Compliance of Auditors with Independence Requirements
The report is prepared for analyzing the auditors section as reported in the annual report of one of the companies listed on Australian stock exchange. Evaluation of the assurance services of auditors have been done in the context of selected company that is Azure minerals limited. Azure minerals are one of the leading mineral exploration company of Australia having a proven mine building credentials and proven mineral discovery and operating at the international level. The company is progressing towards the advanced stage of Oposura project which is located in one of the premier mining districts of Mexico. The information regarding the assurance services provided by the auditors have been extracted from the annual or financial report of the company. Some of the areas relating to the section of auditors of Azure minerals that have been evaluated include compliance of auditors with the independence requirements, analysis of key audit matters, analysis of auditor’s remuneration, auditor’s opinion and assessing the effectiveness of the material information ascertained by the auditor (Köhler et al. 2016). For the purpose of analysis, information has been gained from the annual report of the company for current as well as previous year.
The responsibility of auditors of listed company is to obtain the reasonable assurance of the fact that the financial statement does not contain any material misstatement. Such assurance provided by the auditor is a high level of assurance that the conduction of audit have been done according to the requirement of Australian auditing standards and they would be able to detect existence of material misstatements (Alzeban and Sawan 2015). However, such reasonable assurance does not act as guarantee to ensure the users of financial statements. The assurance services of auditors of Azure minerals limited have been conducted in accordance with Australian auditing standard. In addition to this, the audit evidence obtained by auditor is appropriate and sufficient that forms a basis of opinion.
The evaluation of the compliance of the independence requirement by auditor is evaluated by analyzing the statement about independence of auditors. It is declared by the auditors in the annual report for the year ending 30th June, 2017 that there have been non contraventions regarding the applicable code of in relation to then professional conduct of audit. In addition to this, there have not been any contraventions regarding the requirement of independence auditors according to the Corporation Act, 2001 (Khaneja et al. 2017).
Analysis of Key Audit Matters
It is the description of Azure minerals limited to decide on the employment of auditors on assignments that is additional to the duties of statutory audit where the experience and expertise of auditors within the group or company are important. The annual report sets out the details of the amount paid for the non audit and audit services provided. The board of director of Azure minerals limited has considered and has considered the advice according to what it has received from the audit committee. They are satisfies that the non auditing services provision is compatible with the general independence standard relating to the auditors that is set out in the Corporations, Act 2001 (Austin and Herath 2014). It has been found that the independence requirement of the Corporations Act, 2001 auditors has not been compromised. This is so because the audit committee has reviewed all the non audit services that help in ensuring that the objectivity and impartiality of auditors is not affected. In addition to this, the general principle concerning the independence of auditors that is set out in the “APES 110 code of ethics for professional accounts” is not undermined by any of the non auditing services. The non audit services provided by the auditors of Azure minerals limited include taxation services and audit related services (Chou et al. 2014). Taxation services include the tax compliance services and BDO corporate tax (WA) Pty Ltd and audit related services include attendance at annual general meeting and BDO audit (WA) Pty Ltd.
The table below depicts the total amount of remuneration that is paid to the auditors of Azure minerals limited for providing the auditing services. In addition to this, the auditors receives additional amount of fees for offering any non audit services. The total amount that is receivable by the auditors of company for auditing services such as conducting review of the entity’s financial report, tax compliance services and reviewing or auditing the financial report of subsidiaries (Morawska and Staszkiewicz 2016). The total amount of remuneration paid to BDO audit (WA) PTY Ltd is recorded at $ 37885 and $ 37622 for financial year 2017 and 2016 respectively (Azureminerals.com.au 2018).
It is required by the listed company’s auditors to report on the key audit matters as they are the most significant components of in the auditing of the financial report of company. The audit matters recognized was addressed in the context of financial report auditing as a whole.
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Key audit matters |
Addressing of key audit matters |
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The key audit matter that has been recognized by the auditor is recoverability of the expenditure relating to the capitalized exploration. It has been found from the notes to the financial statement that the carrying value of capitalized expenditure is recorded at $ 6131024 and $ 6104133 for year ending 2017 and 2016 respectively. Management according to the AASB 6 evaluation and for exploration of mineral resources is required to make significant judgment for recovering the evaluation and exploration expenditure for determining the existence of circumstances and facts that recoverable amount is less than the carrying value of assets (Abernathy et al. 2016). It is due to this, such expenditure is considered as audit matter. |
The following presents the auditing procedures for providing assurance over such key audit matter which are listed below. ü Azure minerals make the assessment about the tenure rights of the concerned area of interest at the balance date along with obtaining the schedule. ü It is required to take into account whether such area of interest has reached the stage that seeks reasonable assessment of existence of reserves that are economically recoverable. ü The status of ongoing programmes of exploration is considered in respect of area of interest by reviewing the exploration budget of the group, holding discussion with the management, minutes of director and announcements of ASX (Bédard et al. 2018). ü The adequacy of related disclosures in the note eleven and three of the financial report is assessed. ü In addition to above, it was required to make suggestion of impairment testing by taking into account the existence of circumstances and facts (Chiang 2016). |
Analysis of Auditor’s Remuneration
Structuring of the audit committee should be done in such a way that it consists of majority of independent directors, non executive directors which should be chaired by an independent chair and there should be at least three such members who are not the chair of the board.
An audit committee charter has been adopted by the management of Azure minerals limited and the composition, roles, responsibilities and functions of audit committee is described by such charter. For the appointment, selection and rotation of external auditors is done by the establishment of procedure. During the reporting period, two meetings should be held by audit committee who has shown their attendance. This separate audit committee was established by the board to review and monitor the financial report integrity (Bowlin et al. 2015).
Composition of audit committee:
The audit committee of Azure minerals has been established by the board that comprised of two non executive independent directors that is Wolf Martinick and Peter Ingram. Since the committee has only two members, it is said that the structuring of audit committee have not been done according to the recommendation 4.2 (Azureminerals.com.au 2018). However, it is considered by the board that the composition of committee is appropriate.
The primary function of audit committee is to assist board in relation to fulfillment of responsibilities concerning the accounting and reporting practices. Other functions that are performed by the audit committee are as follows:
- The audit quality of external and internal auditing of financial report is overseen, coordinated and appraised by auditor committee.
- The independence and effectiveness of external and internal auditors are determined by the audit committee.
- Audit committee is responsible for determining the adequacy of financial report and conducting the reviewing of accounting control (Kamath et al.2018).
Responsibilities of audit committee:
- It is the responsibility of the audit committee to review the performance of external auditor on an annual basis and making recommendations on the same to the board (Morawska and Staszkiewicz 2016).
- An independent review of the financial information should be conducted by auditors for external reporting. For this purpose, they are required to form an opinion on the report of director, annual financial statements and financial report that are produced externally (Brennan and Kirwan 2015).
- Audit committee is responsible for appointing, reviewing and assessing the arrangement of internal audit and they should consider the internal audit findings and responses of management.
- The integrity and effectiveness of the process of financial report is monitored by audit committee.
The financial report of the Azure minerals along with its subsidiaries have been comprising of consolidated statement of profit and loss other comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flow, declaration of directors, summary of considerable accounting policies and notes to financial statements as on 30th June, 2017 have been audited by the independent auditor. The auditors of Azure mineral have formed the opinion about the financial report that the report prepared complies with the Corporation Act, 2001 and gives a fair and true view of the financial performance for the year ending 2017. In addition to this, financial report also complies with accounting standards of Australia. The basis of opinion is that auditing has been conducted according to the auditing standards of Australia and complies with the ethical requirements of ethical standard board and accounting professional of APES 110 Code of ethics. Auditors have fulfilled their responsibilities of meeting ethical requirement according to the code (Auasb.gov.au 2018).
Auditor’s Opinion
The director of Azure minerals is responsible for preparation of financial report according to the Corporation Act, 2001 and Australian accounting standards that gives a true and view. Furthermore, they have the responsibility of designing the effective internal control system that is considered essential for the preparation of financial statements that do not contain any material misstatement resulting from fraud activities or errors and thereby giving a fair and true presentation of the report. The assessment of the ability of Azure minerals to continue as a going concern is the responsibility of directors. The accounting system of group incorporates the basis of going concern unless the director does not intend to cease the operations and liquidate the group (Shaukat et al. 2016).
The auditor’s responsibility differs from that of director or management of organization in terms of obtaining reasonable assurance about the financial report that it does not contain any material information and represents the fair and true view. Existence of material information that misrepresents the financial statements tends to influence the users economic decision. The remuneration report is prepared by the directors of company according to the section 300 A of the corporation Act. Auditors on other hand have the responsibility of auditing the remuneration report and forming the opinion in the same in accordance with the Auditing standard of Australia (Sharma 2015).
Conclusion:
The section of conclusion depicts the assessment of the material information effectiveness as reported by the auditor of Azure mineral limited. It has been found that there is no material exposure of company to the credit risk relating to the trade receivables. The information presented by the auditors is not materially inconsistent with the knowledge of audit and financial report. A considerable role is played by the auditors in providing assurance services in relation to the financial statements of company for presentation of true and fair view of financial information. The annual report illustrates the responsibility of directors and auditors in relation to the financial report. Furthermore, it has been found by the auditor that there exists materiality in the expenditure relating to the exploration of mineral resources.
References:
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