Audit Process And Key Audit Matters For BHP Billiton Limited

Audit Process and Non-Audit Services

Audit is a process of giving objective expression of financial information provided in financial statements of a particular company. Process of audit for a large organisations takes around 30 days to be completed which involves detailed examination of financial statements and internal controls implemented by management. Final outcome of this audit process is expressed and audit report prepared and presented along with financial statements to stakeholders at the Annual General Meeting. The information provided by auditor and Audit opinion paragraph of audit report might not be very sufficient to take important decisions by stakeholders. This resulted in inclusion of key audit matters paragraph in financial reporting framework of the company. This paragraph provides the information in relation to audit procedures conducted by auditor on special and important key matters discussed with management. This requirement was included in audit reporting framework in December 2016 i.e. every company has to include key audit matters in their annual report starting from financial year ending 2017 (Carson, Fargher and Zhang, 2016). Inclusion of this paragraph as elaborated the quality of audit report in conducted by management and auditor. This report has a conducted financial statement and Audit procedures analysis for BHP Billiton Limited for the year ending 2017. Numerous factors in relation to audit procedures and Audit engagement will be discussed in this report.

Auditor’s independence

For the financial year ending 2017 audit of the company was conducted by KPMG which is one of the big four audit firms in the world. KPMG is known for providing Quality Assurance and Audit services for any organisation. During the year under consideration KPMG has provided directors and Audit committee of the company a declaration certificate that states auditor of the company has conducted their function with Independence and unbiased state of mind. All the rules and regulations in relation to Corporation Act 2001 along with ethical and professional standards has been followed by auditor. Corporation Act 2001 and professional and ethical standards issued by auditing and assurance standard board comply is that auditor should be independent while giving opinion financial statement of the company (Higgins, Milne and Van Gramberg, 2015).

There are various rules and regulations in relation to business activities conducted by auditor with their clients such as non-audit services provided by auditor during the financial year. There are various restrictions provided in these rules and regulation and all these restrictions are complied with during the Year and in 2017.  

Remuneration

Non audit services

As already mentioned that there are various restrictions in relation to non-audit services provided by auditor during the same financial year that auditor is conducting External Audit services for the same company. It is primary responsibility of Management to check that services provided by auditor are not in contravention with any of the rules and regulation in relation to non-audit services. This is the reason that audit committee is formulated by board of directors of a company. One of the important functions of audit committee is to check that independence of auditor is maintained throughout the financial year in which such auditor is conducting statutory audit and providing restricted non audit services are one of the contravention (Tepalagul and Lin, 2015). There are some services that are allowed to be provided by external auditor to business organisation.

During the financial year under consideration auditor has provided some non-audit services to Limited. All the services are within the permitted definition of Non audit services and it does not affect independence of auditor. Proper precautions has been taken by auditor and audit committee of the company. Following are some of the services that are provided in the nature of non-audit services during the financial year-

Audit and Audit related services- the services are the extension of audit services provided by auditor such as preparation of tax report, filing of report, tax compliances, tax consultancy etc. proper agreement has been made by management and auditor to conduct these services and there has been no contravention of any legal obligations.

Advisory services- During the process of audit or determined find some loopholes or deficiencies in internal control of the company (Causholli, Chambers and Payne, 2015). In addition to reporting these deficiencies in audit report, auditor might also give some advice to management in order to correct and improve the efficiency of the company.

Remuneration paid to auditor for audit as well as non-audit services  

Amount of remuneration paid to auditor along with their description are provided in the following table.

It can be analysed that there has been drastic decrease for audit services paid in 2016 as compared to 2015 as total remuneration paid to KPMG has decreased by 45%. This fall in remuneration is very substantial and it is important for auditor to analyse the reason for this cutting of auditor’s remuneration. This has further increased in 2017 by 2.5% but this decreases not that substantial.

Key Audit Matters

Key audit matters

Following are all the matters that are mentioned by Auditor in the paragraph key audit matters or the financial year ending 2017-

Valuation of assets during the financial year under consideration carrying value of acquired by company increased as compared to last financial year due to fluctuations in commodity prices (Backof, Bowlin and Goodson, 2017). For example plant property and equipment has decreased from $84 billion to $80.5 billion and intangible assets has decreased from 4.1 billion to 4.0 billion. This downfall in fair valuation is very substantial therefore it is included in key audit matters. Sample testing has been conducted by Auditor evaluate the efficiency of internal controls implemented for estimation of fair value of these assets. Reasonable resistance are taken by Auditor in order to predict the commodity prices in future that has affected prices of these assets (Sirois, Bédard and Bera, 2018).

Taxation

Different rules and regulations in relation to tax policies has to be followed by company as they are operating in more than one countries. Auditor of the company has successfully evaluated rules and regulations applicable on company and different jurisdictions. After search evaluation auditor has been able to collect sufficient audit evidence that all that rules and regulations are properly followed by the organisation.

Samarco

Management of the company has taken some Complex accounting measures uses in order to account for losses incurred on Samarco Dam failure. Auditor has examined all the key assumptions made by management in order to record the losses occurring from this project (Cordo? and Fülöp, 2015). Consultation has also been taken with auditor of Samarco Dam project who identify any material misstatement or audit matters identified during audit process conducted on Samarco dam.

Closure and rehabilitation provision

It is one of the main functions of business to close, restore and rehabilitate sites. Accounting procedures in relation to such business activity can be very complex and therefore it is included in the audit matters discussed with management. Complexity of this accounting process increases due to various assumption that are required to be made in relation to valuation (Brasel, Doxey, Grenier & Reffett, 2016). All these assumptions and internal controls implemented in accounting for rehabilitation provisions are properly examined by auditor. Calculation of discount rates exchange rates and net present value evaluated by Auditor in order to identify accuracy of these provisions. Final outcome of these provisions are compared with market available data for checking its accuracy.

Audit Committee

Audit committee

Audit committee risk and Audit committee of established in 2011 and first person that was appointed in this audit committee was Lindsay Maxsted that was also appointed as chairman of this committee. Formal charter has been maintained by board of directors for define structure, scope and roles and responsibilities of the audit committee. According to this charter, audit committee is responsible for conducting meetings with internal auditor and external auditor for defining scope of audit. In addition to that this audit committee is also responsible for all the functions in relation to preparation of financial statements and process of audit conducted on such financial statement.  

Audit opinion

After examination of all financial statement auditor of the company has provided unqualified audit opinion on financial statements. Unqualified opinion means that financial statements of the company are clean and presenting position of company in market. There were some difficulties faced by Auditor in conducting the process of audit which are mentioned in audit matters paragraph. It can be said that financial statement of the company are free from material misstatement, frauds and error and presenting true value of company.  

There is a clear and distinct difference between responsibilities of an auditor and Management in relation to internal controls and financial statements of the company. Management of the company is responsible for implementation of internal control and improving the efficiency of these internal control. On the other hand auditory is only responsible for checking the efficiency of these internal control and giving their opinion on efficiency evaluated by them (Chan and Vasarhelyi, 2018). Similarity in case of preparation of financial statements, management is responsible for preparation whereas auditor is responsible for checking accuracy of such financial statements.

Board of directors of the company has approved an investment of 2.5 million dollars for the purpose of developing Spence growth options and construction of copper concentrate which can increase the life of Spence mine by around 50 years. This is a material event that occurred after the closing of balance sheet. This event will have positive impact on financial position of the company and it can also increase market valuation of company in stock exchange (AICPA, 2017).

All rules and regulations issued in Corporation Act 2001 and professional and ethical or code of conduct or properly followed by the organisation and auditor. It can be said that external audit conducted for the year 2017 is very effective and efficient. All the material misstatement car properly disclosed and chances of under reporting are very low. At the Annual General Meeting auditor of the company can be asked about the future plans of the company that can affect decision making process of stakeholders.

Conclusion 

This report has evaluated all the functions of auditing that are conducted in the financial year 2017. Activities like disclosure of key audit matters, declaration of auditor’s independence, audit committee and their functionality, etc. are discussed in detail with respect to BHP Billiton. At the end of this report it is expected that a reader will get all the information in relation to efficiency of financial statements and Audit procedures from annual report of the company.   

References

AICPA. (2017). Statement on Auditing Standards, Number 126: The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (No. 126). John Wiley & Sons.

Backof, A., Bowlin, K., & Goodson, B. (2017). The impact of proposed changes to the content of the audit report on jurors’ assessments of auditor negligence.

Brasel, K., Doxey, M. M., Grenier, J. H., & Reffett, A. (2016). Risk disclosure preceding negative outcomes: The effects of reporting critical audit matters on judgments of auditor liability. The Accounting Review, 91(5), 1345-1362.

Carson, E., Fargher, N., & Zhang, Y. (2016). Trends in auditor reporting in Australia: a synthesis and opportunities for research. Australian Accounting Review, 26(3), 226-242.

Causholli, M., Chambers, D. J., & Payne, J. L. (2015). Does selling non-audit services impair auditor independence? New Research Says,“Yes”. Current Issues in Auditing, 9(2), P1-P6.

Chan, D. Y., & Vasarhelyi, M. A. (2018). Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.

Cordo?, G. S., & Fülöp, M. T. (2015). Understanding audit reporting changes: introduction of Key Audit Matters. Accounting & Management Information Systems/Contabilitate si Informatica de Gestiune, 14(1).

Higgins, C., Milne, M. J., & Van Gramberg, B. (2015). The uptake of sustainability reporting in Australia. Journal of Business Ethics, 129(2), 445-468.

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

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

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