis needs to be done to enable auditors for gaining control over the activities and administration within the company. Material misstatement can be identified inherent within the organisational governance. Additionally, material misstatement identification will be also conducive in promoting integrity culture and ethical behaviour among the staff and the management of the company. Therefore, it is of prime importance for the auditors to understand the external and internal control of Sirtex to identify any instance of material misstatement which is inherent within the business operation. Both the independent and directors have not able to identify any instance of material misstatement in the operations of business. Furthermore, the identification of material misstatement is conducive in depicting financial position of the company. Due to this, the auditors are able to present a transparent picture of financial statement related to the stakeholders. Such an incidence of material misstatement can be inferred directly in terms of sections relating to key audit matter in the audit report which may raise serious concerns on viability of financial statement (Craig, Smieliauskas and Amernic 2017).
The interpretation of significant transaction and events have been depicted during the accounting year which is necessary to be assessed on part of auditors. This will enable the auditors in identification of all activities or risk which may raise any concern of material misstatement. Based on the present discourse Sirtex is identified to be involved in “pertinent information about its activities in the annual report”. Therefore, the significant influence of transaction and events during the period “can be assessed on part of auditors”. Moreover, the accounting standards such as ISA 260 can be disregarded on part of the company and such issues about internal audit process may increase eventually in the future (Kotsanopoulos and Arvanitoyannis 2017). The companies are adopting the pertinent accounting standards will be able to predict the real financial situation in relation to the stakeholders who signifies the integrity of organisation in proceeding with operational measures. Moreover, the analysis has stated on considerable events which may enable the auditors in noticing any risk associated to external and internal factors of the company. This type of the depiction of the risk from operation will enable the auditors to understand the material misstatement involved with the firm. This means that organisations need to use independent report for audit in order to cover pertinent unscrupulous measures during the financial year (Drew and Dollery 2015).
Conclusion and recommendations:
The considerable considered with ASA standards such as “ASA 315, ASA 701 and ISA 260” requires a firm to interpret the real financial position as for their annual report. Henceforth, Sirtex Medical Ltd is required to develop the key audit matters for detecting any material misstatement inherent within the operations of business. Additionally, there need to be sufficient compliance with “ASA 315 and ASA 701” considered the statements of audit assurance board. The organisations are needed to gain an overview of pertinent regulations which pose several threats to going concern and needs to be completed to predict actual financial report. The transfer of information from auditors to the investors will enable for several understanding of real financial “condition of the companies in making effective investment decisions”.
References
Australia, I. and Australia, D.I., 2015. RE: Australian Infrastructure Audit.
Carson, E., Fargher, N. and Zhang, Y., 2016. Trends in auditor reporting in Australia: a synthesis and opportunities for research. Australian Accounting Review, 26(3), pp.226-242.
Chintrakarn, P., Treepongkaruna, S., Jiraporn, P. and Tong, S., 2017. Does board independence substitute for external audit quality? Evidence from an exogenous regulatory shock.
Craig, R., Smieliauskas, W. and Amernic, J., 2017. Estimation Uncertainty and the IASB’s Proposed Conceptual Framework. Australian Accounting Review, 27(1), pp.112-114.
Drew, J. and Dollery, B., 2015. Inconsistent depreciation practice and public policymaking: Local government reform in New South Wales. Australian Accounting Review, 25(1), pp.28-37.
Kotsanopoulos, K.V. and Arvanitoyannis, I.S., 2017. The Role of Auditing, Food Safety, and Food Quality Standards in the Food Industry: A Review. Comprehensive Reviews in Food Science and Food Safety, 16(5), pp.760-775.
Leung, P., Coram, P., Cooper, B.J. and Richardson, P., 2014. Modern Auditing and Assurance Services 6e. Wiley.
Leung, P., Coram, P., Cooper, B.J. and Richardson, P., 2014. Modern Auditing and Assurance Services 6e. Wiley.
Marques, R.P., Santos, H. and Santos, C., 2016. Evaluating information systems with continuous assurance services. International Journal of Information Systems in the Service Sector (IJISSS), 8(3), pp.1-15.
Martínez-Ferrero, J. and García-Sánchez, I.M., 2016. The level of sustainability assurance: The effects of brand reputation and industry specialisation of assurance providers. Journal of Business Ethics, pp.1-20.
Moroney, R. and Trotman, K.T., 2016. Differences in Auditors’ Materiality Assessments When Auditing Financial Statements and Sustainability Reports. Contemporary Accounting Research, 33(2), pp.551-575.
Simnett, R., Carson, E. and Vanstraelen, A., 2016. International archival auditing and assurance research: Trends, methodological issues, and opportunities. Auditing: A Journal of Practice & Theory, 35(3), pp.1-32.
Simunic, D.A., Ye, M. and Zhang, P., 2017. The joint effects of multiple legal system characteristics on auditing standards and auditor behavior. Contemporary Accounting Research, 34(1), pp.7-38.
Sirtex.com., 2018. [online] Available at: <https://www.sirtex.com/media/168332/sirtex_annual_report_2017.pdf> [Accessed 29 Jan. 2018].
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