Auditor Reporting Requirements And Analysis Of An ASX Listed Company’s Annual Report – A Case Study Of CSL Limited

Introduction of the Company

In the current changing business environment, organisations use fraudulent measures to achieve more profit and attract more public to invest in their company. To overcome the problem of fraud in business, auditors are appointed to check and review the financial accounts of a company. The company, which is chosen to, analyses the effect of auditors and non-audit services is CSL limited. CSL limited is a biotherapeuitics company, which deals in manufacturing of medicines and other curing products such as vaccination products. The report brings out the brief description of Auditor`s independence declaration, Independent auditor’s report especially for shareholders. Moreover, the annual reports analysed the remuneration of auditors for both audit as well as non-audit services. After the modification in the duties of auditors, the responsibilities of auditors has been changed in Australia. The report discusses the audit Procedures Performed for Key Audit Matters (Deumeset al., 2012).

CSL limited is a biotherapeutics entity who undertakes the manufacturing of allied products and delivers biotherapies. CSL limited is a world specialty biotechnical organisation that finds, develops, manufactures, and advertise the products to treat serious human health problems. The company operate segments named CSL Behring, CSL intellectual property, and Seqirus. All the segments perform different operation such as CSL Behring produces and distributes plasma products and recombinants. Seqirus segment produces and delivers non-plasma biotechnical products. Moreover, this segment also produces a wide range of antivenoms, vaccination products, and pharmaceutical products in New Zealand and Australia. The intellectual segments of CSL is involved in licensing the intellectual property created by the organisation to the third unrelated party. The company operates its facility in Germany, U.K., U.S., Switzerland, and Australia.  

The company has a clear declaration of auditor`s independence declaration as per the requirement of section 307C of the Corporation Act, 2001. Until now to the knowledge and belief of directors, there are no contraventions by auditor for their independence or any other applicable code of conduct based on professionals. Although, as of now no payment has been made to E&Y as an indemnified cost during this fiscal year (CSL limited 2016).

Moreover, the CSL limited has agreed to indemnify the auditors to the extent to which it is permitted by the law. E&Y as a part of external auditors in terms of engagement agreement against the claims with the third party for a particular amount that has raised from the audit. Indemnification refers to an agreement between one party where the monetary costs can be reimbursed incurred by any second party (CSL limited 2017).

A group of external auditor attends every annual general meeting because they are available to provide a solution to shareholders regarding audit procedures. Shareholders are allowed to ask the relevant questions regarding the preparation and relevance to each item in the financial statement and how far it can contribute to profit making from the report from the auditors (Cannon and Bedard, 2016).

Apart from the audit services, auditors perform non-audit services for the company. These non-audit services are recognised as professional services and generally provided by public accountants during the time when the audit engagement is connected to audit. It generally involves accounting, taxation advices, and wealth management. The auditors also provide the current information of accounting policies and amendments in taxation policies. However, non-audit services do not necessarily include assurance related services (Bowlin, Hobson, and Piercey, 2015).

Auditor’s Independence Declaration

CSL may choose to employ the auditors on projects that are not related to their statutory audit duties because the company already has apprehended that auditors are expert and have experiences with CSL (Clikeman, 2018). The directors receive advice from (ARC) Audit and risk Management committee to get the satisfaction those provisions of non-audit services are compatible with the general standard of accounting principles and compliances. However, it is important to consider that performing non-audit services should not compromise the auditor`s independent requirements of Corporation Act, 2001 (Roy and Saha, 2018). The Audit and risk committee monitors all non-audit services to ensure that they must not affect the fairness, objectivity, independence, and impartiality of the auditor. No services should undermine the general principles that relates to auditor`s independence as regulated in Professional statement (Byrnes et al., 2018). Auditors acts an advisor to the management while decision-making. Non-audit services include advocate for CSL or jointly sharing the risk and the rewards. Ernst & Young and its non-audit services in the respective year in 2017-

                                                                              (Source: CSL limited 2017)

                                                                          (Source: CSL limited 2016 & 2017)

Among all the auditors, the chairperson gets the highest remuneration. Moreover, the remuneration increased by more than 5 percent from $ 154311 million 2016 to $ 165664 million 2017 in the case of Marie McDonald (The consultative committee of Accountancy bodies-Ireland, 2011).

                                                                       (Source: CSL limited 2016 & 2017)

After analysing annual reports of two years 2016 and 2017, the remuneration of auditors do not cost little to the company. Apart from production and operation cost, auditor`s cost also influences the price of the product. In above comparison table, In Australia E&Y, the company started paying more as compared to the previous year. The percentage increase in paying remuneration reached 11.05 percent. However, the total audit remuneration paid to the auditors have not shown much change 2.91 percent. The company has shown changes in the payment of non-audit services, it increased from $US 630372 to $US 1035630. Percentage increase in payment raised 64.28 percent. The total change in the payment of remuneration to the auditors remain moderate 8 percent (CSL limited, 2017).      

Key audit matters are not subjectively bound to Corporation Act, 2001. However, after 2016, it has made most crucial in the audit procedure of financial reports. ASA 701 regulates that it is important for auditors to link their independence auditor’s report to key audit matter (Financial Reporting Council, 2015). These audit procedures is to boost greater transparency and efficiency to execute the audit. The key audit matters relates to account for rebate and other promotional expenses. The acknowledgment and evaluation of allowances can also comprise of cash and accrual basis at the end of fiscal year. The motive of engaging the audit procedure in audit matters is not to modify the financial statements of CSL limited (Christopher, McGeachy, and McGeachy, 2017).

Independent auditor’s report (shareholders)

Various key audit matters could identify that help to evaluate the performance of auditor and fairness of financial accounts that are shared by the organisation. The matter of measuring the amount of goodwill is the key audit matters in evaluating the auditor’s activities (Byrnes et al., 2018).

The composition of Audit and Risk Management committee has both executive as well as non-executive members of the company. The committee has three to five directors but all of them are non-executive directors named as Mr Bruce Brook, Ms Christine O`Reilly, and Ms Marie McDonald. All of committee members are non-executive directors and all of them have great financial expertise (Public company Accounting Oversight Board, 2018). The committee has reported to the board of directors that the management of CSL`s material business risks is effective in the year ended 30 June, 2016. The signing partners in the list of external auditors are rotated in every five years (Bowlin, Hobson, and Piercey, 2015). Moreover, the internal auditors of the company was PWC (Pricewaterhousecoopers) during 2016 fiscal year (CSL US Inc, 2005).

An auditor is required to deliver an independence declaration in a fiscal year. As per the requirements of CSL of the Corporation Act, this year the board and the committee approved Mr Carmody to perform as a signing partner for E&Y (Enrst & Young) for the year 2015-2016. Further, due to some personal issues among the members the company; it directly affected the transition plan for replacing the signing partner and approved Mr Rodney Piltz for the year 2016-17 (Bailey, Collins, and Abbott, 2017).  

Important function of the Audit committee is to monitor the performance of internal CSL`s auditor operations. The audit committee checks whether the company is reflecting a fair and true view of financial position and check how far the balance data and performance of CSL is relevant (Chan, 2015).  

Both external and internal auditors is committed to ensure that financial reporting are accomplished and integrated with managing risk and meeting compliance requirements.

The main function of auditor committee is to check all the material aspects and implementations of the policies that are adopted by the board (AICPA, 2017).

An auditor keeps a check whether the financial statements do comply with IFRS Accounting standards as per the requirement in the Corporation Act, 2001 (Li et al., 2015).    

The role of internal auditor is to provide an independent and objective assurance to the executive management in context to effectiveness of CSL`s risk management processes (Sutherland, 2017).

CSL`s internal auditor are requested to perform investigating reviews on some suspected fraudulent activities such as bribery, coercion or whistle blower. The risk and management committee has the liability to keep a check on the financial statements because it is established to maintain an adequate risk management regarding the internal compliance and control system to enable them to prepare the reliable financial report and at the same maintain the final accounts (Srivenkataramana, 2018).      

In 2014, the company has announced that it agreed to acquire Novartis global influenza business that will combine and collaborate with bioCSL`s existing vaccine business. These two business can become a global player if they collaborate. The fair value of net assets overtook is anticipated to greater than the considered paid. It is anticipated that acquisition will rise the value of assets and the liabilities (Cannon and Bedard, 2016). During 2015, CSL conducted an internal collaboration of organisations of two bioCSL organisations. The group has adopted certain amendments and standards as per the GAAPs (Generally Accepted accounting principles). New standards, rules, principles, and amendments of Australian accounting standards will be applied to coming subsequent years (Market Matters, 2018).  

Non-audit services provided by auditor

Director is responsible for making financial statements and materials in the balance sheet is the assertion of the management. Moreover, the auditor communicate to the board whether there exist any substantial doubt relating to entity`s ability to recognise it as going concern. The auditor considers the undertaking of management plans while using the concept of going concern entity basis. This accounting concept is appropriate, implication of auditor report, and the adequacy of financial statement to disclose them in front of public (Paracini, Malsch, and Tremblay, 2014).    

The independent auditor has the liability to examine the management`s work “financial statements” and finally expressing the opinions. The responsibility of the auditor is limited to put a check and investigate whether the reporting of the results is accomplished with the GAAPs (Generally accepted auditing standards). In any case, of fault on the management, any material error and omission would be discovered if audit is performed effectively. If there is always a sure event that the auditor`s selected evidence can fail to undercover and uncover any material error. Then there is a need to defence the reports prepared with due care as per the GAAPs (Generally accepted auditing standards) (Christensen et al., 2016).

The various follow-up questions that is to be asked by auditors at Annual General Meeting of CSL limited (Sharma and Shekhar, 2017). What is the basis on which opinions regarding the fair view of the financial statements in the company? Another question can be related to the degree of assertions, which they have estimated while evaluating the books of accounts of the company (AASB 110, 2015).  

Conclusion:

After going through such a practical implication of changes made in the responsibilities of auditors in 2016, it can be concluded that the CSL limited has been continuously trying to improve its audit and non-audit services by raising the contribution of profit to pay remuneration to the auditors. The company has both internal and external audit and risk management committee, internal as PWC and external auditor as E&Y. The company has not paid any indemnified cost to reimburse any cost of the auditors. By going through the comparative analysis of remuneration of both the years, it is evaluated that the company started paying a good sum to its auditors for non-audit services that do not hamper their independence under Corporation Act, 2001.

References: 

AASB 110, (2015) Events after the Reporting Period. [online] Available on: https://www.aasb.gov.au/admin/file/content105/c9/AASB110_08-15.pdf [Accessed on 29/09/18]

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). US: John Wiley & Sons.

Bailey, C., Collins, D. L., and Abbott, L. J., (2017) the Impact of Enterprise Risk Management on the Audit Process: Evidence from Audit Fees and Audit Delay. Auditing: A Journal of Practice & Theory, 37(3), pp. 25-46.

Bowlin, K.O., Hobson, J. L. and Piercey, M. D., (2015) the effects of auditor rotation, professional skepticism, and interactions with managers on audit quality. The Accounting Review, 90(4), pp.1363-1393.

Byrnes, P.E., Al-Awadhi, A., Gullvist, B., Brown-Liburd, H., Teeter, R., Warren Jr, J.D. and Vasarhelyi, M., (2018) Evolution of Auditing: From the Traditional Approach to the Future Audit 1. In Continuous Auditing: Theory and Application (pp. 285-297). Emerald Publishing Limited.

Cannon, N. H. and Bedard, J.C. (2016) Auditing challenging fair value measurements: Evidence from the field. The Accounting Review, 92(4), pp. 81-114.

Chan, S. (2015) is CSL Limited a good investment. [online] Available from: https://www.fool.com.au/2015/06/22/is-csl-limited-a-good-investment/ [Accessed 14/09/2018]

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Clikeman, P. M. (2018) Managers’ and Auditors’ Responsibilities for Evaluating Going Concern. [online] Available on: https://onlinelibrary.wiley.com/doi/full/10.1002/jcaf.22319 [Accessed on 27/09/18]

CSL Limited (2016) CSL Limited Financial Report 2015–2016. [online] Available on: https://member.afraccess.com/media?id=CMN://3A455974&filename=20160909/CSL_01777354.pdf [Accessed on 27/09/18]

CSL limited (2017) Annual report, 2017. [online] Available on: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_CSL_2017.pdf [Accessed on 27/09/18]

CSL US Inc, (2005) Financial Statements for the Year Ended 30 June 2004 [online] Available on: https://www.sec.gov/Archives/edgar/data/90185/000119312505106557/dex992.htm [Accessed on 29/09/18]

Deumes, R., Schelleman, C., Vander Bauwhede, H., and Vanstraelen, A. (2012) Audit firm governance: Do transparency reports reveal audit quality? Auditing a Journal of Practice & Theory, 31(4), pp. 193-214.

Financial Reporting Council (2015) ‘Extended auditor’s reports – A review of experience in the first year’. [online] Available on: https://www.frc.org.uk/news/ march-2015/frc-finds-good-take-up-of-new-auditor-reporting-re [accessed 29/09/18]

Li, C., Raman, K.K., Sun, L., and Wu, D. (2015) The SOX 404 internal control audit: Key regulatory events. Research in Accounting Regulation, 27(2), pp.160-164.

Paracini, G. H., Malsch, B. and Tremblay, M. S., (2014) on the operational reality of auditors’ independence: Lessons from the field. Auditing A Journal of Practice & Theory, 34(2), pp. 201-236.

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Roy, M. N. and Saha, S. S., (2018) Statutory Auditors’ Independence in Protecting Stakeholders’ Interest: An Empirical Study. Springer.

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Srivenkataramana, T., (2018) Application of Statistical Sampling to Audit and Control. DHARANA-Bhavan’s International Journal of Business, 12(1), pp. 14-19.

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The consultative committee of Accountancy bodies-Ireland, (2011) New legal requirements effective for years ended on or after 20 August 2010. [online] Available from: https://www.cpaireland.ie/docs/default-source/Technical-Resources/Law-Regulation/disclosure-of-auditors-remuneration.pdf?sfvrsn=2 [Accessed 14/09/18].

Market Matters, (2018) Materials bounce with tariff news, when will CSL find support (CSL) [online] Available on: https://www.marketmatters.com.au/blog/post/materials-bounce-with-tariff-news-when-will-csl-find-support-csl/ [Accessed on 29/09/18]

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