Overview of Enhanced Audit Reporting Requirements

Auditing refers to a financial process where investigation is conducted in an organization’s statement corresponding to financial facts with an objective of ensuring fair treatment along with maintaining accuracy in all the claimed financial transaction. The fairness can only be ensured by revealing all the important financial information that corresponds to a company’s financial statement. Auditor is the person who has the responsibility to improvise quality of an audit report. The stakeholders related the business directly or indirectly need to reveal the relevant financial information with transparency. For maintain a good quality in the audit report several initiatives are currently undertaken by the responsible auditing committees (Hay 2015). The report concerns with auditing report of one of the established manufacturing organization of Australia, namely CSR Limited.  The present report would scrutinize aspects related to the auditing of CSR limited by evaluating annual report of the concerned organization. For the financial year of 2018, auditing partner of CSR is Deloitte.

The published annual report of CSR Limited for the year 2018 revealed that, there were no actively involved member of Deloitte in operation of business of CSR.  Neither there were any evidences regarding significant role of Deloitte members the organized audit group in the current year. The declaration was made under the act named “Section 342A of the Corporations Act 2001”.  Requirement in accordance to “Section 307C of the Corporations Act 2001” has been fully complied by Deloitte.  Given below are some specific points covered under the act

• The act specified that all the possible codes of conducts those are applicable needs to be conducted under in reference to the operation of the company
• There should not be any breaches related to auditor’s independent prerequisites in relation to company’s audit (Mubako and O’Donnell 2018).

As followed from the annual report of the company in the accounting year of 2018, two kinds of non-auditing services have been provided by Deloitte.  One is assurance related to sustainability and carbon disclosure.  The other one is related to advisory and other assurance services. For the former, the organization has paid $77,108 while for the latter service an amount of $9000 has been provided to Deloitte by CSR Limited.  The amount paid for non-audit services constitute 10.40 percent of the total remuneration to the auditor. In the transaction of non-auditing services both the auditor and the company has complied to all the requirement to maintain transparency.

The Risk and Audit committee has advised that directors of the company are satisfied by the non-audit service of Deloitte. This is due to the fact that auditors; group of Deloitte followed all the independent standard as set the by the Corporation Act of 2001 for all the auditors. In addition, these services have not adhered to the independent auditor’s requirement as stated in the above mentioned standard in reference to the material amounts, nature of used services and the development process of monitoring independent auditors (Hay, Knechel and Willekens 2014). It is further assured by the directors of the organization the assessment of non0audit service would not include review of the independent works of the auditors who are engaged in taking decision related to management. The non-audit services of CSR Limited have complied regulations as followed by the standard of corporate governance. All these point to questioning the auditor’s independence in the CSR Limited.

Annual Report Review of CSR Limited

The table below presents remuneration of auditors for two consecutive years of 2017 and 2018. The comparative analysis between the two years along with percentage change between the two years gives a clear understanding regarding auditors’ remuneration  

                         

                                                                               (Source: csr.com.au 2018)

As evidenced from the summary table, CSR Limited takes into consideration Auditing service or service related to evaluation and review of financial statement. The cost of audit service in the year 2017 was $788, 400. This has reduced to $742,000 in the year indicating a decline by 5.89 percent in the remuneration.  The sustainability and carbon related assurance services come under non-audit service. For this, there is an increase in expenditure by 32.94 percent as the cost increased from $58,000 in 2017 to $77,108 in 2018 (csr.com.au 2018).  For another branch of non-audit service containing advisory and other assurance services cist has significantly lowered by 77.83 percent (from $40,600 to $9,000).  In general, there is a 6.64 percent decline in auditors’ remuneration between 2017 and 2018.

One significant aspect of auditing financial statement of an organization is careful consideration of the key matters related to auditing (Wong and Millington 2014). Sourced from CSR’s annual report, two auditing matters have been found namely – provision of product liability and valuation of assets. Given below are the detailed procedures of the two key matters.

As accounted on 31^st March, 2018 CSR Limited recognized $289 million worth for its liability provision. The liability provision of CSR Limited is connected to revealed and future foreseen claims.  The management hired experts from USA and Australia to take certain decision in this matter.  The liability provision is subject to the assessment for settlement of amounts and the probable claims to be made in the future (Bradbury, Raftery and Scott 2018). In estimation of the provision rate of discount and movement of relative price of currencies play a significant role. The assumptions however are likely to be complex and differs in size. Taking into consideration this, provision of product liability is taken as one form of key audit matter.

The issues have been dealt with experts of Deloitte in association with expertise of external auditors. The report is prepared with appropriate assumption and suitable methodology. A number of parameters needs to be considered here. These include appropriateness of chosen methodology used in computing liability provision, setting benchmark for the discount rate and most importantly contrasting the historical claims to that of the projection of future one. In this regard, a sample test has been conducted by Deloitte to include correct assumption and exclude claims that are connected to asbestos in the management’s liability database. In the audit proceeding this plays a considerable role because liability provision builds the basis of audit report (Hay, Stewart and Botica Redmayne 2017). The auditor further discusses with appointed external experts and other legal counsel related to the organization. Deloitte has evaluated appropriateness of the disclosure that are pertinent to the financial reports of the company.

Analysis of Auditor’s Remuneration

From the annual report of CSR of 2018, goodwill of the organization valued $98.1 million. Except goodwill, other intangible assets valued $45.8 million. Property, plants and equipment including several cash generating units together valued $834 million. The impairment evaluation of the concerned assets balance involves crucial judgement. In this regard, the significant assumptions include assumption of rate of inflation, rate of growth, change in building cycles and discount tasks and estimated cash flow for future (Humphrey, Loft and Samsonova-Taddei 2014).  Board of management of the company developed an impairment assessment trigger in order to identify units those are generating cash to be accounted to assessing future impairment. It has been observed that impairment evaluation is further needed for Viridian unit. It is regarded as one key audit matter since value judgement is related to future cash flow estimation and choice of other relevant assumption.

To handle the key auditing matter, Deloitte has critically evaluated management procedure of CSR Limited for determining cash generating units that are further needed for assessing impairment. In the procedure of impairment testing, the auditor has a critical insight on aspects like annual financial performance, reporting of consistency, distribution of goodwill among the cash generating assets and external market scenario (Tricker and Tricker 2015).  The auditor in addition has considered other relevant factors to initiate test methodology for developing model of impairment and associated assumptions. The mathematical accuracy has been checked by conducting sample testing.  

In accordance to the annual report, the Risk and Audit Committee of the CSR Limited has been established by the board of directors of the company. The concerned committee has the responsibility to assess procedures and policies as connected to internal control for protection of assets and liabilities of the business aiming to ensure an integrity to the financial reporting of the company (Du Plessis, Hargovan and Harris 2018). In the Risk and Audit Committee of CSR, there are four non-executive directors.  They are John Gillam, Penny Winn, Matthew Quinn and Mike Ihlein. The committee analyses auditing procedure to maintain integrity in the reporting of financial statement, assesses influential dynamics in order to estimate commercial income and also reviews the structure of managing audit risk. There are however no evidences in company’s annual report about charter of the audit committee of CSR Limited.

Following the independent report of auditor of CSR, it is opined that remuneration report of the company is prepared with adherence to the standard act of “Section 300A of the Corporations Act 2001”.  Additionally, principles as stated in “Australian Accounting Standards Board (AASB)”, “International Accounting Standards Board (IASB)” and International Financial Reporting Standards (IFRS)” are followed in the development and presentation of the different financial reports (Choi et al. 2018). It is further confirmed by the auditor that there is no material mismatch in CSR’s reporting of financial statement. The auditing report od CSR Limited thus represents true health of the company in the financial market. It can therefore be said that an unqualified audit opinion has been expressed by Deloitte after audit of the organization’s financial report. The auditing group has prepared pertinent note regarding accounting system of the company (Tsipouridou and Spathis 2014). Considerable support has been gathered through appropriate fieldwork and conducting suitable test to examine effectiveness of the procedures.

Non-Audit Services Provided by Deloitte

The assigned responsibilities to the company directors, members of management and auditor differ significantly as evidenced from the recent annual report of the organization. There responsibilities differ in terms of development and presentation of company’s report of financial report. It is the responsibility of management and director to prepare company’s financial report by following the accounting standard and regulation as stated in the Australian accounting standard (Libby, Rennekamp and Seybert 2015). Besides capability of the organization is also reviewed by the directors depending on the current accounting basis.  In general, auditors have a different set of responsibilities compared to that of the directors.  While the directors look after the preparation of financial statement, auditors ensure that there is no misstatement either resulting from an error or fraudulence of any other issues. Given below the are list of responsibilities as performed by auditors of Deloitte

• Auditors identify and evaluate risks generated from the misstatement in material reporting.
• They examine the suitable applications of policies related to accounting standard.
• The auditors assesse formulation and presentation of the company’s financial statement.
• Auditors examine the suitability of the basic accounted standard as adapted by the directors (Eisenberg 2017).
• It is responsibility of the auditors to clearly understand internal control of the organization.
• In addition, auditors collect sufficient evidences of audit.

The current annual report of the chose organization has mentioned two subsequent material events. Of the two one is the selling of land that are surplus to the company at Horsley Park. It is on the 3^rd April in this year, when CSR Limited has announced this transaction in New South Wales.  As stated in the terms of selling, the company has to account around $30 million income before payment of tax in its statement during the period ended by March 30^th, 2019. This settlement is expected to materialize in the month of April of 2019.  So far as second material subsequent event is concerned, it is the declaration related to dividend. CSR Limited has declared per share contribution to the dividend valued $68.1 million as 13.5 percent (csr.com.au 2018).  The date of payment has been announced as 3^rd of July, 2018. The dividend payment is to be as a part of the organization.

As viewed from the perspective of a third party shareholder, it can be mentioned that the Deloitte’s member related to auditing activity of CSR have efficiently and properly analyzed all the material information. In this procedure, the auditor has to comply with the states principles and regulations as underlined in the APES 110, Corporations Act 2001, Australian Auditing Standards and others. It has been also found that two matters of auditing have been identified by members of Deloitte. Such steps are also necessary to reduce the auditing matters. All these indicate effectiveness of Deloitte’s auditing members in dealing with relevant material information of the company (Chen et al. 2014).

Auditor’s Independence

There are various material aspects and information that could result in risk arising from material misstatement in reporting financial statement of the company (Ho 2017). The auditor of the company has explained sufficient disclosure for confronting the material facts of CSR Limited. The transparency of auditing service can be stated to be maintained no information has neither omitted nor hide by the auditors in reporting of material statement of CSR Limited.

The auditor has been asked several questions in the general meeting held annually regarding review of procedure for auditing (Wilkinson and Coetzee 2015). In case of Deloitte, which is the auditor of the chosen the possible questions for follow up are stated below

• What is the scope of the audit plan?
• Whether there is a scope of discussion reacted to accounting or auditing aspects with the company’s management before the retention takes place?
• Does the organization have any external auditor?
• Does there exit any activity or subsidiary which the company has not disclosed in the auditing? (Duff 2016)
• What do you think ensure effectiveness of auditing service identifying errors in material information, any act that is illicit or fraudulent?
• Whether the management face any issue in controlling business procedure?
• Do you find any scope for improvement in the organization to minimize auditing time?
• What techniques do you use in assessing risk for the organization?
• Do you find any complexities in current year’s audit? (Kabuye et al. 2017)
• Do you have any unsolved question that is subject to previous year’s auditing?

Conclusion

Based on the analysis so far has been made, it can be concluded that auditor of CSR Limited that is Deloitte has complied with underlined regulation in APES 110, IASB, “Corporations Act 2001”, IFRS and other relevant standard principle of accounting during auditing of financial state report of the organization.  The auditing standard of Australia has laid out highest ethics levels in the non-audit service. The analysis of auditor’s remuneration reveal that as a whole there is 6.64 percent fall in the same during the accounting year of 2018. Deloitte has identified and effectively handled two key auditing matters. Transparency of the audit report has been maintained as the auditors reveal all the relevant information in the annual report of 2018. Conclusively, some of the specific follow up questions are outlined that could be possibly asked to the auditor in the general annual meeting.

List of References

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Chen, Y., Smith, A.L., Cao, J. and Xia, W., 2014. Information technology capability, internal control effectiveness, and audit fees and delays. Journal of Information Systems, 28(2), pp.149-180.

Choi, J.H., Chung, H., Sonu, C.H. and Zang, Y., 2018. Opinion Shopping to Avoid a Going Concern Audit Opinion and Subsequent Audit Quality. Auditing: A Journal of Practice and Theory.

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Hay, D., Stewart, J. and Botica Redmayne, N., 2017. The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis. Australian Accounting Review, 27(4), pp.457-479.

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Wong, R. and Millington, A., 2014. Corporate social disclosures: a user perspective on assurance. Accounting, Auditing & Accountability Journal, 27(5), pp.863-887.