The research involved the new auditing standard ASA 701, supposedly meant to give the analysis to the new auditing standard and choose three industries listed on the ASX and analyze the application of the auditing standard in them. The auditor’s report for the three industries which are involved in different activities. The three industries are; mining and refinement industry, insurance industry, and building and construction industry.
The AUASB provides the rules provide auditing standards in Australia. The organization has set the ASA 701 standards which communicate the vital issues the reports of auditors who are autonomous. The implementation of the ASA 701 shows the level of AUASB’S allegiance to conforming to the recent developments of audit reports by the IAASB and the IFAC. These auditing standards give the terms, conditions, regulations, and the obligations that the auditors are supposed to adhere to when doing the companies’ audit reporting. The rule has included all the legal requirements and constraints and complies with the ethical restrictions that the auditors should conform to when doing their audits (Tallentire 2013).
The significant characteristics of this of the ASA 701 standards are: The rule authorizes that the audits must communicate the KAM in the reports of the auditors who are under some entities. The measure gives other auditors who are not within the enlisted bodies to implement KAM in their reports. The standard explains to auditors how they can determine KAM. The auditor should first determine and evaluate the issues communicated by the organization’s management and determine the matters requiring the attention of the auditor. Secondly, the auditor should first consider the organization’s risk, his/her opinion concerning the accessed risk, the management’s decision and the impact of the critical events and their transactions, expenses, and revenue (Cairns Massaidi Taplin and Tarca 2011). Finally, the auditor should determine the most vital concerns which he/she should include in his/her report. The standards require that the auditor should portray each important audit matters (KAM) and describe it without withholding any information. The standards describe the circumstances under which an auditor may fail to discuss certain matters of KAM in his/her report. The standards include the documented necessities of audit records which relates to KAM
The auditing standard is concerned with ensuring that each auditor communicates the KAM in their reports with the intention of addressing the judgment of the auditor and determining the issues that the auditor express in his/her statement. The main reasons for disclosing the KAM is to improve the clarity of the auditors’ report by making the audits transparent (Sirois Bedard and Bera 2018). Communicating the KAM avails supplementary data to the relevant users to help them comprehend the need the issues of the judgment of the auditors regarding his/her professional knowledge and experience. The communication of the KAM is vital in helping the relevant users understand the management’s decisions and judgment. The communication of the KAM in the auditors’ reports is important gives the users the chance to interact with the organization’s managers and discuss matters concerning the audit reports, the process of auditing, and the organization’s entities (Tarr and Mark 2013). But communication of the KAM does not substitute the revelation of the steps that the management takes regarding the financial crisis in the report.
The auditor discusses the KAM with the management. In determining the KAM, the auditor should consider accessing the risk areas of the business, his/her judgment concerning the audit report involving the managerial discretion, and the impacts of the audits happenings that occur during the accounting period (Australia 2012). The auditor determines the most important matters in his statements during the accounting period.
The auditor outlines each KAM in his report in a specially allocated for the matters using the necessary headings and subheadings. The auditor should then describe each critical audit matter and explain why he/she considered it to be among the significant issues. The auditor should also express how he/she addressed the case in his/her auditing process.
There are some circumstances under which some fundamental matters are not disclosed in the auditor’s report. The auditor should publish all the KAM except when he/she is prohibited by the law from revealing the matter or when the auditor decides using his/her professional judgment that the issue should not be disclosed to the public (Cortese 2009). The auditor might use his/her professional experience and knowledge and discover that communicating some matters may have adverse impacts on the company or the quality the audit.
The critical audit matters should relate to other elements of the audit report. The auditor should give a vivid description of them on the issues arising according to the ASA 701 standards. If the auditor uses his/her professional knowledge or given some circumstances concludes that during the financial year, there were no fundamental matters, the auditor is required by the law to explain these circumstances (Dakhelalla 2014). The auditor should include a subsection with a subheading “Key Audit Matters” in his report.
The auditor should then discuss the matters that he/she has considered vital issues with the management, and in case the auditor uses his professional judgment to decide that there are no critical matters, the auditor should communicate this in his report (Deegan and Islam 2012). In the documentation of the audit report, the auditor should include all the KAM following the requirements and specifications of the new auditing standards ASA 701. In the final audit document, the auditor should clarify the circumstances and reasons for not disclosing the critical matters if he/she has not communicated with them (Zadek Evans and Pruzan 2013).
In determining the KAM, the auditor should: The auditor should first make informed decisions to assess these critical issues and select some problems that are the most vital. The auditor determines the KAMs and places the most significant matters in his/her report. The auditor should use his/her professional judgment to decide which issues he/she should include in the report and which questions he/she should leave on by their significance. Matters that require the auditor’s attention the most are judged to be the most vital issues (Huynh Christodoulou and Van der Laan 2012).
The mining and refinement industry mines and refines many products most of which are aluminum products.
After discussing with the management and my professional experience, there was I realization of the matters that were most vital and those that required the attention of the administration the most (Henderson Herbohn and Howieson 2015). Many issues were affecting the company, but, only a few of them that were the most significant. These issues are considered below;
After determining the critical issues affecting the company, the research discloses the detail of each vital point.
The discussion with the administration on the relevance of the analysis was also crucial. The research gave the control of the valid reasons as to why considered the above critical issues as the most vital issue affecting the industry. The point of the raw materials was essential because it would assist the management to find more economical methods of extracting raw materials. The market risks matter would help the administration come up with strategies company fight against corruption (Martinov-Bennie and Pflugrath 2009).
The accounting and auditing standards required that should outline the essential points in the auditor’s report. These standards need to enlist the KAM in a section set in the audit report named the “Key Audit Matters.” Furthermore, the use appropriate headings and subheadings to explain each essential matter and every critical aspect regarding the audits are also mentioned in the report.
The industry manufactures and supplies the materials for building and constructions. The analysis of the critical audit issues of the industry and use of the auditor’s report to assisted in the analysis. Key steps are involved to determine the salient issues affecting the company in the investigation.
From the communication with the management and my professional judgment, the auditors came up with the matters that were most vital and those that required the attention of the management the most. Many matters were affecting the industry, but the auditor restricted himself to only a few that was the most significant and the ones that caught my interest the most. These were the most significant issues relating to the company:
After determining the critical issues affecting the industry, the paper discloses the detail of each critical point.
All these matters related to the financial report audits of the previous year.
The discussion with the administration on the results of my analysis, gave the administration the valid reasons as to why considerations are made the above critical issues as the most vital issue affecting the company. There is a realization that the point of GHG emissions was crucial because it would ensure that the environment is free from pollution. The firm also needed to take a severe step on these emissions to prevent the local authorities from authorizing the closure of the organization.
The TRFR issue was important because it would ensure the industry’s commitment to keeping its employees safe was fulfilled. The TRFR was vital in creating favorable working conditions for its employees. The issue of the breaches of the firm’s policies was vital because it would help the company to come up with strategies to mitigate these breaches of its systems.
The issue of sustainability was crucial because it would determine all the factors that would affect the firm’s ability to continue operating. The sustainability analysis could also determine the industry’s profitability in the long run. Within the sustainability matter, focus is made the environmental sustainability and the social sustainability (Carson Fargher and Zhang 2016).
The accounting and auditing standards required that the auditor should outline the essential issues in the auditor’s report. These standards need to enlist the KAM in a section set in the audit report named the “Key Audit Matters.” Then use appropriate headings and subheadings to explain each critical matter (Porter 2009).
The insurance in Australia offers insurance services to individuals, business organizations, companies, and other groups interested.
Following the discussions with the management and professional judgment, there is a realization to come up with the matters that were most vital and those that required the attention and control. Many issues were affecting the insurance industry, but, only a few that was the most significant and the ones that caught public interest the most. The following is a list of the most vital issues that affected it (Rezaee Sharbatoghlie Elam and McMickle 2018).
In this section there is explanation to the detail of every critical issue in the story.
The discussion with the control the results of my analysis, gave the administration the valid reasons as to why consideration is made on the above critical issues affecting the company. The sustainability of the industry was very crucial in determining the profitability its in the long run and its ability to remain in operation.
The accounting and auditing standards required that there should be an outline of the principal issues in the auditor’s report. These standards need to enlist the KAM in a section set in the audit report named the “Key Audit Matters.” And finally, should then use appropriate headings and subheadings to explain each essential matter.
Conclusion
Because of all the components and structure of the critical audit matters as herein described, there is a realization that Key Audit Matters is essential to any business or any organization carrying out auditing of their financial reports.
Following the discussions above the report recommends the industries to continue implementing the new Australia’s auditing standards when preparing their audit reports. And also encourage the other industries in Australia and even outside the country to adopt the new rule in carrying out their auditing processes, through the use of various mechanisms within the bounds of accounting regulations.
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