Evaluation Of Assurance Services Provided By Auditors On The Australian Stock Exchange

Overview of Boral Limited

The current paper addresses the evaluation of assurances services provided the auditors of listed company on the Australia stock exchange. For this purpose, analysis of the auditor’s section has been demonstrated in several areas such as auditor’s remuneration, audit committee, key audit matters, non audit services and audit opinion. The company that is selected from the list is Boral limited which is a multinational company engaged in the constriction of materials, supplying and manufacturing of buildings. There are three divisions of organization comprising of fast growing Boral interior linings, material business that is well positioned and high performing business. The analysis of the auditors section has been done by evaluating the information presented in the financial report of company that is published on the website. The last section of report identifies whether the material information presented by the auditor in the annual report is effective or not. Analysis of the audit committee has been done in the context of the responsibilities, functions, meeting and composition that helps in evaluating the contribution of such committee to the organization as a whole.

1) Evaluation of the auditor’s assurance services:

An objective and independence assurance is provided by the group audit and risk being a function of internal audit. It has been ascertained from the annual report that the auditor has not expressed any opinion in the form of concluding about the assurance thereon relating to the financial statements. However, for the remuneration report, the opinion by the auditors has been assured. The objective of auditor is to provide reasonable assurance about the financial report that is free from any material misstatement due to the consequence of errors and fraud (Power & Gendron, 2015).  

2) Evaluation of Compliance of auditors with independence requirements:

The independence and effectiveness of external auditor of Boral limited is reviewed by the audit committee. Since, the external auditors have the potential to impair independence because of the services kind that is prohibited. The directors of Boral limited have made declarations to the best of their belief and knowledge that there are no contraventions in relation to any applicable code of professional conduct and independence requirements of auditors that is set in the Corporation Act, 2001. Furthermore, the independence requirements of auditor are not compromised in carrying out the non auditing services and its related provisions. The independence declaration of auditor does not seem to be questioned by the director as there is not any reasonable basis according to Corporation act requirements (Cannon & Bedard, 2016).

Analysis of Auditor’s Section

3) Nature of non audit services:

The non audit services provided by auditor of Boral limited comprise of services of tax compliance in Australia, tax compliance services in other jurisdiction that in Australia, assurance and other advisory related services and due diligence services in relation to the formation of joint venture of Meridian bricks and Headwaters acquisition. The external auditor of Boral limited is KPMG and they are paid total of amount of $ 2830000 for non audit services. In relation to the provision of non audit services, directors are satisfied about the compatibility of auditor independence as per the advice from audit and risk committee of company. In addition to this, there is no inconsistency between the Corporation act requirements, process of audit committee and non audit services.

Fees for non audit services:

(Source: Boral.com 2018)

4) Analysis of remuneration of auditors:

The table below illustrates the remuneration that is paid to the external auditor of Boral limited and they are paid for auditing and no auditing services. Total amount paid to auditor for auditing services stood at $ thousand 2902 and $ thousand 1867 for financial year 2017 and 2016. Such auditing services comprised of reviewing and auditing of financial reports of Australian firm as well as those operating overseas and assurances services. In addition to this, total amount paid for other services include is recorded at $ 2830 in financial year 2017. The total amount paid to directors as remuneration stood at $ 5732 in year 2017 and $ 2893 in year 2016 indicating a considerable increase in total amount of remuneration paid (Boral.com 2018).

Remuneration of auditors:

(Source: Boral.com 2018)

5) Evaluation of key audit matters:

The below identified key audit matters of Boral limited have been addressed in auditing of the financial report by providing opinion thereon.

Key audit matters	Addressing of key audit matters
Headwaters acquisition  A considerable single transaction is represented in relation to the acquisition of headwaters Boral limited in consideration of $ 3.6 billion. The financial statements of Boral are pervasively impacted by such transaction and thereby on the audit. A diversified, large, decentralized and new business is represented by Headwaters that calls for considerable amount of effort to understand and familiarize audit (Carnegie & Napier, 2017).	The auditing procedures for providing assurance over each identified audit matters are listed below. ü The appropriateness of accounting treatment in relation to cost of truncation is assessed by checking the allocation based on cost obligations and evaluating the criteria for classification along with sourcing documentation. ü Understanding the operations and business of Headwaters by visiting key sites and meeting with the management. ü Ensuring the implementation of appropriate accounting treatment that aligns with the accounting standard by reading the acquisition contract to gain knowledge about the key terms. ü Challenging the methodologies of valuation for the identification of intangible asset and property, equipment plant. This calls for assessing the competence, objectivity and independent expert advice.
Formation of joint venture of Meridian brick One of the significant transaction of Boral limited as on 1st November, 2016 is the disposal of US bricks business of Boral and formation of joint venture of meridian brick. It is considered as key audit matter because the transaction accounting relating to taxation that required to involve tax specialist of US. Across the multiple jurisdictions, there was complicated contractual arrangements’ seeking for an increased level of audit.	ü The tax structure of joint venture of Meridian brick should be assessed for treating tax for complying with the taxation requirements of US and using the tax specialist of US. ü The contractual arrangement should be examined for identification of the terms that is applicable to legal structure of such joint venture. Such terms have been assessed for implications concerning accounting by comparing to the accounting standards requirement and criteria. ü The net assets of Boral should be assessed for valuation by using the procedures that is illustrated in the joint venture of Meridian brick.
Investment carrying value of joint venture of Meridian brick and USG Boral. It is considered as key audit matter because of the risk due to the variation between average selling price and market demand for products and auditing complexities for forward looking estimates. The assessment of recoverability of the carrying value of joint venture is done by the application of considerable judgments (Trotman et al., 2015). The judgments have been done in relation to the applicable discount rate for forecasting the cash flow, indication of impairment, cash generating unit determination and assumptions relating to the selling price and market demand.	ü The key assumptions of Boral such as selling price and market demand are challenged by carrying out comparisons of different components. Forecast is approved by comparing the valuation model data. in addition to this, over the multiple housing cycle, the actual historical data is compared (Louwers et al., 2015). ü The determination of cash generating unit of Boral is assessed for assisting the audit team in making the assessment of the valuation approach of Boral. For this purpose, the valuation specialist of auditor is used (Demirakos, 2018). ü The external valuers engaged in the preparation of valuation models are assessed for their capability, competence and objectivity (Knechel & Salterio, 2016).
Recoverability and availability of US tax loss asset It is considered as audit matter because assessment of future utilization of taxes requires considerable level of judgment for forward looking estimates of audit. Furthermore, it is considered essential to involve tax specialist of US resulting from the complexities of ownership requirement of US (Minnis & Shroff, 2017).	ü The taxation experts of Boral is assessed for their capability, competence, objectivity and analyzing the US tax losses for their time of origin. ü With reference to the key assumptions about the taxable income and EBIT, sensitivity analysis is performed. ü The results of continuity of assessment of ownership which the tax experts have performed are obtained when the tax losses are assessed (Byrnes et al., 2018).

6) Evaluation of audit committee:

 The formal charter of audit committee sets out the requirement of composition, responsibilities and roles, membership and structure.

Composition of audit committee:

The audit committee of Boral limited provides assistance in effective operations of the board of directors. The composition of audit committee involves only non executive directors who are independent and the members are Eileen Doyle, Paul Rayner and Karen Moses.

Function of audit committee:

• The procedure for ensuring the rotation of engagement partner of external audit is monitored by audit committee.
• The formalization of process for the appointment and selection of new auditors is required to be done by the auditors.
• The effectiveness, quality of performance and independence of auditors is evaluated along with reviewing of the scope of internal audit is done by the audit committee (Dumay et al., 2018).

Responsibilities of audit committee:

The responsibilities of audit committee is to provide oversight and conduct review of the

• Quality and integrity of the disclosures and financial statements of Boral limited
• Financial information provided to the public and shareholder of company should be reviewed.
• Reviewing the accounting, auditing and process of financial reporting of Boral limited
• Managing and identifying the significant risk areas by establishing process and system of management and the board (Chan & Vasarhelyi, 2018).
• The committee meets its responsibilities under the charter as it is entrusted with the necessary resources and power. All this include explanation of additional information and right of management access.
• Committee is also entrusted with the responsibility of monitoring and establishing financial and accounting control procedures and policies for ensuring that the financial records are reliable and accurate.

7) Audit opinion expressed:

The auditor of Boral limited has formed an opinion on the financial report that the accompanying financial reports prepared by the company is according to the requirements of Corporation Act, 2001, Corporation regulation act and Australian accounting standard that gives a fair and true view of the financial performance of company. The audit of the financial statements comprising of statement of change in equity, statement of comprehensive income, income statement, statement of cash flow have been conducted according to the Australian auditing standard (Chen et al., 2017). The evidence of audit that has been obtained is considered appropriate and sufficient for providing basis of opinion.

Remuneration Report Assurance

8) Difference between the responsibilities of management and auditors:

The responsibilities of auditor and director differ and the differences are outlined in the annual report of the Boral limited. Director’s responsibility lies in the preparation of the annual report according to the Corporation Act 2001 and Australian accounting standard that depicts a fair and true view of the financial information presented. In addition to this, they are entitled to enable the financial report preparation by the implementation of necessary internal control system. Furthermore, they are also required to make the assessment of the ability of group to continue as a going concern in terms of all the applicable and disclosing matters relating to the going concern basis. The remuneration report is also prepared and presented by the director according to the requirement of 300 A of the Corporation act, 2001 (Glover et al., 2016).

Auditor’s responsibility on other hand lies in obtaining reasonable assurance about the absence of material misstatement of the financial report due to errors and fraud. They are also responsible to conduct audit and review of the remuneration report and expressing an opinion on the same that is in accordance with the auditing standard of Australia. Such assurance does not act as guarantee that conducting the audit of the financial statements would be able to detect the existence of material misstatement. However, if the financial statements prepared do not complies with the requirement of the reporting standard, it should be informed by the auditor in their statement of declaration in the annual report of company (Fang et al., 2018). While conducting the auditing of the financial statements, they should comply with the ethical requirements that are set out in the ethical code of conduct.

Conclusion:

The above report is prepared for evaluating the effectiveness of the auditing of the financial report as presented in the section of auditor’s opinion. It has been found from the analysis of annual report that the auditors have provided reasonable assurance of the financial information presented, although such assurance is of high level and they do not the guarantee for the users in their decision making.  In addition to this, it has been found that there is formal charter of the audit and risk committee who has several functions and responsibilities to perform in context of the information presented in the annual report. The effectiveness of the material information presented has been evaluated in terms of the various key audit matters. Moreover, Boral report has implemented the appropriate auditing procedures for dealing with the identified key audit matters. Furthermore, the report also addresses the differences between the responsibilities of management, directors and auditors toward the financial report. Such analysis has enabled to enhance their knowledge of auditing by the application of relevant auditing theory and principles.

Independence and Effectiveness of External Auditor

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