Key Audit Matters and the Report of Auditor | Assignment help
Introduction
The key audit matters provide a risk analysis about a company and created by the international body of audit and assurance standard board. Its main purpose is to improve the report of auditor in terms of transparency as well as address potential challenges that stakeholders face. The auditor reporting standards of 2015 are applicable to different companies and provide clear auditing analysis in relation to risk management (Gorodilov & Pastukhova, 2018). In different countries, the key audit matters are subjected to a different level of industries. For instance, in the UK and Netherlands, the new standard of the audit was implemented in 2016. Under the public company of accounting in the US, the board has provided different levels of standards for audit.
In this research framework, the critical analysis of key audit matters in auditor’s report will be presented. It will be done in relation to ASX 100 listed companies that can help evaluate the efficiency of matters of key audit. The key focus of this research is on the key audit matters.
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International Standard on Auditing
Extent of the international standard of auditing is wide and it implies effective communication. The prime responsibility of the auditor is to communicate about different matters of the report that related to auditor’s judgment and communication content (Gorodilov & Pastukhova, 2018). The rationale of key audit matters is to mainly provide effective communication under influence of transparency. The communication in key audit matters is central to work with the companies’ financial statements and to identify significance of these statements for the current time. In this regard, communicating audit matters support intended users in different management areas and offer valuable judgment for the financial statements. The audit matters work significantly and engage in governance ineffective audit operations.
This communication is also effective to formulate an opinion for the financial statement. The international standard of audit offers a complete set of entities’ financial statement. It is applicable to the report of auditor by law. Main purpose of the international standard of audit are, for instance, key audit measures focus on the professional judgment by the auditor. It has to determine the matters that are crucial to analyze when performing an audit (Gold, Gronewold & Pott, 2012). For this purpose, the auditor has to take into account significant risks, higher assessed risk, accounting estimates, high uncertainty and effect of the significant events or transaction of the respective period.
There are different audit standards that work for qualitative and quantitative research patterns. In different counties, like Greece, Cyprus, Romania, Brazil, UAE and South Africa, the quantitative analysis is based on different audit standards. For instance, it includes holding roundtables with preparers, auditors, committee members and regulators, and it helps to report audit matters to the different countries for adoption. It helps the auditor to identify key areas to work and include a professional judgment for the listed companies in ISA 701 (Shim, Lee & Rho, 2015).
Auditing Standard ASA 701
A relative improvement in the auditors’ reporting standard is ISA 701. It is equally applicable to the audit of the financial statements of different companies and for communication of audit matters. This audit is also applied to the law and regulations that are relevant to different practitioners and different sized entities. It is helpful to address the judgment of auditor, its communication and content. The ISA 701 is about the Australian legislative environment that is developed in accordance to maintain quality of audit (Gold, Gronewold & Pott, 2012). This auditing standard is helpful to offer explanatory material for the audit matters in the independent report by auditor.
The ASA 701 is the main standard by AUASB that is developed for the requirements of auditor’s report and offers a different framework. For instance, it includes, mandating of audit matters communication for companies, and enables auditors to add or subtract the entities in audit matters. Auditor works to determine the key audit matters by determining the communication matters with the help of governance, focusing on auditor’s judgments, high significant areas and matters. ASA 701 is applicable to the financial reports of different time periods, as well as audit reports or other purposes (Fakhfakh & Fakhfakh, 2010).
The auditing standard is significant to focus on the responsibility of the auditor to communicate the key audit matters. It is also helpful for the communicative value to increase matter handling, effective judgment and transparency. The role of communication is effective for the intended users, since it offers better management and engagement with the entity. The Australian auditing standards are developed to provide a clear interest of the public and to maintain the high-quality focus. It is developed to conform to the regulatory environment of Australia. It is capable of enforcement and provides strategic direction. The consultation process of developing a standard is due and consulted publicly.
The regulatory impact assessment is prepared in relation to ASA 701 for the communication in the independent auditor’s report. Scope of this auditing standard is wide and applicable in different circumstances. This importance can be determined on the basis of matter and its context. The auditor undertakes its significance on the basis of quantitative and qualitative framework just like, effect and nature of subject matter, relative magnitude, and expressed interest of recipients or users. It is based on the objective analysis of circumstances and different facts that are related to governance.
The financial report users focus on the auditors’ report and undertake significant communicative elements to analyze additional transparency. In such cases, users express interest in significant judgment of auditor and financial report opinion. It needs to communicate the audit matters by auditors that can enhance communication of auditor with respect to particular matters. It is constructive for the auditor to presuppose that financial report users possess significant acquaintance regarding economic activities & business so they are willing to study the accounting information (Fakhfakh & Fakhfakh, 2010). It is important to understand, how the report is prepared and presented for the auditing.
Key Audit Matters
The most imperative part played in auditor’s independent report is by key audit matters. It is all that matters in professional judgment. The role of professional judgment is significant for the financial statement audit. It helps formation of an opinion and offers a separate significant opinion. There are different perspectives of key audit matters, of which some are being used in this research report regarding ASX top 100 listed companies. The selected industry for this report is ‘materials’. Respective companies under ‘materials’ are used for the analysis of key audit matters. The famous companies are Atlas Iron Ltd, Amcor Ltd, Aquarius Platinum Ltd, Alumina Ltd, BHP Billiton Ltd, Boral Ltd, BlueScope Steel Ltd, Fortescue Metals Group Ltd, Iluka Resources Ltd, Incitec Pivot Ltd, James Hardie Industries SE, Lynas Corporation Ltd, Macarthur Coal Ltd, Newcrest Mining, OneSteel Ltd, OZ Minerals Ltd, PanAust Ltd, Rio Tinto Ltd, and Sims Metal Management Ltd. In the sector breakdown, according to ASX 100 listed companies, ‘material’ is a sector that counts for 18.8% share among others. This sector breakdown is based on market capitalization in 100 constituents (Boolaky & Soobaroyen, 2016).
