Whether the auditor complied with Independence requirements or not
Audit is defined as the way in which the company adopt a particular system to evaluate and establish a financial security within the internal controls of the company. The auditing system enables the company to know perspective the financial and the internal systems of the company and also helps the company to enable the possibility of better functioning in future. Auditing is mainly concerned with the financial aspects of an organization, however in the Modern Times, the system of auditing has expanded and spread its wings into the development and parents of the other systems of the organization as well (Cannon and Bedard 2016).
Modern business organizations have witnessed several changes in audit procedures while evaluating the preparation of their financial statements. The organizations have recognized the value and importance of auditing to identify any kind of error in the financial statements. There are different kinds of errors that can be found in financial statements (Hayes, Gortemaker and Wallage 2014). These are in the form of error of commission, error of omission and error of principle. It is the responsibility of an auditor to identify all form of errors (Knechel and Salterio 2016). Due to this reason, many organizations have taken several positive steps in order to enhance audit quality in their financial statements. In this report, the various aspects of annual report of the firm CSR limited will be analyzed in terms of auditing.
It is of utmost importance for an auditor to comply with all the independence requirements effectively (Asien 2015). An auditor is required to comply with all the rules and regulations of Australian Auditing Standards effectively. Deloitte is the audit partner of the firm CSR Limited. From the annual report, it has been observed that no auditor played a significant role in the CSR group audit for the year ended 31 March 2017. However, the annual report for the year ended 31 March 2018, the auditors of CSR limited have complied with the rules and regulations made under section 342A of the Corporations Act 2001. Apart from this, the annual report of the firm reflects the auditor’s independence declaration made under section 307C of the Corporations Act 2001 (Csr.com.au 2018). Apart from this, it can be also inferred that the directors of the firm are not involved in any kind of violation of Corporations Act 2001. In addition to this, it has been also mentioned that there are no contraventions of code of audit professional conduct.
Auditor’s remuneration analysis
There are different kinds of services provided by the auditors to their clients on behalf of some amount (Blay and Geiger 2013). In case of CSR Limited, the group auditor Deloitte Touche Tohmatsu has provided different kind of non-audit services to the organization. The non-audit services provided by Deloitte includes sustainability and carbon related assurance services and other advisory and assurance services. In return to this, Deloitte receives remuneration on behalf of companies.
From the above figure 1, it can be inferred that Deloitte has received an amount of 58000 in the year 2017 and 77108 in the financial year 2016. In addition to this, it can be also deduced that the auditors of CSR Ltd have followed all the rules and regulations of Corporations Act 2001. Apart from this, it is also stated that Deloitte has not comprise the requirements of auditor’s independence with respect of materiality of figures in financial statements as per Corporations Act 2001.
From the above figure, it can be inferred that overall remuneration of the auditor has declined by 6.64 percent in comparison with the previous year. In addition to this, it is also reflected that remuneration of non-audit services like assurance services of sustainability and carbon has increased by 32.94 percent. The total amount in audit for review of financial statements have declined by 5.89 percent in the financial year ending in 31st March, 2018. In addition to this, remuneration related to advisory services have declined drastically by 77.83 percent. Therefore, the above analysis reflects that Deloitte have received less amount of remuneration in 2018 in comparison to the year 2017 (Csr.com.au 2018).
It is of utmost importance for the auditors to disclose key audit matters that have been performed in the financial reports. From key audit matters, it can be seen whether the auditors have performed audit procedures by providing assurance in a successful manner.
1st Key audit matter: Product liability provision
Product liability provision can be considered as a key audit matter in the financial report. From the annual report, it has been seen that CSR limited recognized $289.0 million as product liability provision. The provision is done with respect to foreseeable claims of future. Apart from this, the given amount of complexity and size of the provision has been considered in the key audit matter report (Csr.com.au 2018).
Audit procedures performed for 1st Key audit matter
Deloitte has hired external experts in order to assess the competence of management of CSR limited. The assumptions of provisions made by the management are also assessed in an effective manner. The auditors have also done random enquiries for external experts appointed by the management of the firm. They have also assessed the appropriateness of the given relevant disclosures incorporated by the firm in their financial report. In addition to this, all the reports prepared by external experts are evaluated properly and effectively (Köhler, Ratzinger-Sakel and Theis 2016).
Audit procedures performed for 1st Key audit matter
These are the analytical procedures performed by the auditor for the first audit matter which is Product liability provision.
The second key audit matter is related to valuation of assets of the firm CSR Limited. The balance sheet of the firm reflects goodwill amounting to $98.1 million, plant and equipment amounting to $834.0 million, other intangible assets amounting to $45.8 million and property which are included in CGU’s of the organization. The management of the firm has incorporated an impairment trigger analysis to recognize and identify the given CGU’s that needs to be considered for calculation of impairment. The organization has considered this a key audit matter due to its overall importance in analyzing and forecasting the future cash flows of the firm (Csr.com.au 2018).
Audit procedures performed for 2nd Key audit matter
There are several audit procedures that have been performed by the auditor in terms of valuation of assets. The auditor has successfully evaluated the process undertaken by the management of CSR limited used in determination of the given CGU’s. The auditors Deloitte have successfully evaluated and analyzed the effectiveness of impairment model used by the firm CSR limited while incorporating their financial statements. Apart from this, the auditors have done proper assessment of discounting rate, terminal growth rate, forecast of cash flows and any kind of major changes in the business cycle in the near future. Therefore, due to this reason, they have also incorporated and used analytical tools to analyze the accuracy of cash flows as given in the financial statements. The auditors Deloitte have also assessed the accuracy of CGU’s of the firm on historical basis. In addition to this, the different forms of disclosures have also been assessed whether they are appropriate or not. In addition to this, the auditor have also evaluated the forecasted amounts and process followed the management of the firm in terms of testing controls (Gimbar Hansen and Ozlanski 2015).
There are several members in audit committee in case of the organization CSR Limited. There are non-executive directors as well in the audit committee of the firm (Csr.com.au 2018). The members in audit committee are as follows:-
- John Gillam
- Penny Winn
- Matthew Quinn
- Mike Ihlein
However, it can be also inferred there is no audit committee charter that have been disclosed in the financial reports of the firm. In addition to this, it can be also deduced that the main role and function of the audit committee is to manage and monitor internal policies and procedures of financial reporting of the firm. In addition to this, they can also provide a written advice to the firm in case of any non-audit services provided by the auditors.
Audit procedures performed for 2nd Key audit matter
The latest annual report of the CSR Limited is pretty clear in defining the opinion of the auditors of the company, Deloitte where they claimed that the organization has prepared and published all their financial statements in accordance to the rules and regulations of Corporations Act 2001. The auditors were accurate in justifying that the users will be able to get the correct and impartial interpretation of the financial performances of the company CSR Limited from the financial statements presented. The auditors of Deloitte also mentioned that the concerned organization CSR Limited has the agreement for the financial reporting with the standards of Corporations Act 2001 and Australian Accounting Standards in their presentation of the financial report (Csr.com.au 2018).
The main objective or the responsibility of the directors of CSR Limited in the production of the financial report is to formulate and present the financial statistics or the statements after the essential agreement with the regulatory principles of Australian Accounting Standards and Corporations Act 2001 (Christensen Glover and Wolfe 2014.) Along with that, the list of the responsibility of the directors also includes the evaluation of the capability of the organization in remaining operation and increasing the growth rate of the profit. The material misstatement is one of the prime concern for the organizations conducting an audit of the assets and liabilities of the organization and in this case the auditors need to take the responsibility of achieving the much needed assurance of the fact that there is no presence of any material misstatements in the financial statement of the concerned organization. Along with this the auditors are responsible in producing the fair and exact opinion from the evaluation of the material misstatements. Apart from this the auditors are liable for the correct evaluation of the factors like valuation of the accounting policies, internal control mechanism along with the analytical presentation of the going concern status and others. In addition to this, the auditor needs to evaluate the foreseeable events of the organization and assess the historical process of evaluation followed the firm while preparing their respective financial statements (Köhler, Ratzinger-Sakel and Theis 2016).
The organization CSR Limited are subjected to experience two successive events in the year 2018 which are the payment of the dividend after the 31st of March 2018 and the sale of the additional land at Horsley Park. In case of dividend amount, the management of CSR Limited decided to pay 13.5 cents per share to the shareholders of the firm which will 75 percent franked. However, the total amount of final dividend has not been recognized in the financial report as of 31st March, 2018 (Csr.com.au 2018).
Audit committee and its members
For the mentioned events of Horsley Park, the organization CSR Limited are in expectation of a profit of 30 million US dollars before the tax in the financial statement on 31st March 2019. The assessment of the mentioned events by the auditors is instrumental in describing that these events do not contain any sort of material impact on the financial statements of the concerned organization.
The analytical description of the auditor’s report and the financial statements make it significantly clear that the auditors have evaluated the financial events of the CSR Limited in the most suitable manner. The conduction of the operations for the audit is observed to follow all the rules and regulations of Corporations Act 2001, APES 110 and the Australian Auditing Standards. The effective management of the events by the auditors is visible with the communication of the crucial audit matters and the applied audit procedures in the annual report of 2018 (Bédard, Gonthier-Besacier and Schatt 2017).
From the evaluation of the annual report of the mentioned organization for the year 2018 that the company, it can be inferred that Deloitte have effectively assessed the important audit matters and their assessment also provides sufficient focus on these issues with the help of the different forms of audit procedures. It is also evident that proper communication took place from the part of the auditors of Deloitte to the stakeholders of the CSR Limited through the audit report informed about the crucial audit matters. The operational assessment of the work of the auditors makes it pretty clear that they have not missed any opportunities of the evaluation of the material information regarding the company. However, on the contrary, it can be also inferred that an effective charter of the audit committee was missing in the report of the firm.
There can be many follow up questions that can be evaluated for the auditors of CSR Limited which are as follows:-
- Are there any other key audit matters that can be considered?
- What are the analytical procedures followed in order to assess the material issues of the firm CSR Limited?
- What are the contingency plan for any kind of changes in business cycle?
- What feedback have been taken from the internal auditors of the firm? (Gimbar Hansen and Ozlanski 2015).
Conclusion
It can be concluded that one of the principle importance of auditing lies in the fact that helps to make sure organization is in the least risk zone. From the above analysis, it can be inferred that the auditors of CSR Limited have incorporated all the audit procedures in an effective manner. Deloitte have identified two key audit matters and have evaluated both the audit matters by following effective audit procedures. It has also been seen that Deloitte provides both auditing and non-audit services to the firm CSR Limited. However, in return, they take remuneration as well. From the audit remuneration report, it has been seen that there has been a fall of percentage in case of total auditor’s remuneration. In addition to this, there is no proper charter of audit and risk management committee, though their presence inevitable. However, Deloitte has provided positive opinion regarding the financial report of CSR Limited. In addition to this, it can be also inferred that there are two material subsequent events which are in the form of dividend and additional land at Horsley Park. However, the stakeholders can be satisfied with the material evaluation of financial reports of the firm and there are no information missing apart from the audit committee charter. From this, it can also be concluded that the annual report of CSR Limited meets all the requirements and standards which have helped the organization to present a fair view of their operations to all its stakeholders.
References
Asien, E.N., 2015. Firms’ attributes determining auditors’ remuneration: empirical evidence from Nigeria. International Journal of Auditing Technology, 2(4), pp.297-315.
Bédard, J., Gonthier-Besacier, N. and Schatt, A., 2017. Analysis of the Consequences of the Disclosure of Key Audit Matters in the Audit Report.
Blay, A.D. and Geiger, M.A., 2013. Auditor fees and auditor independence: Evidence from going concern reporting decisions. Contemporary Accounting Research, 30(2), pp.579-606.
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.
Christensen, B.E., Glover, S.M. and Wolfe, C.J., 2014. Do critical audit matter paragraphs in the audit report change nonprofessional investors’ decision to invest?. Auditing: A Journal of Practice & Theory, 33(4), pp.71-93.
CSR. 2018. Annual Meetings and Reports. [online] Available at: https://www.csr.com.au/investor-relations-and-news/annual-meetings-and-reports [Accessed on 20th Sep. 2018].
Gimbar, C., Hansen, B. and Ozlanski, M.E., 2015. Early evidence on the effects of critical audit matters on auditor liability. Current Issues in Auditing, 10(1), pp.A24-A33.
Hayes, R.S., Gortemaker, H. and Wallage, P., 2014. Principles of auditing: an introduction to international standards on auditing. Prentice Hall, Financial Times.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Köhler, A., Ratzinger-Sakel, N.V. and Theis, J., 2016. The Effects of Key Audit Matters on the Auditor’s Report’s Communicative Value: Experimental Evidence from Investment Professionals and Non-Professional Investors.
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