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Introduction

Auditing is the process of evaluating and checking financial statements of a company and provide judgement that all the recorded information is correct or not and is it relevant to the annual reports or not. It is a function which is performed by an auditor to analyse transparency of financial statements of a company. An auditor is responsible to properly examine the annual reports of the company and give opinion on the financial statements (Arens, Elder and Mark, 2012). Auditors are responsible to analyse and examine the financial statements of the company and give their opinion of the information which is shown in the statements. The main objective of auditing reports is to examine various things such as performance, position, financial status and the level of transparency in annual reports of the company. The company which is chosen for this project report is K&S Corporation Ltd which is a transportation company and established in Australia.

This project report consist independence declaration of auditor and the report, non audit services that are performed by auditor and remuneration, roles, function and composition of audit committee, key audit matters of the companies and their procedures.

Overview of the Company

K&S Corporation Ltd.: It is a transportation company which is mainly based in Australia. It was formed in 1945 and operated for many years supporting Mt Gambier and Victorian based business. It has expand its business in 1978 in to the field of national rail freight forwarding. It was purchased by Allan Scott in 1988. It has also started the operating in first B Double combination at Victoria in 1991. It has acquired Stepnell Transport in 2001 and it has also acquired the Cochrane's transport by expanding its business in New Zealand's market in 2002. It has also expanded its business in western Australia and other places.

Auditor's Independence Declaration

Auditor's independence: It refers to the independence of the auditor from external parties who may influence the auditor and affect the decision of the auditor (Wang and et. al., 2013). These parties may affect the decision of internal and external auditor. The auditors of K&S Corporation Ltd. are complied with the independence requirement. An auditor is liable to declare two main points that are as follows:

  • No disputes of the auditor's freedom requisite of the corporations act 2001 to the auditing procedure.
  • No resistance of any relevant codification of professional activity in relation to the auditing.

There are two different auditors who are liable to examine the annual reports of K&S Corporation Ltd. These auditors are Ernst & Young and Mark Phelps partner.

Non-Auditing Services in the Company

Non Audit services: These are professional services that are provided by a qualified auditor or accountant. It refers to those services that are not related to the auditing work, for example assembling the financial statement is a non audit service (Louwers and et. al., 2015). It includes tax planning, wealth management, business evaluation and other consulting services. In K&S Corporation Ltd. In year 2017 the auditor Ernst & Young of the company has provided one non audit service which is tax software implementation and the fund used or the auditor has received for this services was $14911. The executives of K&S Corporation Ltd. are contented that the preconditions for the non audit services was congruous with the generic regulation of independence for auditors enforced by the corporation act.

Auditor's Remuneration

Auditor's Remuneration: It is an amount which has to be paid by the owner or director of the company to the auditor to perform duties that are examining, evaluating and analysing the annual reports of the company and providing their opinion the same (Knechel and Salterio, 2016). A comparison of the auditor's remuneration of K&S Corporation Ltd. is provided in the following table:

Particular

2016

2017

Changes in %

Audit services

179600

186000

103.56

Other services

 

 

 

Tax software implementation services

17500

14911

85.21

Asset valuation assistance

5900

nil

 

Total auditor's remuneration

203000

200911

98.97

From the above table it has been analysed that changes in percentage in 2017 for audit services 103.56 %, for tax software implementation services it is 85.21% and the percentage changed in total remuneration was 98.97%.

Key Audit Matters in K&S Corporation Ltd

Key audit matters: These matters are addressed by the auditors in the context of their audit of the overall annual reports, and informing their opinion, but the auditors do not provide any specific opinion on these type of matters (Key audit matters, 2017). It includes such matters that are mainly based on the professional judgement of the auditor of an organisation. The auditor of K&S Corporation Ltd has found two key audit matters. Both the matters are described below:

Merger with Scott's Transport industries Pty Ltd (STI): This matter was occurred because of the complexness of the transaction. Both the companies STI and K&S Corporation Ltd are controlled by same shareholders, and they have determined the merger to to make a business combination which is controlled by same authority. As an outcome the excavation of involvement method has been applied. The purpose of the direction is depended on the opinion.

Procedure: The auditors have analysed the suitability of the companies that are using the method of pooling interest. They have assessed that the reflected amount of assets and liabilities of STI are is on carrying value or not and the accounting plan of action of STI allied K&S. The auditors have checked that variation between the consideration provided by K&S Corporation Ltd and the equity adopted by STI was relatively conferred by the managers of K&S. They have also analysed the sufficiency of the related discloser.

Impairment assessment of intangible assets: On 30 June 2017, the auditors have found the insufficiency between the net assets and market estimation of the company which is an signal of vitiate. The identified impairment was carried out on the company's CGU. It is required to the companies to refer instruments for the discount rate, cash flows, long term growth rates and distribution of corporate costs. The uncertainty involved in the estimation of upcoming results for the computation of damage.

Procedure: The auditors have analysed the company's estimation which is used in the damage model. They have specially examined the cash flow estimations, discount rates, growth rates with the help of external market data. They have also assessed the historical quality of the company's forecasting policies.

Audit Committee

Audit committee: It is formed by the directors of the company and liable to supervise the financial reporting and its revealing (Furnham and Gunter, 2015). All the companies are instructed to formulate an audit committee in the organisation that may control the auditing process of the organisation.

In K&S Corporation Ltd an audit committee is formed by the directors which is going to operate its work under a charter that is approved by the Board or the directors.

Responsibilities and Functions of Audit Committee Charter:

Main responsibility of audit committee charters is to assure that an impressive internal control structure exists within the organisation.

  • It is also liable to deal with the effectiveness and efficiency of different business procedures.
  • The main function of audit committee charter is to safeguard the assets, maintain proper accounting records and record such information which is reliable.
  • Another function of audit committee charter is to oversee the recording process of the financial information.
  • Provide assurance to the directors related to the reliability of the information which is recorded in the financial statements.
  • To review the scope and independence of external auditing process.
  • To analyse the comments of auditors and advice on the performance, remunerations and appointment of the auditors.

Audit committee members: There are two audit committee members and both were non-executive directors (Smith-Lacroix, Durocher and Gendron, 2012). The first member of audit committee is Mr. Smith who is the chairman of audit committee, and the directors of the company consider him to be independent. Another member of audit committee is Mr. Johnson and the directors of the company do not consider him to be independent. Both the members have attended the audit committee meetings that are conducted within the organisation.

Audit opinion

It refers to the declaration which has been made by the auditor after analysing the annual reports of the organisation (Chan and Vasarhelyi, 2018). The companies are liable to follow the corporations act 2001 while recording the transactions in the financial statements. The auditors have conducted the auditing program of K&S Corporation Ltd which is based on the Australian auditing standards. They are mainly responsible for the auditing of the financial reports of the company.  The auditors have audited the annual reports of K&S Corporation Ltd and its subsidiaries and following opinions are provided by the auditors of the K&S Corporation Ltd about the financial statements of the company:

  • The company is providing the actual, relevant and fair view of consolidated financial position of the organisation and also providing the accurate financial status of the company.
  • The company is following the Australian Accounting Standards and the corporation regulations act 2001.

The auditors believe that the audit evidence which have been obtained by them was sufficient and appropriate to provide the opinion on the annual reports of K&S Corporation Ltd. The auditors have also fulfilled the responsibilities that are to properly analyse the financial statements, to check the accuracy and other (Barton and Bruder, 2014).

Responsibilities of Directors and auditors

Responsibilities of directors or management:

  • Directors of K&S Corporation Ltd are liable to accurately prepare the financial statements of the company and record actual information the reports.
  • Directors should follow the Corporation act 2001 and Australian Accounting Standards while recording transactions in the annual reports of the company.
  • They are responsible to provide a fair view of company's actual position and performance.
  • The directors are responsible for analysing the ability of the company and its subsidiaries to continue the business which is based on going concern concept, disclosing actual information.
  • The directors are also liable to ignore frauds or misrepresentation while generating financial reports.

All the above mentioned responsibilities are related to the directors but the auditor's responsibilities are different from them.

Responsibilities of auditors:

The objectives of the auditor is to make sure that the financial statement that are presented by the company do not consist any information related to fraud, it should be free from the misstatement of material and to make a report on the company's actual performance. Following are the responsibilities that has to be fulfilled by the auditor:

  • Analyse the financial statements to identify risks related to the misstatement of material, which may be occur due to fraud or any error, design and perform the auditing process with full responsibility and check every information carefully. The risk of not detecting the material misstatement will result high than other which may occur because of an error (Griffiths, 2016).
  • The auditor is liable to obtain an understanding of internal control which is relevant to the auditing process that may provide the appropriate opinion on the reports of the company.
  • Examine the truthfulness of the accounting policies that are framed by the directors and to analyse the provided informations.
  • Determine the performance of whole organisation, its structure, and the informations that are recorded in the financial statements.
  • The auditors are responsible to provide the accurate opinion, supervise the auditing process of company and its subsidiaries.
  • Find out the optimum audit evidences that are related to the financial information of the company.

The auditors communicate with the directors about the matters they found in the reports and provide their reports to the directors which is compiled with the relevant requirements.

Material subsequent events

Material subsequent events:A subsequent event occurs after a reporting period, but before the date of forming financial statements for that period (Hope, Langli and Thomas, 2012). It depends upon the situation that the event requires the disclosure of financial statements or not. It can affect the opinion of investors whether they should invest in the company or not.

There is no material subsequent event in K&S Corporation Ltd. but the organisation is willing to expand its transport and logistic operational activities in next year by extending its services in Australia and following the current technology in the market to reduce the cost and improve the services provided to the customers.

Assessment of the Effectiveness of the Material Information Reported by the Auditor

As a stakeholder like investor, supplier or creditor, the most important information which is provided by the auditor is the effectiveness of the material information, performance of the company, cash flow system, market image and other information. For example, the most important information for an investor is the market image and performance of the company, for supplier the most important information is the cash flow management system of the company, for a creditor the credit policies of the company is very important while assessing the effectiveness of an organisation (Bell and Griffin, 2012). In K&S Corporation Ltd all the above information is very important for the stakeholders, because these informations help to to make different decisions like make investments, provide credit, supply goods and other.

Missing Material Information

It refers to the information which is purposely not disclosed by the directors in the financial reports (AICPA, 2017). It can make a high negative impact on the opinion of the auditor. In K&S Corporation Ltd there is no missing material information found by the auditors in financial statements.

Questions asked by auditors in AGM

Q1 What is the percentage of net profitability which is proposed as the remuneration?

Q2 Do the company is following the Corporation act 2001 and Australian accounting standards?

Q3 Do the company pay for non audit services to the auditors?

Q4 Do the finance department of the company has cooperated with the auditors or not?

Conclusion

From the above project reports it has been concluded that auditing is the process of analysing annual reports of an organisation to get an insight of the company. Auditors are liable to examine the financial statements and than provide their opinion on the same. Different key audit matters are also discussed in this report that are identified by the auditors. Auditor evaluates that the organisation is following the Accounting standards and corporation act 2001 properly, and the information recorded by the accountant is relevant or not. They also discuss the identified issues with the directors. They get remuneration for their services that are provided to the company whether it is audit or non audit services.

References

Books and Journals:

  • 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). John Wiley & Sons.
  • Arens, A. A., Elder, R. J. and Mark, B., 2012. Auditing and assurance services: an integrated approach. Boston: Prentice Hall.
  • Barton, H. and Bruder, N., 2014. A guide to local environmental auditing. Routledge.
  • Bell, T. B. and Griffin, J.B., 2012. Commentary on auditing high-uncertainty fair value estimates. Auditing: A Journal of Practice & Theory. 31(1). pp.147-155.
  • Chan, D. Y. and Vasarhelyi, M. A., 2018. Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.
  • Furnham, A. and Gunter, B., 2015. Corporate Assessment (Routledge Revivals): Auditing a Company's Personality. Routledge.
  • Griffiths, P., 2016. Risk-based auditing. Routledge.
  • Hope, O. K., Langli, J. C. and Thomas, W. B., 2012. Agency conflicts and auditing in private firms. Accounting, Organizations and Society. 37(7). pp.500-517.
  • Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Routledge.
  • Louwers, T. J., and et. al., 2015. Auditing & assurance services. McGraw-Hill Education.
  • Smith-Lacroix, J. H., Durocher, S. and Gendron, Y., 2012. The erosion of jurisdiction: Auditing in a market value accounting regime. Critical Perspectives on Accounting. 23(1). pp.36-53.
  • Wang, C., and et. al., 2013. Privacy-preserving public auditing for secure cloud storage. IEEE Transactions on computers. 62(2). pp.362-375.

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