Hi6026 Audit | Value Of Assessment Answers

Answer:

Introduction

These days, the role of transparency plays an important role in maintain trust among the stakeholders. To meet this purpose, companies releases its Annual report and to check hoe far these reports are reliable, company hires a team of auditors in order to keep a review over the executive members. The report has detailed information of various relevant topics related to auditor`s declaration, report of independent auditor, non-audit services delegated by auditors, remuneration of Auditor, roles and responsibilities of auditor and finally review of auditor`s report after analysing the annual reports. By delegating and communication the key audit matters to the stakeholders and users of the annual reports, it help them in make an appropriate investment decision. By communicating the annual reports, a user can apprehend the diverse nature of the organisation. The below discussion brings out the analysis of auditor`s report of AGL ENERGY LIMITED. The report answer what auditing aspect do the company follows and what are the objectives of hiring independent auditors (Ajmi, and Saudagaran, 2011).       

Auditor’s Independence Declaration

The essential service commission prioritises the implication of retail audit program in the company. The aim of the audit report is to provide commission and consumers of energy with the independent assurance. These energy retail licensees have suitable system, policies, and processes on the workplace. Moreover, the auditor should make assure that the company complies with the necessary regulatory compliances and obligations. When the breaches on part of the company occurs, the retail audit has to identify and compensate the breach.

Apart from this, the auditors has announced an unbiased and a clear opinion of the financial situation of the AGL as per their knowledge and experience criteria. According to auditors of the company, the financial statements are prepared by following proper accounting standards. The auditors have advised the company to improve its calculation methodology of assets and liabilities and asked to resubmit the revised document as per the KPI. Auditors expect independence during the audit. In addition to this, auditors experienced and embraced independence delegated by directors (AGL, 2018).  

Independent auditor’s report

While conducting the AGL`s audit, the auditors are complied to the independence requirements of Corporation Act 2001. The independence policy has the details of the procedures for the recruiting, appointing, and reviewing the independence of external auditor. The audit and risk committee has conducted a tender process related to the provision of external audit services. According to the independence policy, external auditor has prohibited to provide any service that could hamper and threaten their independence through conflicts and compliance role. As per the audit executed by the Australian auditing standards, these auditors do not use their independence in a wrong way. Auditors exercise professional evaluation and maintain professional scepticism during the whole audit (Auditing and Assurance Standards Board, 2015).  

Non-Audit services performed by the Auditor

As per the annual report of the AGL ENERGY LIMITED (2013), external auditors named Deloitte touche tohmatsu provided the non-audit services to the company. Although, the company has the formal policy for the provision of auditing services. Moreover, the directors of the company are satisfied as the provision of $107000 of non-audit services are provided by the external auditors (Deloitte, 2017). The policy and procedure reviewed by Audit and Risk Management committee managed to conclude from the director`s side that the non-audit services provided do not hamper independence requirement of external auditor in the corporation Act. No executive member of the company is the part of Audit and risk committee. Some non-audit services provided by the auditor include tax planning, consultancy services, system integration, advice related to wealth maximisation, consulting related to insolvency case and the project that are not connected to the audit or review of an company`s financial statements. The non-audit services do not affect the general principles related to their independence is detailed in APES 110 code of conduct for the professional accountants (Goh, Krishnan, and Li, 2013).

The auditors perform certain other services with addition to statutory obligation with taxation advice in context to any collaboration or acquisition. The board has considered that non-audit services delegated within a year by auditors with regards to written advices provided by resolution of Audit and Governance Committee. The auditors act as an advocate to the company and share the risk and rewards jointly. Details of the Audit and non-services provided during the financial year 2016-2017-

Auditors’ remuneration

The remuneration report for company follows Section 300A of the corporation act, 2001. The non-executive members of the company gets remuneration at a certain base fee. Moreover, when it is found that they are facing huge workload and more responsibilities by participating in board committee. They also receive committee fee. The chairman of the committee tend to attract high rated remuneration and several short and long-term incentives. Whereas, the chairman of board receives no extra for operating and heading committees. The remuneration to non-executive directors is $2.5 million every year and this amount is discussed and approved by general meetings with shareholders (AGL`s Annual report, 2017). Auditor and non-executive member`s fees follows the board`s advice from the independent advisers of remuneration that include market comparison of amount paid to directors as a remuneration in a comparator group of same sized companies.

Comparison table and percentage change in remuneration of Non-executive member-

To determine the changes in remuneration amount, 2017 is assumed as the base year. The company has managed to reduce the remuneration from the year 2017 to 2018 (AGL`s Annual report, 2017).  

Director`s responsibility differs from auditor`s responsibility for financial reports

The directors are responsible to fulfil the obligation on the behalf of entity. The responsibility of financial reporting occurs from the duty of ownership as director govern the organisation. When a director exercises power or perform duty, he must exercise care, diligence, and skill.   

Auditor`s responsibility begins when director`s responsibility gets over. Auditors conclude appropriateness of management use of accounting principles. If an auditor concludes that a material uncertainty exists that are related to events and conditions that may impose significant doubt on the ability of the company to maintain the financial statements (Chan and Vasarhelyi, 2018).   

Functions of Auditor 

The primary function of establishing an Audit and Risk management committee by the board is to assist the board of directors to fulfil, assist, and reflect the fair and reliable financial reports to protect the interest of shareholders, customers, and employees. Despite these, it protects the broader community through effective identification, monitoring, assessment, and management of risks (CPA Australia, 2014).

The auditor make sure that notices sent to AGL`s shareholders related to financial reporting comply with the guidelines issued by ASX. Shareholder has the right to submit written questions to the auditor in context to conduct of audit and independence report. In addition to this, shareholders are given an opportunity to ask some relevant question regarding the conduct of audit and accounting policies followed by the organisation (Annual report, 2016).

Composition of the Audit Committee

Under the company`s charter, the composition of the audit and risk management committee must be in such a manner at least three members where all of them should be independent and non-executive directors. The charter ensures that all of the members of the audit committee should have strong knowledge base of basic accounting and finance practises. The committee comprises of five members named John Stanhope, Bruce Phillips, Les Hosking, Belinda Hutchinson and Sandra McPhee. John is the chairperson of the committee who has expertise in finance as a qualified accountant. Bruce Phillips and Les Hosking has worked in energy sector before. Sandra McPhee was the director of the same company since 2006 and has an extensive knowledge and experience of consumer-oriented businesses.  

Role of Auditor 

Auditor`s responsibility related to financial report-

The role of auditor is to monitor the reliability of financial reporting and review the corporate reporting according to the required applicable framework.   

To analyse whether the book value of assets and the liabilities is accounted fairly or not (Deumes et al., 2012).

Apart from the audit services, auditors also undertakes and delegates non-audit services to the organisation. The audit and charter committee gives the advice on laws and compliance and make familiar the remaining management staff about the new statutory regulations (Buckless, Krawczyk, and Showalter, 2014).

To review how far the estimated policies and accounting judgements are applied to the financial statements of the organisation.

Audit and risk committee recommend and recruit new independent auditors to work with the internal auditing team.

Independent Auditors report to the members

AGL`s external auditors attend the annual general meeting. The auditors ensure that they not only work for the organisation rather they represent the financial condition of the company to the shareholders. An auditor is a trust holder, who set a link between organisation and shareholders. Auditors identify the risk association of material misstatement of the financial statements due to fraud (Auditing and Assurance Standards Board, 2013). Auditors perform those audit procedures, which are responsive to risk to obtain and detect whether the audit evidence is capable enough to provide a viewpoint to the shareholders. The risk occurred due to error, forgery, misrepresentation, override of internal control audit, international omission, and a fraud might involve collusion (George, Theofanis, and Konstantinos, 2015). External auditors obtain a understanding of internal auditors that control and relating it to audit in order to design the procedures of audit which are appropriate in the certain situations. However, not from the purpose of appreciating the opinion`s effectiveness of the group`s internal control. Nevertheless, mainly for the purpose to provide a satisfaction to shareholders (Auditing and Assurance Standards Board, 2015). Evaluation of the appropriateness of the director`s statement to use the going concern feature of the business. While checking whether appropriateness of director is through the accounting, audit service. To check whether there exist a material uncertainty and how it to related to events and conditions that may cause doubt on the group`s ability to manipulate the books of accounts (Chan, and Vasarhelyi, 2018).    

Review all Key Audit Matters noted and the associated audit procedures

Since from 2015, international Auditing and Assurance standard board has been established which has new requirements. From this time, the auditors of an Australian company was obliged to report the key audit matters and auditors of all the company will have to make important changes as per the guidelines in IAASB (essential services commission victoria, 2014).

The auditors have recommended that AGL ensure the methodology of calculation to be accurate in future. The auditor has asked to resubmit the updated KPI data and save the modified version of KPI data to support the submission. The auditor discovers a potential weakness in managing the prices to the price comparator website (CPA Australia Ltd, 2018).   

The scope of company`s auditor responded to these key Audit Matters-

The review was not only limited to understand the key control management but determined the estimation of cost accrual. The key audit matters understand and challenge management’s estimation regarding the volume and tariffs that are used in the distributing cost accruals. The audit committee agrees that the volume data that has been underlying in the calculation of volumes into sales, purchases, and other systems (AGL Energy Limited, 2013). Moreover, auditor compare the prices by individual distributor and tariff tables. Auditors play an important role in assessing the appropriate AGL`s unbilled distribution cost. Apart from this, auditors perform sensitivity analysis near the key drivers of long-term growth that is used to forecast the cash flow and discount rate. More in depth analysis of auditor`s report reveals that on February, 2016, AGL has admitted that it has adopted strategic decision that production and exploration related to natural gas assets will be no longer a core operating business of the company.

Audit procedure include indicator of impairment that company has utilised its valuation experts to help the auditors in calculating some key assumption and their impact on carrying value of assets. Some indicators to carry out impairment activities include forecasting of gas prices, gas production capacity, discount rate, estimated cost of reintegration, various capital expenditure estimates (Petra?cu, and Tieanu, 2014).

Conclusion 

From the above discussion, it can be concluded that after going through the financial statements of the AGL Energy Limited, Auditor`s performance tend to be perfect. The auditors advice the company to change its calculation methodology. All the mandatory information required by the stakeholders is clearly and concise mentioned. Rather using the more technical terms, the auditors have provided the advantage to shareholders to ask the questions regarding their independence or accounting principles. The report has a comparative analysis of remuneration of current fiscal years 2017 and 2018. Undoubtedly, the assessed material information helps the stakeholders to make their investment decision. Auditor undertake the responsibility to undertake and increase the overall result and efficiency by valuing effective retail audit program. There are such questions that are not answered by the auditors of the company. Moreover, after answering the questions, the auditor also advice the company to use appropriate method of accounting principles.

References

AGL Energy Limited, (2013) AGL Energy Limited 2013 Annual Report. [online] Available on: https://www.annualreports.com/HostedData/AnnualReportArchive/a/ASX_AGK.AX_2013.pdf [Accessed on 20/09/18]

AGL, (2018) Annual report, (2018) [online] Available on: https://www.agl.com.au/-/media/aglmedia/documents/about-agl/investors/annual-reports/180809-2018annualreport1829055.pdf?la=en&hash=E788FF0DAEEC20BB5C21C9C232396170880D78AE [Accessed on 20/09/18]

AGL`s Annual report, (2017) Annual report. [online] Available on: https://agl2017.reportonline.com.au/sites/agl2017.reportonline.com.au/files/agl_ar_2017.pdf

Ajmi, A. J., and Saudagaran, S. (2011). Perceptions of Auditors and Financial-Statement Users Regarding Auditor Independence in Bahrain. Managerial Auditing Journal, Vol. 26, No. 2, pp. 130-160.

Annual report, (2016) Independent Auditor`s report. [online] Available on: https://agl2016.annual-report.com.au/financials/independent-auditors-report [Accessed on 20/09/18]

Auditing and Assurance Standards Board (2013) Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment [online] Available from: https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_ASA_315.pdf [Accessed 14th September , 2018].

Auditing and Assurance Standards Board (2015) Auditing Standard ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards [online] Available from: https://www.auasb.gov.au/admin/file/content102/c3/ASA_200_Compiled_2015.pdf [Accessed 14th September , 2018].

Auditing and Assurance Standards Board (2015) Auditing Standard ASA 570 Going Concern [online] Available from: https://www.auasb.gov.au/admin/file/content102/c3/ASA_570_2015.pdf [Accessed 14th September , 2018].

Buckless, F. A., Krawczyk, K. and Showalter, D. S., (2014) Using virtual worlds to simulate real-world audit procedures. Issues in Accounting Education, 29(3), pp. 389-417.

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

CPA Australia (2014) A guide to understanding annual reports: Australian Listed Companies. CPA Australia Ltd.

CPA Australia Ltd, (2018) Audit & Risk Committee Charter. Available on:  https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/about/audit-risk-committee-charter.pdf [Accessed on 20/09/18]

Deloitte (2017) Australian financial reporting guide financial reporting periods ending on or after 31 December 2016. Deloitte Touche Tohmatsu.  

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.

ESSENTIAL SERVICES COMMISSION VICTORIA, (2014) AGL AUDIT REPORT SUMMARY AND COMMISSION RESPONSE. [online] Available on: https://www.esc.vic.gov.au/sites/default/files/documents/AGL-Audit-Report-Summary.pdf [Accessed on 20/09/18]

George, D., Theofanis, K. and Konstantinos, A., (2015) Factors associated with internal audit effectiveness: Evidence from Greece. Journal of Accounting and Taxation, 7(7), pp. 113-122.

Goh, B.W., Krishnan, J. and Li, D. (2013) Auditor reporting under Section 404: The association between the internal control and going concern audit opinions. Contemporary Accounting Research, 30(3), pp. 970-995.

Petra?cu, D. and Tieanu, A., (2014) The role of internal audit in fraud prevention and detection. Procedia Economics and Finance, 16, pp. 489-497.