Enhanced Auditor Reporting In Australia: A Case Study Of AGL Limited Group

Compliance with Independence Requirements

The study shall mainly take the consideration of carrying out a detailed analysis of the annual reports of a company. For the convenience of the study, The AGL Limited Group has been chosen. It is an Australia based organization which is related to the energy and power services Industry. It procures and supplies power, electricity and Gas and supplies them for residential and another different kind of commercial use. Documents such as the Auditor’s Independence Declaration, Non-Audit services performed by the Auditor, Auditors’ remuneration and the Independent auditor’s report has been studied and different kind of information has been gathered from them. The auditor’s compliance with the Independence needs have been checked, then the provision of various non-audit services have been taken into account. Things such as detailed study about auditor’s remuneration, Key audit matters, details about the Audit Committee, various kinds of audit opinions, Director’s responsibilities with that of Auditor’s responsibilities, details about materials events and testing of material information. The study has shall take an end with the different questions that could have been asked to the auditors and then at the last, with an ending note of Concluding remarks. 

It can be said that the Auditor has complied with all of the Independence requirements. It has been clearly mentioned in the Auditor’s Independence declaration that the auditing has been conducted and the reporting has been done in compliance to the section 307C of the Corporations Act 2001 (www.cpa australia.com, 2018).

The auditor in the declaration ha clearly stated that all the compliances have been made with Corporations Act and the applicable codes and professional conduct in relation to the audit has also been attained. Thus it can be clearly said that the Audit has been done as per the Australian Accounting standards and further, it has been stated that they were independent and away from the influences of the AGL Group. They had functioned as per the auditor’s independence requirements of the Corporations Act, 2001 and also as per the needs of the Accounting Professionals and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (www.auasb.gov.au, 2018). Thus it can be concluded that all the things were done in compliance with accounting standards as well as other legal things prevailing in the land of Australia.

The board follows a kind of formal approach in the provision of non-audit services to the company. It can be said that the external auditor cannot provide such nature of services which can threaten the independence and defy the overall assurance and compliance role. Semi-annual reports on the cases related to auditing and related services are provided to the Board with the overall help and aid of the Audit and Risk Management Committee (Beck, Dumay and Frost, 2017.). No non-audit services have been provided by the external auditor the whole of the financial year. A rotation policy has also been agreed upon for the senior Auditor Of the Auditing agency, that is Deloitte. The non-audit services that were provided to the company were mainly of a free nature. It is done and comes with the overall remuneration of auditing that is paid to the committee by the Directors and the whole of the company.

Non-Audit Services

The auditor of AGL Energy Limited is Deloitte Touche Tohmatsu. The auditing organization is a paid off with a lump sum amount of money for their auditing service provided to the AGL Limited Company. The total audit and risk management committee of the company is paid off with $53000 as Chair feet and $26500 as member fee. They provide with different kind financial, auditing and non-auditing services. The payments are made based on all the auditing and other related services given by them to the company. The remuneration for external audit and review of financial reports have increased in the year 2018 as compared to that of the previous year. The amount for other audit regulatory services has also increased. However, the number of other assurance services and other services have drastically fallen (directory.libsyn.com, 2018). This may due to the change in the rates set for auditing by Deloitte. The company has paid off based on the new rates set by Deloitte. The overall remuneration, however, has fallen by more than 143%. This may be also related to fall in the economic condition of AGL LImited.

In relation to the key audit matters, the audit procedures that were performed to provide assurance over each matter (Summarise and paraphrase each key audit matter. Correctly classify each audit procedure listed as tests of controls, substantive tests of detail, a substantive test of balances or analytical procedures.)

The key audit matters reported by the auditor in the report are as follows:

1. Unbilled revenue: There is has been uncertainty over the unbilled electricity consumption of customer in the year 2017 that amounts to 938 million due to variance in meter readings dates (Reid and Wettenhall, 2015).
2. Unbilled distribution cost: the auditor has also identified the matter related to unbilled distribution cost for network supply result due to improper estimations.

On this contrary, the auditors provided a substantive procedure for mitigation of these matters and investigate clearly on the matter to solve the following. The methods followed by the firmware as follows:

1. Billings of meter readings and historical data relating to it was checked for confirmation of the unbilled revenue (Sarens, 2015).
2. The physical setting of matter amounts was done in order ensures no misstatement was involved.
3. Cost per units as determined in accordance withcompanies and well as industrial rates to mitigate such situations.

Presence of an Audit committee, non-executive directors on the audit committee, the Audit Committee Charter.

The audit committee of the company, comprises of a number of specified knowledgeable members. The main structure of the Audit committee can be mainly divided into parts, The external auditors and the internal auditors. Mr John Stanhope acts as the chairman as well as the executive director (the main person) of the whole of the Auditing Committee. He takes all the decision after being guided by the main Chairperson of the Group/Organization.

The Audit Committee is mainly responsible for undertaking the auditing of the whole company and its accounts. The committee is also liable for strategic risk profile scrutiny and warning the company ahead of any issues or problems. The office of the audit committee is managed by the chairman that is Mr Stanhope. Under him, there are various of the important officials (Non-Executive directors) such as Jacqueline Hey, Les Hosking and Belinda Hutchinson. All these people in a joint and collaborative manner manage and run the Auditing Committee. Under them, several of the auditors work for the company (Hoffmann et al. 2014). They also help and guide the external auditors in any kind of need or if any such kind of situation arises. The committee works in unison and scrutinized s the whole accounting of the company and vouchers and verifies them. Different kind of important steps are also taken by the committee I need to different kind of situation and emergencies arising out in the company.

Analysis of Auditor’s Remuneration

A kind of positive opinion was expressed in the whole scene of auditing. The whole of the auditors has expressed their feeling that the auditing was righteously done and all the standards and the policies have been followed up. The whole of the auditing has been done in compliance with the Australian Accounting Standards and terms of the Companies Act 2004 (Ball et al. 2015). It was also expressed by the auditors that they had made the reports and conducted the auditing on an independent basis. However, some of the items such as Unbilled revenue of $938 million, Unbilled distribution costs of $412 million. There were also other things which declared in the reports prepared by the auditors related to the different things that were not declared by all of the auditors on a per-hand basis.

The comparison of Directors’ and Management’s responsibilities with that of the Auditor’s responsibilities in accord to the financial report

The Directors and Management’s responsibilities are to see through that the company is properly run and all the operations are properly taken care off (Mayne, 2017). They have the sole responsibility of running the company and taking care of each of its affairs starting from accounting, auditing (internal), to arranging for remunerations of the various staffs as well as auditing committees, taking decisions for the company and making any kind of declarations and provisions for the company (McKee, 2015). They mainly held a meeting where major decisions regarding the company are taken forth by them. On the other hand, Auditors, mainly the external auditors get remunerations from the company. They have the sole responsibility to review and check for the accounts bookkeeping done by the company and find faults in it and report it (Adams, 2017). They have the full responsibility to conduct the audit and report any kind of omissions or material misstatements done by the specific organization. The internal auditors have the responsibility to access the materials and warn the company about any material misstatements, errors or manipulation that has been done by the accountants before it gets scrutinized by the External Auditors (Chiu and Vasarhelyi, 2018). They also hold positions in the company and attends a different kind of board meetings and take up an active part in the Executive and non-executive duties in the company.

In the above sections, it has been seen that the auditor in the auditor report has reviewed a fair decision over the financial reports created by the firm in the current years. It can be said that as a Fair view over the financial review has been given by the auditor it cannot be said that there was any, materiality or misstatement involved in the financials of AGI limited. Although for purpose of making communication of matter in which the auditor suspected that can are mortality was reported under the audit matter report (Podger, 2018). This showed that there are some key audit matters investigated by the auditor to be suspected to have materiality but in such cases, the following were solved by the organization. It can be said that thus there was only some matter concerning the auditor remaining to which there were no such major accounts in which materiality was suspected hence it can be said that there not event leading to materiality involved within the financial reports of the firm (Hoffmann et al. 2014).

Key Audit Matters

As an interested third party stakeholder, making an assessment of the effectiveness of the material information reported by the Auditor in the conclusion.

The material information provided by the organization can be said to be much effective and detailed. It has been able to describe all the situations and the things that have been done in the overall accounts of the organization. The changes in accounting policies and practices in some places have also been clear and in detail reported in the declaration put forth by the business organization (Vanclay, 2015). It can be noted that many of the things have been clearly mentioned and specified by the board of the auditors. However, things related to the roles of the auditors and details related to the provisions have not been made in detail. It has to be kept in mind that most of the times, the different of the business organization makes some changes or manipulations in their amount and heads of the different provisions. Thus, it can be said that the auditing committee should have cross checked and analysed the details related to the different kind of provisions that have been made and considered in the annual reports of the company.

Considering whether there was any material information which could be missing, under-reported and/or not fully explained or disclosed in an effective way for the intended users  

It can be said that there was very negligible kind of material misstatements to be found in the whole of the work. It can be said that fewer instances of material information being missing as such and under-reported can be seen. However, there were some wrong reporting related to the unbilled revenue, unbilled distribution costs and there was also information misleading and missing related to the financial instruments held onto and possessed by the business organization. All these things were clear and in detail reported by the auditor of the organization (Griffiths, 2016). The material information related to the overall role of the difference of the members of the auditing committee could have been provided in a much detailed manner. It can be said that the members and their designations have been pointed out in the annual reports, but, their individual roles and responsibilities have not been clearly defined as per the need. These things could have easily been done.

Different follow-up questions that could be asked to the Auditor at the company’s Annual General Meeting

Audit Committee

Questions relating to the overall efficiency of the auditors could be asked. The individual role played each of the authors at the auditing committee could have easily been interrogated. It can be seen that the auditors have done the auditing but specifically, they have not mentioned how and in which manner they have conducted the same. Questions related to the cross-checking of the accounts could have been made (Lenz and Hahn, 2015). Further what kind of more provisions have to be made and mentioned in the annual reports of the organization also needed to be asked by the auditors. Questions related to the declaration of the authenticity of each of the books made and maintained by the company could also have been made from them. How the bills of the revenue from the gas could be settled should have been asked of them. Further, the unbilled and not written down distribution costs and their overfall aftermaths could also have been asked by the boards of the auditors of the company (Chiang, 2016). By asking all these questions, the actual state of affairs of the company could have been perceived.

Conclusion

The details related to the annual report has been considered and related to different parts of the study. It can be concluded that some material information has been missed out in the annual report and its different sections made by the company. It has to be ensured that such kind of missing information should be provided in order to give proper information to the different stakeholders of the company.

References

Beck, C., Dumay, J. and Frost, G., 2017. In pursuit of a ‘single source of truth’: from threatened legitimacy to integrated reporting. Journal of Business Ethics, 141(1), pp.191-205.

Ball, F., Tyler, J. and Wells, P., 2015. Is audit quality impacted by auditor relationships?. Journal of Contemporary Accounting & Economics, 11(2), pp.166-181.

McKee, D., 2015. New external audit report standards are game-changing. Governance Directions, 67(4), p.222.

Chiu, V. and Vasarhelyi, M.A., 2018. The Development and Intellectual Structure of Continuous Auditing Research 1. In Continuous Auditing: Theory and Application (pp. 53-85). Emerald Publishing Limited.

Vanclay, F., 2015. The potential application of qualitative evaluation methods in European regional development: Reflections on the use of performance story reporting in Australian natural resource management. Regional Studies, 49(8), pp.1326-1339.

Griffiths, P., 2016. Risk-based auditing. Routledge.

Lenz, R. and Hahn, U., 2015. A synthesis of empirical internal audit effectiveness literature pointing to new research opportunities. Managerial Auditing Journal, 30(1), pp.5-33.

Chiang, C., 2016. Conceptualising the linkage between professional scepticism and auditor independence. Pacific Accounting Review, 28(2), pp.180-200.

Mayne, J., 2017. Evaluation for accountability: myth or reality?. In Making Accountability Work (pp. 81-102). Routledge.

Adams, C.A., 2017. Conceptualising the contemporary corporate value creation process. Accounting, Auditing & Accountability Journal, 30(4), pp.906-931.

Hoffmann, T., English, T. and Glasziou, P., 2014. Reporting of interventions in randomised trials: an audit of journal instructions to authors. Trials, 15(1), p.20.

Annual Reports AGL Limited (2018). Annual Reports, 2018. [online] Available at: https://www.2018annualreport.agl.com.au/xmlpages/resources/TXP/agl_energy/finrep/pdf/AGL_Energy_Annual_Report_2018.pdf [Accessed 19 Sep. 2018].

Auasb.gov.au. (2018). Auditor Reporting. [online] Available at: https://www.auasb.gov.au/Publications/Auditor-Reporting-FAQs.aspx [Accessed 19 Sep. 2018].

Cpa Australia.com.au. (2018). Auditor reporting. [online] Available at: https://www.cpaaustralia.com.au/professional-resources/audit-and-assurance/auditor-reporting [Accessed 19 Sep. 2018].

Directory.libsyn.com. (2018). How is Enhanced Auditor Reporting being Embraced Around the Globe?. [online] Available at: https://directory.libsyn.com/episode/index/id/4886297 [Accessed 19 Sep. 2018].

Reid, R. and Wettenhall, R., 2015. Shared services in Australia: is it not the time for some clarity?. Asia Pacific Journal of Public Administration, 37(2), pp.102-114.

Nielsen, C. and Roslender, R., 2015. Enhancing financial reporting: The contribution of business models. The British Accounting Review, 47(3), pp.262-274.

Sarens, G., 2015. Guest editorial on internal assurance: a concept in evolution. Managerial Auditing Journal, 30(1).

Podger, A., 2018. Making ‘accountability for results’ really work?. VALUE FOR MONEY, p.95.

Guo, Q., 2018. Rhetoric in financial reporting: evaluation of ISA 720.

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