Declaration of Independence by the Auditor

International Auditing and Assurance Standards Board (IAASB) since its inception has looked for better ways and means to improve the quality of auditing and assurance standards provided by the auditors in all across the globe. In recent past the IAASB has explained the importance of communicating material information in plain English to the stakeholders in audit reports. In this document an independent appraisal of the audit work of Inghams Group Limited has been made with the objective of understanding various aspects of auditing.   

Review and analysis of key areas from annual report of the company:

In this section of the document the key areas in audit and assurance engagement of Ingham Group Limited, here in after to be referred to as the company in this document, shall be reviewed and analysed from the annual report of the company. The financial statements of the company for 2017 has been audited by the KPMG. Let us now proceed to evaluate the auditing and assurance services provided by KPMG to the company (Griffin and Wright 2015).  

Declaration of independence by the auditor:

As per section 307C of the Corporations Act, 2001, here in after referred to as the act only in this document for the sake of brevity, the lead auditor must make a declaration in the annual report of the company that the auditor has conducted the audit of the financial statements of the company as an independent entity and the auditor has no interests associated with the entity and its operations except as an independent auditor.

The lead audit partner on behalf of KPMG has declared that all provisions of independence in relation to the independent verification and review of the financial statements have been upheld and followed during the course of audit of the company. No violation of professional code of conduct by the auditors in conducting the audit of the company. As per the act the auditor must be independent, i.e. the auditor either works for a public accounting firm or is self-employed and must not have any financial interests associated with the enterprise of which he is an auditor (Libby 2017). From the annual report and in-depth analysis of the financial statements it is clear that neither the partner of KPMG nor the Auditing firm has any interests associated with the company and its operations.    

Thus, from the above it is safe to say that the auditors have adhered to the provisions of the section 307C of the act. KPMG has duly followed the provision of section 307C of the act and has made the declaration of independence to the directors of Ingham Group Limited (Lobo and Zhao 2013).

Independent Auditor’s report:

As per the revised International Standard on Auditing 700, the auditor must issue an independent audit report on the general purpose financial statements of the company. As per the standard the auditors must express whether the company has fulfilled the requirements of financial reporting in accordance with the accounting standards applicable to the country.

Independent Auditor’s Report

KPMG has audited the accounts of the company for the financial year ending on June 30, 2017 and accordingly, has reported on these statements as per the auditing standards (Broberg et. al. 2013). As per international standard on auditing (ISA) 200, audits of entities must be conducted as per the general principles and guidelines governing an audit. Expression of appropriate opinion on the financial reports by an auditor would be entirely based on the ability of the auditor to accumulate audit evidence necessary to come to a relevant conclusion to make any certain assertion about the nature of the financial reports.   

As per the ISA 200 an auditor must verify the financial statements with the books of accounts of the company to evaluate whether the financial statements of the company has been prepared correctly and in accordance with the accounting standards applicable to the company. The books of accounts shall be verified with the vouchers and other documents of the company to assess whether the books of accounts have been correctly prepared on the basis of which the financial statements have been prepared (Petra?cu and Tieanu 2014). The auditors must corroborate all necessary evidence and collect information to conduct audit effectively and express valid opinion on the financial statements of the company as to whether these statements reflect the true and fair picture of the company as on particular date, in this case as on 30^th June, 2017.           

Auditors’ independence is essential to conduct an audit effectively. In case an auditor has any interest associated with an organization then it would not be possible for the auditor to conduct a free and fair audit on such organization. KPMG has no interest in the organization and it is clear from the declaration of independence made by the auditor provided in the annual report of the company (Bratten et. al. 2013).

Key audit matters:

Matters that according to the professional judgment of the auditors were of huge significance for audit of the financial statements of the company for the financial year ending on June 30, 2017 are the key audit matters.  In case of audit of the company the following are the key audit matters as per the auditor of the company.

Revenue has been recognized at the fair value after adjusting the returns, trade discounts and allowances, rebates and other such deductions. The significance of trade allowances is huge in the financial report thus, it has been considered as a key audit matter (Tepalagul and Lin 2015).

The consolidated financial statements of the group shows that it has earned a revenue of $2,426,900,000 with additional other income of $10,400,000. These amounts represent fair value of the revenue received and receivable after deducting necessary trade discounts, rebates, returns and allowances. The auditors have evaluated the accounting principles and policies of the company to record revenue in the books of accounts and have not found any contravention with the applicable accounting standards and principles (Nicoll 2016).

The notes to accounts reveal that the company has followed the standard accounting practice of recognizing revenue from sales once the ownership associated with the goods have been transferred to the sellers and there is no uncertainty regarding the final receipts of revenue from sales.  

Key Audit Matters

Non-Audit services performed by the auditors:

Often auditors provide professional services to the clients that are not part of the regular audit services. Auditors are expected to maintain highest ethical standards while discharging their duties as auditors. Providing non-audit services to the clients by a qualified accountant who is also auditor of the company is against the highest ethical standards set by the Auditing profession. Thus, auditors are encouraged not to provide any non-audit services to the clients (Carey et. al. 2013).

Inghams Group Limited’s auditor KPMG is involved with the company in other capacity apart from conducting statutory audit of the company. The audit firm has provided non-audit services such as tax compliance, advisory, other services and IPO due diligence services to the company to ensure that there is proper compliance with tax laws and other provisions of Income Tax Assessment Act, 1997 and Corporations Act, 2001. The annual report of the company contains the amount of remuneration paid to the auditors for the financial year ending on June 30, 2017 and corresponding period for the previous year.  The remuneration paid to the auditor shows that the auditor has provided non-audit services of tax compliances, advisory services, IPO due diligence services and other services (Sarens et. al. 2013).

Auditor’s remuneration:

Auditors’ remuneration is the amount to be paid to the auditors for the audit services performed by the auditors. Auditors’ remuneration is allowed to be deducted as expenditures to calculate the assessable amount of net profit of the company. The annual report of Inghams shows that the amount of remuneration paid to the auditors for the financial year ended on June 30^th, 2017 is $2,027,000 and in the previous financial year the company paid $1,285,000 as auditors’ remuneration. The auditors’ remuneration included the following payments:

In 2016-17 the company paid $769,000 for audit and review of financial statements of the company with additional $137,000 and $1,121,000 for tax compliance and IPO due diligence services respectively. It is important to note that there has been significant increase in the amount of auditors’ remuneration in the current financial year.

In the financial year ending on 30^th June, 2016 the company paid merely $410,000 for IPO due diligence services whereas in this year the remuneration for the same services has been $1,121,000. This is mainly due to the issue of IPO that the company undertaken in the current financial year. Hence, it is clear from the above that the auditors have provided significant amount of non-audit services to the Inghams Group Limited as remuneration for the non-audit services have far exceeded than the remuneration for audit and review of financial statements (Abdullatif 2013).       

Comparison of auditor’s remuneration between current and previous financial years:

The table below contains the details of remuneration paid and payable to the auditors of the company in the 2016-17 and 2015-16.

	$
Auditor’s remuneration	2017	2016	Changes	Change in % from 2016
Payment for audit and review of financial statements	769,000.00	700,000.00	69,000.00	9.86
Payment for tax compliance and other advisory services	137,000.00	175,000.00	38,000.00	21.71
Payment for due diligence services for IPO	1,121,000.00	410,000.00	711,000.00	173.41

The fees in relation of audit and review of financial statements of the company have increased by $69,000 in the financial year 2016-17 compared to the fees paid in 2015-16. This is an increase of 9.86% from the previous year. Payment for tax compliance and other audit services made in the year 2016-17 is $137,000 which has reduced from $175,000 for the corresponding period of previous year. This is a decrease of 21.71% in the current financial year. However, the change in payment for due diligence is huge. In 2016-17 the company paid $1,121,000 for IPO due diligence services whereas in previous year the company paid only $410,000 (Zhang 2017).

Non-Audit Services Performed by the Auditors

Audit committee:

The listed companies in Australia are encouraged to constitute audit committees to improve the internal controls and the operations of companies. The audit committee of the company consists of only non-executive directors and the majority of the members of the committee are independent directors as is clear from the committee charter of the company (Abbott et. al. 2016). Also the committee must have at-least three members. The main points of audit committee charter are summarized below:    

1. A minimum of three members in the committee.
2. The chair of the committee must be independent with majority of total number of directors in the committee must be independent.

• The responsibility of the committee to manage the relationship with external auditors.  

1. The audit committee must cooperate with internal auditors and audit functions (Jones 2017).
2. Audit opinion:

Unqualified opinion has been given by the auditor of Inghams Group Limited after conducting audit on the financial reports of the company in accordance with the Auditing and Assurance standards. As per the auditor, the financial statements of the company reflect the true and fair picture of its performance and position o as at the end of financial year 2016-17. The provisions of Corporations Act 2001 and the relevant accounting standards issued by AAASB have followed by the company in maintaining its books of accounts and preparing the financial statements (Tepalagul and Lin 2015).      

Responsibilities of directors and management:

The responsibilities of the directors and management are completely different from that of the auditors. Preparation of financial reports in accordance with AASBs and presentation of these reports are the responsibilities of the directors whereas the auditors is appointed by the company to conduct audit on these reports prepared by the directors to express an opinion on these reports. The directors are responsible to take important decisions in relation to the daily operations of the company (Tsipouridou and Spathis 2014). The management on the other hand is responsible to conduct the day to day affairs of the company. Making optimum utilization of available resources of the company in the business operations is also one of the many responsibilities of the company.

Linda Bardo Nicholls, the non-executive director and Peter Bush the Chairman of the company have signed the directors’ declaration statement stating the responsibilities of the directors in preparation and presentation of financial statements of the company (Arens et. al. 2013).

Adhering to the AASBs and provisions of the act are to be verified by the auditors of an organization and as per the audit report of Inghams KPMG has expressed that the company has followed all the provisions and AASBs to portray the true and fair picture of the company’s performance and position as at the end of 2016-17 (Svanström 2013).

Subsequent events:               

After the end of the year the company has paid a dividend of 9.5 cents per share totalling of $36.10 million. The dividend of $36.10 million was paid on October 4, 2017. The effects of such payment has been made in the consolidated financial statements. Apart from this payment there has been no other significant events subsequent to the end of the financial year (Koh et. al. 2013).

Effectiveness of material information reported by auditor:

The auditor in the independent audit report apart from expressing unqualified opinion has provided necessary details about the basis of forming the audit opinion on the financial statements of the company. The key audit matters of revenue recognition and impact of rebates, trade discounts, trade allowances, and returns on the amount of revenue has been outlined. The auditor has also outlined the responsibilities of the directors in preparing and presentation of financial statements of the company (Knechel and Salterio 2016).

There has been no information that has not been provided in audit report of the company as the auditor has touched each and every aspect of financial statements and have made it clear that the financial statements reflect the fair and true picture of the company as on the end of the financial year (De Simone et. al. 2014)).         

Follow up question for the auditor:

At the Annual General Meeting of the company the follow up question to be asked to the auditor is provided below:

How about including a paragraph in the audit report to suggest the investors about the expected future performance of the company?

Conclusion:

Taking into consideration the guidelines laid down by the IAASB and the suggestions made by the Board a detailed discussion has been made in the auditing and assurance services provided by the Auditors of Ingham Group Limited. A complete evaluation of the auditing and assurance services provided by the auditors shall be made by appraising the annual report of the company to provide opinion as to the quality of services provided by the auditors to the company.

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