Life Style Communities Limited is an Australia based company that provides top quality facilities to the citizens of the country for building and developing suitable communities. The company provides working, semi-working and retired people with opportunities to live luxury life at affordable prices. The company operates as land lease communities and since its formation has made a niche place in the community building and development market. In this document a detailed discussion on the audit of the company shall be made. The objective is to independently appraisal the audit work Pitcher Partners in relation to the audit of the company.
Declaration of independence by the auditor:
Pitcher Partners is the auditor of Life Style Communities Limited and has the responsibility to independently verify the financial information and make a report on the findings of the audit at the end of the audit. The corporations and entities operating in Australia are governed by the provisions of Corporations Act, 2001, to be referred to as the act only in this document (Woiwode et. al. 2016).
The act requires (s307C, of the act to be specific) an auditor to compulsorily make a declaration of independence before proceeding to conduct audit on the financial statements of an entity in the country. In the annual report 2018 of the company, Pitcher Partners have complied with the requirements of s307C of the act by providing a declaration of independence. In the declaration of independence statement the auditor has clearly mentioned that in relation to the audit of the company for the year ending on 30th June, 2018 the auditor has not contravened with any of the requirements of independence and the audit has been conducted in accordance with the APES 110, code of ethics for professional accountant (Knechel and Salterio, 2016).
Independent auditor’s report:
Corporations Act, 2001 and Australian Standards on Auditing (ASAs) guide a professional accountant to conduct an in audit in accordance with the applicable provisions to effectively discharge his duties as an auditor. An auditor must provide an independent audit report at the end of the audit to the company. In the independent audit report the auditor discloses how the audit has been conducted along with key audit matters. The report also explains the responsibility of the auditor and the opinion of the auditor on the financial statements prepared by the company (Ahmed Haji and Anifowose, 2016).
Opinion on financial information of the company:
The auditor has expressed an unqualified opinion on the financial reports of the company. According to the auditor the accompanying financial reports of the company has been prepared in accordance with the provision of Corporations Act, 2001 and these report show the true and fair picture of the company’s financial performance and position. The auditor has also mentioned that the financial reports have been prepared in accordance with the Australian Accounting Standards (AASBs) (Alzeban and Sawan, 2015).
Non-audit services performed by the auditor:
One of the yardsticks used to determine whether an auditor has violated any of the independence requirements is the non-audit services. The auditors are not allowed to provide certain types of non-audit services such as book keeping services, consultancy for management of internal security and controls, internal audit services, consultancy on day to day to business matters and managerial services. Apart from that an auditor can provide non-audit services without violating the requirements of independence (Heenetigala et. al. 2016).
Pitcher Partners have not provided any of the non-audit services that are in contravention with the requirements of independence as pert the provisions of the Corporations Act, 2001. Apart from the auditing services as required for the audit of the company the auditor has only provided consultancy and advice on general tax and GST related matters to help the company to comply with taxation laws and provisions better (Christopher, 2015).
Analysis and comparison of auditor’s remuneration:
On the basis of the financial information the following calculations have been made to analyse and compare the remuneration received by the auditor.
|
Remuneration of auditor: |
||||
|
Year |
2018 ($) |
2017 ($) |
Change ($) |
Change (%) |
|
Remuneration for audit services, i.e. for review of financial reports |
111,500.00 |
113,000.00 |
(1,500.00) |
(1.33) |
|
Remuneration for non-audit services, i.e. for general tax and GST compliance advice |
102,035.00 |
114,345.00 |
(12,310.00) |
(10.77) |
|
Total remuneration of the auditor |
213,535.00 |
227,345.00 |
(13,810.00) |
(12.09) |
Negative amounts in the change reflects that the auditor’s remuneration has reduced in 2018 from the remuneration that the auditor received in 2017. The following diagram would be helpful to understand the differences between the remuneration received by the auditor in 2017 and in 2018.
In 2018 the auditor has received $111,500 for review and verification of financial reports and $102,035 for taxation consultancy services totalling to $213,535. In 2017 the auditor’s remuneration totalled to $227,345. Both remuneration for audit services and non-audit services have decreased in 2018 (Bepari and Mollik, 2016).
Key audit matters:
The auditor has disclosed key audit matters (KAM) that he believed influences the financial performance and position of the company. According to the auditor the following are the KAM for the audit of the company (Lisic et. al. 2016).
Investment properties: The value of investment properties as per the valuation method used by the company is $303.6 million. In order to verify the balance of investment properties reported in the financial statements the auditor has used extended substantive procedures on the investment properties of the company (Cohen, Krishnamoorthy and Wright, 2017).
The amount of investment properties is by far the largest asset in the Balance sheet of the company. In fact $303.6 million of investment properties approximates to 84.7% of the total assets of Balance sheet. The auditor has provided significant attention on the valuation method used by the entity to ensure that investments have been valued appropriately (DeZoort and Taylor, 2015). Investment has been correctly valued using fair value method.
The auditor has evaluated the report of valuation that the management has obtained from external property valuation organization. The key inputs used in the valuation has been evaluated by the auditor to assess whether the inputs are appropriate or not. Apart from that the properties that were nor subjected to external valuation have also been reviewed and assessed by the auditor. The key inputs and assumptions have been challenged to evaluate whether these are appropriate to the particular circumstances (Dhaliwal et. al. 2015).
Audit committee:
The company has as per the recommendation of the auditing and assurance standards board has constituted an audit committee. The audit committee of the company has been constituted as per the provisions of the Corporations Act, 2001. The committee is only comprised on non-executive directors. The Committee has in total 4 members, all of them are non-executive directors of the company (Tepalagul and Lin, 2015).
Structure, functions and responsibilities of audit committee:
The audit committee is comprises of 4 non-executive members and must meet at-least four times in a year with not more than 120 days gap between two consecutive meetings of the audit committee. The audit committee charter of the company states that the members of the audit committee must meet at regular intervals to discuss and improve the quality of internal controls and securities. The members of the audit committee is responsible to coordinate with the members of internal auditing team to discuss the steps to be taken to improve the financial reporting and operational efficiency within the organization. The audit committee also has the role to coordinate with the external auditors and ensure that the auditors get all necessary cooperation from the employees and workers of the company to conduct the audit effectively (Badolato, Donelson and Ege, 2014).
Audit opinion:
As already mentioned earlier that the auditor of the company has expressed an unqualified opinion on the financial information of the company.
Responsibilities of directors and management differs from that of the auditor:
As per s307C an auditor must conduct an independent verification of the financial reports of an organization with the objectives of expressing an opinion on the quality of financial reporting. Thus, the auditor is only responsible to verify the financial statements and report on it. However, the directors and the management of an entity is wholly responsible to maintain books of accounts and prepare and present financial reports of the entity from the books of accounts in accordance with the provisions of Corporations Act 2001 and AASBs. Thus, there is a sharp difference between the responsibilities of the auditor and the management & directors (AICPA, 2017).
Subsequent events:
The company has paid dividend to the shareholders after the end of the financial year. Except this there has been no subsequent event that has occurred between the periods from end of the financial year to the date of audit report. The company paid a dividend of $4,181,805 after the closure of financial year on 30th June, 2018. The company has been quite regular when it comes to payment of dividend to the shareholders of the company (Byrnes et. al. 2018).
Information reported in the audit reports and effectiveness of the same:
An auditor is appointed by an entity to provide an independent audit report after verifying the financial information of the entity. The objective of external audit is to provide the entity and its stakeholders with an independent appraisal report on the financial statements of the entity. Since most the stakeholders had to rely on the financial reports of an entity to take important decisions affecting their interests in the entity, it is desirable to have an effective independent audit report outlining all material information required by the stakeholders to correctly assess the financial state and performance of the entity (Renzi, Whitaker and Wardle, 2015).
Taking into consideration this it is clear that Pitcher Partners, the auditor of Life Style Communities Limited, has included all standard information as per the requirements of Corporations Act, 2001 and the Auditing standards applicable in the country. All the requirements of material information as per the provisions of the act and the ASAs have been met by the auditor of the company (Alles et. al. 2018).
However, since the stakeholders are looking to take important decisions in the future thus, it would be very helpful to the stakeholders if the audit report of an entity contains certain aspects of verification on the future strategies of the entity and appropriateness of underlying variables and assumptions used by the entity while providing forecasting future performance. Thus, inclusion of futuristic perspective in audit report would help the stakeholders of an organization to take important decisions affecting their interests in the organization (Chan and Vasarhelyi, 2018).
Material information missing:
From a detailed appraisal of the audit procedures performed by the auditor of the company and verification of the independent audit report it is clear that the independent audit report of the company includes all information that is material to the assessment of financial performance and position of the company. No material information is missing in the audit report of the company as per the requirements of Corporations Act, 2001 and ASAs.
However, as mentioned earlier it would have been great to include assessment of future strategies and forecasting statements of the company to help the stakeholders to take important decision affecting their interests in the company. Thus, the auditor has disclosed all material information with necessary explanations in the independent audit report of the company (Appelbaum, Kogan and Vasarhelyi, 2017).
Follow up question:
Though the auditor has conducted the audit in accordance with the applicable standards on auditing (ASAs) and provisions of Corporations act, 2001 however, the missing aspect of future forecasting assessment report is certainly an important consideration. Thus, the follow up question to be asked to the auditor is as following:
When will the auditing and assurance standards in the country consider including assessment of forecasting statements of an entity?
Conclusion:
Considering the independent appraisal of audit work performed by Pitcher Partners it is safe to say that appropriate audit procedures have been performed by the auditor to issue independent audit report on the quality of financial reporting of the company. Each and every single aspect of auditing has been documented by the auditor in the audit report to provide the users of financial statements with substantial information to correctly assess the financial state and performance of the company.
References:
Ahmed Haji, A. and Anifowose, M., 2016. Audit committee and integrated reporting practice: does internal assurance matter?. Managerial Auditing Journal, 31(8/9), pp.915-948.
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
Alles, M., Brennan, G., Kogan, A. and Vasarhelyi, M.A., 2018. Continuous monitoring of business process controls: A pilot implementation of a continuous auditing system at Siemens. In Continuous Auditing: Theory and Application (pp. 219-246). Emerald Publishing Limited.
Alzeban, A. and Sawan, N., 2015. The impact of audit committee characteristics on the implementation of internal audit recommendations. Journal of International Accounting, Auditing and Taxation, 24, pp.61-71.
Appelbaum, D., Kogan, A. and Vasarhelyi, M.A., 2017. Big Data and analytics in the modern audit engagement: Research needs. Auditing: A Journal of Practice & Theory, 36(4), pp.1-27.
Badolato, P.G., Donelson, D.C. and Ege, M., 2014. Audit committee financial expertise and earnings management: The role of status. Journal of Accounting and Economics, 58(2-3), pp.208-230.
Bepari, M.K. and Mollik, A.T., 2016. Stakeholders’ interest in sustainability assurance process: An examination of assurance statements reported by Australian companies. Managerial Auditing Journal, 31(6/7), pp.655-687.
Byrnes, P.E., Al-Awadhi, A., Gullvist, B., Brown-Liburd, H., Teeter, R., Warren Jr, J.D. and Vasarhelyi, M., 2018. Evolution of Auditing: From the Traditional Approach to the Future Audit 1. In Continuous Auditing: Theory and Application (pp. 285-297). Emerald Publishing Limited.
Chan, D.Y. and Vasarhelyi, M.A., 2018. Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.
Christopher, J., 2015. Internal audit: Does it enhance governance in the Australian public university sector?. Educational Management Administration & Leadership, 43(6), pp.954-971.
Cohen, J., Krishnamoorthy, G. and Wright, A., 2017. Enterprise Risk Management and the Financial Reporting Process: The Experiences of Audit Committee Members, CFO s, and External Auditors. Contemporary Accounting Research, 34(2), pp.1178-1209.
DeZoort, F.T. and Taylor, M.H., 2015. COMMENTARY––A Public Interest View of Auditor Independence: Moving Toward Auditor Reliability When Considering and Promoting Audit Quality. Accounting and the Public Interest,
Dhaliwal, D.S., Lamoreaux, P.T., Lennox, C.S. and Mauler, L.M., 2015. Management influence on auditor selection and subsequent impairments of auditor independence during the post?SOX period. Contemporary Accounting Research, 32(2), pp.575-607.
Heenetigala, K., De Silva, C., Armstrong, A. and Ediriweera, A., 2016. Investigation of criteria used for assurance practices of sustainability reporting in Australian listed companies. Victoria University.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Lisic, L.L., Neal, T.L., Zhang, I.X. and Zhang, Y., 2016. CEO power, internal control quality, and audit committee effectiveness in substance versus in form. Contemporary Accounting Research, 33(3), pp.1199-1237.
Renzi, C., Whitaker, K.L. and Wardle, J., 2015. Over-reassurance and undersupport after a ‘false alarm’: a systematic review of the impact on subsequent cancer symptom attribution and help seeking. BMJ open, 5(2), p.e007002.
Soh, D.S. and Martinov-Bennie, N., 2015. Internal auditors’ perceptions of their role in environmental, social and governance assurance and consulting. Managerial Auditing Journal, 30(1), pp.80-111.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.
Woiwode, R., Grandin, T., Kirch, B. and Paterson, J., 2016. Compliance of large feedyards in the northern high plains with the Beef Quality Assurance Feedyard Assessment. The Professional Animal Scientist, 32(6), pp.750-757.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download