Compliance with Independence and Ethical Requirements
Auditor’s Independence:
According to the audit report of ADX Energy, the auditors have completely complied with the independence requirement of Corporations Act 2001. They are independent of the group and have also followed the ethical requirements of Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (ADX Energy. 2017). All the relevant standards which are applicable to the audit of financial report in Australia are followed by the auditors of the company. Moreover, auditors confirmed that the declaration of independence given to the directors would be in the same terms as it was given at time of the audit report (ADX Energy. 2017).
As per the director’s report, a copy of auditor’s letter has been attached which confirms the independence of the auditors. It contains the assurance to the alignment of provisions of section 370C of the Corporations Act 2001.
Non-audit services by auditor:
Non-audit services are the one provided by the qualified accountant during the period of conducting an audit and which are not related to the audit or the review of financial statements (Gray and Manson, 2007). Generally, it involves accounting and financial stuff but is not connected to assurance. As ADX director’s report, there were no non-audit services provided by the auditors during the last financial year (ADX Energy. 2017).
Auditor’s remuneration:
Auditor’s remuneration is the amount paid by the company to the professional and qualified accountants or auditors for rendering their audit services. It is basically a fee paid to them in exchange of performing audit of the company’s financial statements. The amount is fixed by the directors and according to their remuneration policies (Millichamp, 2002). ADX has prepared a full detailed report of its remuneration offered to its key management people and auditors. It contains the policy of remunerating used by the directors and amount rewarded along with various share based compensation methods.
The detail about the remuneration given to the auditors of ADX is provided in the Note 17 of the annual report. It explains the amount given in the last two years to the auditors for conducting the audit of ADX’s financial accounts. The remuneration and percentage change in it is shown as follows:
|
2016 |
2017 |
% change |
Inc/Dec |
|
|
Auditors’ remuneration |
$28,000 |
$29,500 |
5.4% |
$1,500 |
(ADX Energy. 2017).
From the above table, it can be observed that the remuneration given to the auditors has increased from $28,000 to $29,500 reflecting an increase of 5%. In terms of dollars, it has increased by 1,500. This has been given to the auditors for auditing the financial statement and conducting an audit review for ADX Energy. No other services were provided and no fees have been paid for the same (ADX Energy. 2017).
Non-audit Services Provided by Auditor
Key audit matters reporting by auditor:
Key audit matters are those matters which carries high significance in the audit of financial report. According to the auditors’ professional judgement, these matters are very important to be considered while conducting the audit of accounts and financials. They are been addressed in whole detail and assist the auditors in making their opinion (Arens, Elder and Mark, 2012). As per the declaration of ADX’s auditors, they have explained all the key matters and have not provided a separate opinion on the same. The key audit matters explained are as follows:
Cash
The amount of cash makes up to 92% of group’s total assets and is considered to be a essential factor in the operating and exploration activities of the company. Though it is a liquid asset and cannot be considered at high risk of misstatement but as it holds importance in context of financial statements, it has to be reviewed properly. Cash is that factor which can affect the strategy of the group as a whole in respect to the allocation of resources and completing the audit. It has been reviewed by using following procedures:
- The documentation and assessment of processes and controls has been done that are been used for recording cash transactions.
- Agreeing to the cash holdings to the confirmation of third party (ADX Energy. 2017).
Other audit procedure classified as test of controls is used to test the effectiveness of the controls used by the entity to detect the material misstatements. It also includes analytical procedures which are based on the analysis conducted for the financial statements. The auditors rely on the ratio analysis of the ADX to make their judgements. In addition, some substantive procedures are also used which test the completeness, disclosure, existence and valuation of the assets by providing a conclusive evidence. According to ADX’s auditors, cash is the most significant item in company’s financial statements which has been properly reviewed and is separately disclosed in key audit matters. They have collected evidences to check the existence and validity of the cash balances. The same has been disclosed in their audit reports (Knapp and Knapp, 2001).
Audit Committee:
According to the ASX CGC principle number four, all the listed companies should have an audit committee comprising of three members. All of them should be non-executive directors and majorly the independent ones. In case if the entity does not have such committee, it needs to disclose procedures employed by it which safeguards the integrity of financial reporting (ASX (2018). The corporate governance statement of ADX explains that the firm does not have any audit committee. As the company is of limited size and have limited operations and financial affairs, having a separate audit committee is not considered suitable for ADX. However, it has listed down the accountability of management in the statement that assures the integrity of reporting. It includes review of the statutory financial statements, monitoring the compliance with accounting procedures and records, review of audit reports and many others. All such details are properly disclosed and presented in the CG statement of the company. As the company does not have any committee, there is no audit charter explained in the report (ADX Energy. 2017).
Auditor’s Remuneration Policy
On a whole, ADX do comply with the requirements of all the ASX CGC principles and discloses all the information related to the audit and assurance matters in its annual report as well as in the statement of corporate governance.
Auditor’s Opinion:
Auditor’s opinion is a kind of feedback which is provided by the auditor after carrying out the audit in relation to financial statements of the entity. The opinion provided by the auditor does not judge the financial position of the business of the entity nor does it interpret the financial data of the entity (Tsipouridou & Spathis, 2014). In general there are four types of opinions provided by the auditors: Unqualified opinion, qualified opinion, adverse opinion and disclaimer of opinion. In the present case of ADX Limited, the opinion provided by the auditor of the company is an unqualified opinion. This has been identified from the examination of annual report of the company for the year ended 2017. The audit opinion section of the annual report contains a statement by where audit006Frs have declared that the financial statements of the company are giving true and fair view of financial position of ADX Group as at 31st December, 2017 as well as the financial performance for the year ending on 31st December, 2017. The auditors have stated that the financial statements of the company are prepared and presented in accordance with the Australian Corporations Act, 2001 as well as the Australian accounting standards. The auditors have stated that necessary and sufficient audit evidences could be generated to form an audit opinion.
However, along with the clean report, the auditors of the company have disclosed few key audit matters to drive the attention of the users of the annual report. Although these are those matters where auditor has provided unqualified form of audit opinion but yet these matters requires significant attention of the readers so that they can clearly understand the impact of such items on the entity’s financial performance.
Difference in the responsibility of directors and auditors of the company in respect of annual reports:
Director’s Responsibility:
The responsibility of auditors and directors of the company totally differs with respect to the financial reports of the company. The directors of the ADX Limited have the responsibility of preparation of company’s financial statements as well as financial reports. They are responsible for preparation of such financial reports that presents the true and fair view of its financial position. The directors are responsible to comply with all the Australian accounting standards and provisions of the Corporations Act, 2001 which are relevant and applicable to the entity. Also, directors of the company have the pure responsibility to implement a system of internal control which allows the true and fair view of financial statements by ensuring that such financial statements are containing any material misstatements due to any kind of error or fraud by or on the management of the company.
Key Audit Matters Addressed in the Report
Auditor’s Responsibility:
While undertaking the preparation function of financial reports, it is the core responsibility of the auditor to assess the ability of entire ADX Group to continue its functions as a going concern. For this purpose, they are liable to disclose any matter which relates to the going concern concept. Unless otherwise required, company’s directors are held with the responsibility of preparing the financial statements on the basis of going concern assumption.
However, auditors are the external independent parties who are not involved in the internal activities of the company and also they do not participate in the preparatory function of financial statements as well financial reports. They are merely appointed in the company to provide a reasonable assurance about whether the financial statements of the company are free from any sort material misstatements which could arise due to any frau or errors. The auditors are responsible to provide an opinion on the truthfulness and fairness of financial statements. Auditor of ADX Limited can issue any form of audit opinion whether it is qualified opinion or unqualified opinion or the opinion disclaimer. Along with the audit opinion auditors are also required to report any key audit matter so as to draw the attention of users of audit report so that such information could influence their decision making process.
Reasonable assurance is the type of high level assurance which is acceptable by the readers. However, the reasonable assurance of the auditor does not guarantee that audit engagement carried by the auditor will always detect each type of errors or frauds since the basic objective of audit is not to identify any material misstatements arising from any error or fraud in the audit of financial statements. Even if the audit is carried with due diligence by complying all the relevant accounting standards, it cannot be expected from the auditor that all the frauds will be traced by him and all the errors will be identified and corrected by the auditor ((ADX Energy. 2017).
Subsequent Events:
Yes there were certain events that occurred subsequently after the date on which financial statements were prepared but before the date of auditor approval the financial statements (Michels, 2017). These events are:
Issuance of shares:
On 2nd March, 2018: The amounts of these shares were accrued for the month of December in 2017. Following transactions in respect of shares have been undertaken after the balance sheet:
- 4330768 shares of the company were issued in pursuance to the director’s share plans of ADX Limited. This plan was officially signed-off by company shareholders on 31stMay, 2017. These shares were issued to the directors of ADX in return of the amount waived by them for $ 70100.
- 1061537 shares were also issued to the company secretaries of ADX Ltd for the remuneration waived by them for $ 13800.
- 2562517 shares were issued by the company to its consultants for the advisory services provided by them against their fees of $ 31841.
On 16th March, 2018:
- 4380018 shares were issued by the company to its consultants for the advisory services provided by them against their fees of $ 50000.
Absence of Audit Committee and Corporate Governance Statement
On 28th March, 2018:
The company had finalised the agreement with Reabold Resources Plc (Reabold) which was announced by it on 4th of December, 2017. The agreement was entered into for the investment of US $ 2 million in the subsidiary of ADX which is named as Danube Petroleum Limited.
The company has adjusted the figures of its share capital value in the exiting financial statements for the year ended on 31st December, 2017.
There are no other subsequent events taken place in case of ADX Ltd which could significantly affect the operations or results of the company or the ADX Group as a whole in the upcoming financial years.
Disclosure of material information by auditor:
The auditor of the company has disclosed the fact that the financial statements of the company present true and fair view of its financial position. Along with that the auditor has disclosed cash component of the company as the key audit matter as this information was necessary to be communicated to the stakeholders of the company. Since, the external stakeholders are not directly involved in the internal activities of the company but since the cash balances of the company has significant impact on its financial position it is disclosed as the separate matter in the audit report by the auditors. The cash balance of the group comprises total of 92% of overall assets held by the company (in value) (ADX Energy. 2017).
Matters not reported by auditor:
The auditor must have also incorporated the share issuance information in the current year’s key audit matters along with the information of dividends so as to draw the attention of stakeholders towards company return generation capability.
Key questions to be asked from auditor at AGM:
What procedures have been followed by auditor to check the appropriateness of internal controls?
Whether, the auditor has verified the physical cash balances and fixed assets for the purpose of approving the balances of these assets?
Conclusion:
Hence, cash has been considered as the key driver of company’s operations as well as exploration activities. The information regarding cash had the greatest impact on the over strategy as well as resource allocation planning of the company. This information is quite significant to be communicated to the external stakeholders of the company. Hence, it can be said that auditor has effectively communicated the material information to the stakeholders of the company.
ADX Energy Limited is an Australian company which is listed on the Australian stock exchange. ADX Limited is headquartered in Perth, Australia. The company operates within the energy sector of Australian economy. It has been existence since 1987. It is engaged in the business of oil as well as gas exploration. The company owns four oil and gas permits in the North African and European Nation. Moreover, it owns interests in the gold and metal properties in the Australian nation. This report presents the summary of audit report of the company formulated by its auditor after reviewing the financial statements of the company.
References:
ADX Energy (2017). ANNUAL REPORT. [Online]. Available at: com/documents/annual-report-december-2017.pdf”>https://adx-energy.com/documents/annual-report-december-2017.pdf [Accessed on: 20.09.2018]
ADX Energy (2017). Corporate Governance Statement. [Online]. Available at: com/documents/corporate-governance-statement-2017.pdf”>https://adx-energy.com/documents/corporate-governance-statement-2017.pdf [Accessed on: 20.09.2018]
Arens, A.A., Elder, R.J. and Mark, B., (2012). Auditing and assurance services: an integrated approach. Boston: Prentice Hall.
ASX (2018). Corporate Governance Principles and Recommendations. [Online]. Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed on: 20.09.2018]
Gray, I. and Manson, S. (2007). The audit process: principles, practice and cases. London: Cengage learning EMEA.
Knapp, C.A. and Knapp, M.C. (2001). The effects of experience and explicit fraud risk assessment in detecting fraud with analytical procedures. Accounting, Organizations and Society, 26(1), pp.25-37.
Michels, J., 2017. Disclosure versus recognition: Inferences from subsequent events. Journal of Accounting Research, 55(1), pp.3-34.
Millichamp, A.H. (2002). Auditing. USA: Cengage Learning Emea.
Tsipouridou, M. and Spathis, C. (2014), March. Audit opinion and earnings management: Evidence from Greece. In Accounting Forum, 38 (1), pp. 38-54.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
