Background of Enhanced Auditor Reporting in Australia

This report emphasises upon the auditing requirement and role played by auditors in organization. The international auditing assurance board have been several audit assurance program which needs to be followed by auditors while preparing the financial statements. This report reveals the declaration for the auditor’s independence, auditor’s roles and given audit services. The audit report analysis of the BHP Billiton is done by evaluating the audit report and annual report of company. This report assists in evaluating the audit program and disclaimer given by auditors in its audit report. In addition to this, auditors need to comply with the certain audit rules and regulations while auditing the financial statements of company. In context with the further details of company it is analyzed that the outgoing chairman of the company is Jac Nasser and the incoming chairman is Ken Mackenzie and the chief executive officer of the company Andrew Mackenzie (BHP Billiton Company. 2016). In this report, the main detail explained the role of the auditors, responsibilities and their opinion given to company on the basis of the audit performed on the annual report of company.

It is analyzed that auditor’s independence is based on the several factors such as their relation with company and time they have spent while auditing the financial statement of particular company Auditors who are auditing the financial statement of company should not be having any pecuniary relation with the company in any manner. Currently, the financial statement of company is audited by the biggest audit firm named KPMG. However, in future, EY will be hired as new auditors to audit to financial statement of company (BHP Billiton Company. 2016).

It is analyzed that audit committee should also be convinced by auditors that the auditors are independents in their operations will be allowed to check the financial statements. However, in this case, in order to justify the auditor’s independence auditors needs to give declaration regarding with the independence in written. In this written declaration, they will state that they are not having any sort of pecuniary relation with the company. Nonetheless, it is considered that auditors are in the fiduciary position of company and takes all the required actions in the best interest of the stakeholders. Therefore, they should be having no relation with the company and independently audit the financial statement of company so that it could showcase the true and fair views to the stakeholders. Under section 307C of the Australian corporation act 2001 the auditor’s independence declared by KPMG. Under International Financial Reporting Standards (IFRS’s) the consolidated financial statements are prepared as issued by the International accounting standard board (IASB). The directors are responsible for the activities which are performed in the annual report (BHP Billiton Company. 2016).

Reviewing Key Areas of Annual Reports for Auditor’s Role

There are several audit services given by auditors to company. These non-audit services are given to clients in addition to the audit services. However, auditors take additional compensation for their non-audit services given to clients. These audit services are given under the corporation act 2001 and only these services could be offered by clients to its stakeholders. It is analyzed that if in any case, if these non-audit services offered by auditors hamper the independence of the auditors then it should be deeply analysed by the directors and would be disclosed in the annual report of company. In the financial statement of company, it is showcased that the auditors offered tax compliance and setting up harmonization in its domestic and international reporting to company and for the consideration it has taken consideration worth $ 23 million from the company. Furthermore, other non-audit services provided by KPMG to BHP Billiton are legal compliance program for increasing the effectiveness of the financial statements, complying with the accounting standards without hampering the prepared accounts (BHP Billiton Company. 2017) The main consideration point is that every listed company needs to disclose in its annual report whatever amount of consideration is given to auditors. Some non-audit services were provided by the external auditors and their objectivity is they are free and safe through restrictions on provision of these services. If there is the approval of Risk and Audit committee (RAC)then such type of other than non-audit service are given by the auditors otherwise the services are not undertaken at all (BHP Billiton Company. 2016). It is analyzed that the

,KPMG apart from providing the audit services, there are several other non-below given image shows the members of the audit committee who are also assisting company in the internal audit functions (BHP Billiton Company. 2016).

                   

                                                                        (BHP Billiton Company. 2016).

The audit remuneration is the amount given to auditors for the audit services performed by auditors. However, audit services as well.  In addition to this, apart from the auditors of company, there are audit committee too who are also offering their gracious advice on the audit services. They are also paid audit remuneration by the BHP Billiton Company (Mainardi, 2011). This below given table shows the total audit remuneration given to auditors for the audit services offered by them to company (BHP Billiton Company. 2016). This table helps in analysing the audit payment made to auditors for the audit services by them to company (BHP Billiton Company. (2017).

Fees payable to the group of auditors for the audit and assurance services	15867	15842	.30%
Fees payable to group of auditors for the non-audit services	0.631	1.091	150%

Summary and Evaluation of Auditor’s Assurance Services

The audit remunerations have been given to auditors for their audit and non-audit services. However, the main issue arise due to the changes in exchange rate as the contract entered at different exchange rate (BHP Billiton Company. 2016).

                       

                                                                      (BHP Billiton Company. 2016).

The audit and non-audit services offered by auditors are bifurcated and the above image reflects the total fees paid to auditors in 2017 and 2016.

There are several certain key audit matters which are undertaken by auditors in the best interest of the stakeholder of BHP Billiton Company. The below given showcase the audit matters and other required details which reflects the audit procedures and classification of the audit on the particular audit key matters. KPMG has not given any separate independent opinion on the audit procedure performed at the time of auditing the financial statement of company (BHP Billiton Company. 2016). These issues are significantly highlighted by the auditors while auditing the financial statement and passing judgement on the qualification and non-qualified report (Bell, Causholli, and Knechel, 2015).

1. Assessment and audit control for the consolidating of the financial statements	The auditors have given their judgement on the basis of the consolidating of the financial statement of the other units is done. They have taken proper management representation letter from directors and management while auditing the consolidated financial statement. If any cases, BHP Billiton made changes in its accounting statements due to the compliance with the accounting standards and other laws then the same have been justified by the directors in their MRL report (BHP Billiton Company. 2016).	· Assertion test is used to classify the assets. · Audit procedure is based on the audit test undertaken by the KMPG in its audit functions (BHP Billiton Company. 2016).
2. Undertaken strategic alliance with other business units	Evaluation of the strategic alliance with the other business units is done by assessing the required details. Proper assessment is made on the cash inflow and outflow of cash from the busienss. It has made proper monitoring the financial statement and recorded accounts in the books of accounts of company.	· Substantive test and confirmation from the relative external parties have also been taken for the audit evaluation.
3. Impairment and valuation of the assets and liabilities	Evaluation is made to assess whether the company has complied with the applicable laws and accounting standards given AASB 136 while implementing the impairment test. Auditors have evaluated whether the certain assumption and variable have been sets as per the right based factors (Hammer, 2015).	· Analytical Procedures · Substantive test of details (Choong, and Leung, (2015).

In accordance with the UK Companies Act 2006 under section 3 of the annual report has been properly prepared and audited and In accordance with the section 300 A of Australian Corporation Act 2001, the audit is performed with Australian Auditing Standard. The auditor’s opinion is that the proper accounting records have not been kept by the company some returns have not been properly received from the branches. The financial statement and the remuneration of the company are not in agreement and not in accordance with the reports and returns and some disclosures which are related to director’s remuneration are also not made  (BHP Billiton Company. 2016).

The audit committee and audit charter have been prepared to evaluate the right value of assets recorded in company’s account. The audit committee is managed by four auditors who undertake all the audit and non-audit services to clients (Murphy, and Hogan, 2016).

The audit committee structure is determined on the basis of corporation act and listing rules and regulation. However, 2 members of the audit committee are independent auditors who are also engaged in assessing the true and fair view of the recorded assets and liabilities in the books of accounts. There is below given details of the auditors and other members of the audit committee (Sirois, Bédard, and Bera, 2018).

• Lindsay Maxsted is the chain of the audit committee and also a member for the whoel period.
• Malcolm Broom head is also another executive audit member who is hired as member of the audit committee (BHP Billiton Company. 2016).
• Anita Frew and Wayne Murdy both are the auditors who audit the financial statement of BHP Billiton and also engaged in showing the right value of books of accounts (BHP Billiton Company. 2016).

Auditor’s Independence and Pecuniary Matters

                           

                                                                     (BHP Billiton Company., 2016).

• Audi committee is engaged in hiring auditors, checking their eligibility. These members are responsible in determining who will be the auditors of company.
• They undertake all the internal and external auditors also take care that they are not facing issue while auditing the financing statement of company (BHP Billiton Company. (2017).
• These auditors engaged in maintaining the transparency in the busienss (Badolato, Donelson, and Ege, 2014).

• The responsibilities of the auditors is determined on the basis of audit services offered by auditors to company.
• The audit committee is engaged in determining the Director’s responsibility is to give the true and fair view of the financial statement which are related to financial reporting framework ,execute internal control and free from material misstatement due to fraud and error. The auditor’s responsibility is to obtain the reasonable surety of the financial statement with its right recorded value due to fraud and error. When material misstatement is not detected then some irregularities may be happen like forgery, misrepresentation, omission (Tepalagul, and Lin, 2015).
• Auditors will have to check whether the dividend of shares is distributed out of the profit available .Under Australian law, when there is libiliteis and dividend recorded more than its declared value.
• Auditors should take proper management representation letter form the management of company so that they could state that every details shared by company has been used while determining the right value of its assets (BHP Billiton Company. 2016).
• Auditors will analysis the financial statements and legal accounting standards compliance program of company while evaluating the books of accounts.

The auditors of the BHP Billiton company has given non-qualified clean audit report and stated that company has complied with the all the accounting standards and laws.Auditors have stated that board has established some committees which helps in monitoring ,controlling the performance or activities .Committees can use the resources freely to discharge their responsibilities. In the opinion of the auditors, there is reasonable ground to believe that the company is able to pay its debts in effective manner (Mohseni, (2014). Auditor have also taken proper management representation letter from directors and management while auditing the consolidated financial statement.The audit opinion given by the auditors showcase that company has complied with the applicable laws. The audit report also assists in sustainability of company.          

The responsibilities of the management are related to preparing the financial statement as per the applicable laws and regulations. It is the duty of the management to maintain the transparency in financial statements. The main role of the auditors is to maintain the transparency in the prepared financial statement and assure the transparency in the prepared financial statements. The auditors check the vulnerability and viability of the prepared financial statements (Porter, Hatherly, and Simon, 2008). The management has to act in the best interest of organization and auditors have to act for the stakeholders.

There are several material subsequent events such as increased profitability, loss of busienss and auditors functions. It is analyzed that when comparing the profit or earning with the last year there is huge difference in profit. There is complete loss of US$ 6.4 billion,  and it includes abnormal loss of US$7.6 billion after tax but this year there is profit of US$5.9 billion  and it also add loss of US$842 million after tax. The net operating cash flow of US$ 16.8 billion shows that the commodities prices are higher and the further cost efficiency of cash. The capital gearing ratio is 20.6% with the comparison of financial year 2016 it was 30.3% (Štangová, 2017). This has shown the material subsequent events have shown that company has complied with the accounting standards and listing rules.

Conclusion

The crux of this report is that BHP Billiton Company has to disclose all the information which is related to their financial performance. The auditors of company have assisted in increasing the transparency and recording right value of the assets. With the proper accounting records and auditors report given by auditors, it is easy to say that company has complied with the applicable laws and regulations. The sustainability of company is good and company is able to pay off its debts to its stakeholders.

References                                              

Bell, T.B., Causholli, M. and Knechel, W.R., (2015). Audit firm tenure, non?audit services, and internal assessments of audit quality. Journal of Accounting Research, 53(3), pp.461-509.

BHP Billiton Company. (2016). Annual report. Available at https://www.bhp.com/investor-centre/annual-reporting-2017., Accessed on 15^th September, 2018

BHP Billiton Company. (2017). Annual report. Available at https://www.bhp.com/investor-centre/annual-reporting-2017., Accessed on 15^th September, 2018

Choong, K.K. and Leung, W.Y., (2015). Auditor remuneration, corporate governance and auditor independence: evidence from Hong Kong.

Hammer, M., (2015). What is business process management?. In Handbook on business process management 1 (pp. 3-16). Springer, Berlin, Heidelberg.

Mainardi, R. (2011). Harnessing the power of continuous auditing. Hoboken, 2^nd ed, New York: John Wiley.

Mohseni, A. (2014). Audit Approach to Audit Risk Management, Quantitative Determination of the Components of Audit Risk and Determine the Impact on the Components of Audit Risk in Audit Sampling. SSRN Electronic Journal. 31(1), pp.11-18

Murphy, L. and Hogan, R., (2016). Financial Reporting of Nonfinancial Information: The Role of the Auditor. Journal of Corporate Accounting & Finance, 28(1), pp.42-49.

Porter, B., Hatherly, D. and Simon, J. (2008). Principles of external auditing. Chichester, England: John Wiley.

Sirois, L.P., Bédard, J. and Bera, P., (2018). The informational value of key audit matters in the auditor’s report: evidence from an Eye-tracking study. Accounting Horizons.

Štangová, P. (2017). Financial Audit as a Tool for Management Control. Account and Financial Management Journal. 30(1), pp.101-121

Tepalagul, N. and Lin, L., (2015). Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.