Communicating Key Auditor’s Report - Myassignmenthelp.Com

Question: Discuss about the Communicating Key Auditors Report. Answer: Introduction ASA 701 Communicating Key Audit Matters in the Independent Auditors Report was set up in line with the international auditing standard ISA 701 Communicating Key Audit Matters in the Independent Auditors Report. To bring ASA 701 in line with the Australian legislation there were certain differences which were kept in ASA 701 with international auditing standard ISA 701. These difference the captain the auditing standard, to keep the same in line with the prevailing Australian legislation. The ASA 701 has been introduced in the country with an intention to meet out the requirement of the shareholders and stakeholders of the company. The stakeholders and shareholders of the company are not only interested in knowing about the financial health of the company but also about the internal strength and future prospects of the company as well. In earlier years, the auditor of the companies lack sufficient powers that were required to highlight key audit issues to the users of the financial st atement. The ASA 701 provides these powers to the auditor along with proper guidelines which they can refer to at times of determining the key audit issues. Auditing standard has been launched by the government with an intention to provide sufficient information to the users about the company and to make them aware about the audit matters which may impact their decision making in relation to investment in the company.(AUASB, 2015) Application of ASA 701 An individual or companies who are interested in making an investment in a company interested knowingly internal health and financial viability of a company. This can help them in decision making related to investment in the company. The ASA 701 auditing standard will provide necessary information and explanation that are required by the auditor to put key audit matters in the audit report that can be useful for the uses of the financial statement. The international auditing board in the recent times has made certain changes in the auditing standards keeping in mind the consistent changes in the global economy and the Global threat. All these changes and amendments are incorporated in ASA 701. As per the guidelines provided in the new auditing standard, it provides information about all the key audit matters that required to be reported in the audit report that may draw the attention of the user of the assistant financial statement. The new auditing standard has highlighted the impor tance of judgment that needs to be used by the auditor in determining key audit matters. The new auditing standards have also highlights the importance of corporate governance and the people that are being charged with the governance. The key audit message can also be communicated to the auditor by these people as well. At times of determining the key audit matters, the auditors of the company are required to keep them self safe enough. In this scenario, they are required to keep all necessary documents in their files which may help them in future if any enquiry or any question comes in their way either being raised by the government or by any of the uses of the financial statement. The new auditing standards has also highlighted the importance of documentation that are required to be kept by the auditors in relation to the key audit matters that they have reported in the audit report.(Legislation, 2015) With the help of this information, the stakeholders and shareholders of the company can monitor the financial performance of the company based on the judgment and decisions that has been taken by the management. However it should be understood that ASA 701 is different from ASA 570. The former cannot be considered as a substitute for the latter. The ASA 570 provides information about the events that may impact the Going Concern capability of a company on the other hand the ASA 701 provide guidelines about the key audit matters, their communication and on other related matters. ABC Learning ABC learning was an Australian based company. The company was majorly engaged in providing childhood care services not only in Australia but also in other parts of the globe including Britain, United States etc. At times when company was functioning, it was among the largest childhood education care services in the world. Company in the early 2000 was listed in the Australian Stock Exchange. The market capitalization of the company rose to $2.5 billion by the year 2006. The company in the year 2008 because of certain reasons collapsed. There were a number of reasons which all together who are responsible for the downfall and collapse of the company. The auditors of the company are of the opinion that the company is required to restate its profit for the previous years reach out more comfortable position in the current year. The company was facing hugh debt issues mainly during the subprime crisis making it difficult for the company to resist. Ultimately, all these lead to the liquida tion of the company in the year 2008. In the year 2009, the company was brought by Good start Limited.(Baaqeel, 2011) As per the experts, the internal health of the company was not good. The accounting measures that have been adopted by the company during the past years were unable to reflect the correct financial position and financial health of the company. As a result of which, the stakeholders and shareholders of the company were unable to make out the actual and true position of the company. Because of the uneven and questionable accounting measures that have been adopted by the company the profits were inflated every year, making the financial statement for the new investor. As a result of the accounting measures, even the valuation of the assets of the company does not sound reasonable. As per the studies, it has been proved that the management of ABC learning was growing too fast in the early 2000. Remind guest not only in acquiring childhood education care services in Australia but also in other parts of United States and even in Britain. The first phase of the management can be determined from the fact that the company acquired more than 650 childhood care services in 4 years i.e. from 2001 to 2005.(Hultin, 2015) Further, it has been proved that the management of ABC learning was interested only in acquisitions and growing its business rather than streamlining the existing business. It was evident from the fact that more than 200 child care education services centres which were functioning in Australia where at operational losses. With the increase in the number of child Care Centres the staffing cost of the company was increasing at a faster pace. In the initial years, restarting was being done by the top management itself saving d recruitment cost of the consultancies. But later on being the top management was concerned more towards growth, they started outsourcing the job of hiring people for the child Care Centres. This has led to increase in the staffing and recruitment cost which has put additional button on the profit and loss statement of the company. Due to bad accounting measures, the revenue figures of the company work at a terrible state. The accounts of the company were so comple x that the auditors need to spend more than the expected time. Because of the shady accounts, the shares of the company were delisted from the stock exchange in the year 2008-09. The company was not able to attract any buyers. At last the company was purchased by Good Start Limited. There has been multiple instances in the accounts of the Company where it was proved that the manager of the company has entered into related party transactions which were not been taken place at arm's length price. The management of the company never agreed to these comments and stated that the transaction that has taken place with the related party are always been taken place at arm's length price. The transactions with has been taken place with an intention to provide indirect benefit to the top management of the company. Because of all these transactions, the reputation of the company was hampered; the investors who have already invested in the company and those who were willing to invest in the comp any lost their trust in the company. (Keane, 2008) The management of ABC Learning limited never focused on streamlining the existing process and believed only in acquisition of new childcare education services centre irrespective of the cost price although they were aware that the price which they were playing for acquiring the child care services centre is too high and can be reduced with a certain amount of negotiations with the other party.(Kruger, 2009) Application of ASA 701 on ABS Learning It has been stated that if ASA 701 would have been introduced in the earlier years i.e. in the year 2005, there might be a possibility that ABC learning Limited would not have collapsed and investors would have not lost so much of amount by investing in the company. The help of the new auditing standard the auditor's would have disclosed the key audit matters that could have hampered the financial performance and position of the company. There were numerous instances that would have arose the attention of the auditors and they would have treated the same as key audit matters which would have attracted me investors and shareholder of the company towards itself. It has been stated that the management of the company was not at all concerned about the business operations in the later stage of 2001 -2 005 and the financial of the company was maintained in a terrible state. That would have been treated as key audit matter for the auditors. The auditors in this case is not even required to use their basic judgment to determine the key audit matters as the same was clearly evident from its promise very nature. There was sufficient proof which states that the management was more interested in acquiring different child Care Centers across the globe rather than concentrating end streamlining the business could have been a big business issue and key audit matter.(News, 2012) It has been proved that the manager of the company was indulged in related party transactions in order to provide indirect benefits to the top management of the company. The management have stated that all these transactions have been taken place at arm's length price and were not been taken place to provide any indirect benefit to the top management of the company. The auditors in this case would have documented sufficient proofs and should have used this as a key audit matter in the audit report and should have documented the same and their working files for future reference. Further, it has been proved that the staffing and recruitment cost of the company has been increasing at a faster place due to fast acquisition of large number of childcare education services centre. This has been alarming for the company being the major cost was being utilized in bearing the staffing cost of the employees. The auditors in this case keeping in mind the provision of ASA 701 should have used their basic judgment and consider this event as a key audit matter and highlight this in the audit report for the shareholders and stakeholders of the company. The major business operations of the company were coming from Australia. In the later years, it was stated that more than 200 child care service centres are suffering from operation losses. This was again alarming for the auditors of the company as it was going to impact the Going Concern capacity of the company. They should have been treated as a key audit matter for the auditors of the company. In the current business scenario with the growing global economic crisis and other situations, the need of new auditing standards like ASA 701 has increased. Management of the companies nowadays tends to manipulate the numbers for their own good. They are likely to present fake financial statements which may provide information related to death financial performance and position which are charming for the investors and attract them to make a decision related to investment in the company. Because of all these transactions and fake financial statements, the investors who have made investment in these companies have lost numerous amounts. In earlier years, the auditor of the companies lack sufficient powers that were required to highlight key audit issues to the users of the financial statement. The ASA 701 provides these powers to the auditor along with proper guidelines which they can refer to at times of determining the key audit issues. Auditing standard has been launched by the gov ernment with an intention to provide sufficient information to the users about the company and to make them aware about the audit matters which may impact their decision making in relation to investment in the company Conclusion ASA 701 Communicating Key Audit Matters in the Independent Auditors Report was set up in line with the international auditing standard ISA 701 Communicating Key Audit Matters in the Independent Auditors Report. The new auditing standards are a step that has been taken by the Australian government for the betterment and for the protection of the investors who based on a mere financial statement decides to make investment in the company. This will lead to the protection shield for these people and even for the auditors who can use the provisions and guidelines provided in the new auditing standard to provide better and more accurate information to the investors and other uses of the financial statements. The Global economic crisis that has been spreading all across the globe nowadays is majorly because of fake and manipulating information that has been put in the financial statement by the companies to attract the investors for investing there hard earned money in the company. Through the help of these new auditing standards, the reporting authority can keep a track on the financial health of the companies. The new auditing standards ASA 701, tends to provide the judgment feature to the auditors which has open new gates for the auditors and has provided additional powers to go beyond the line and provide concrete and relying information for the stakeholders and shareholders of the company based on which we can take investment related and another decisions for the company. References AUASB, 2015. Auditing Standard ASA 701. [Online] Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf [Accessed 9 Set 2017]. Baaqeel, R., 2011. Case Study Of ABC Learning Centers Collapse. [Online] Available at: https://rayanbaaqeel.blogspot.in/2011/06/case-study-of-abc-learning-centers.html [Accessed 9 Sept 2017]. Hultin, R., 2015. The Collapse of ABC Learning Centres. [Online] Available at: https://prezi.com/xiirpxey5eu1/the-collapse-of-abc-learning-centres/ [Accessed 9 Sept 2017]. Keane, B., 2008. ABC learning collapse is a policy failure. [Online] Available at: https://www.crikey.com.au/2008/11/07/abc-learning-collapse-is-a-policy-failure/ [Accessed 9 Sept 2017]. Kruger, C., 2009. Lessons to be learnt from ABC Learning's collapse. [Online] Available at: https://www.smh.com.au/business/lessons-to-be-learnt-from-abc-learnings-collapse-20090101-78f8.html [Accessed 9 Sept 2017]. Kruger, C., 2011. Numbers finally start to add up as operators go back to basics. [Online] Available at: https://www.smh.com.au/business/numbers-finally-start-to-add-up-as-operators-go-back-to-basics-20110121-19zy6.html [Accessed 9 Sept 2017]. Kruger, C., 2012. Five-year suspension for former ABC Learning auditor. [Online] Available at: https://www.smh.com.au/business/fiveyear-suspension-for-former-abc-learning-auditor-20120808-23uj8.html [Accessed 9 Sept 2017]. Legislation, F.R.o., 2015. ASA 701. [Online] Available at: https://www.legislation.gov.au/Details/F2015L02016/Explanatory%20Statement/Text [Accessed 9 Sept 2017]. News, A., 2012. Auditor suspended over ABC Learning report. [Online] Available at: https://www.abc.net.au/news/2012-08-08/auditor-suspended-over-abc-learning-report/4185408 [Accessed 9 Sept 2017].