How is Enhanced Auditor Reporting being embraced in

Australia?
Table of contents

Contents
Executive Summary....................................................................................................................................... 3
Introduction .................................................................................................................................................. 4
Main Body ..................................................................................................................................................... 5
Auditor’s independence declaration: ....................................................................................................... 6
Non-audit services provided by Butler Settinery for the audit of Adalta ltd. and the nature of such
services...................................................................................................................................................... 6
Payment for non-audit services ................................................................................................................ 7
Auditor’s remuneration ............................................................................................................................ 7
New section to communicate Key Audit Matters (KAM) .......................................................................... 9
How are KAMs described in the Auditor’s Report? .................................................................................. 9
Audit Committee..................................................................................................................................... 11
Audit opinions and their criteria ............................................................................................................. 12
Audit opinion provided by Butler Settinery for Adalta ltd. ..................................................................... 12
How do the Directors’ and Management’s responsibilities differ from the Auditor’s responsibilities in
relation to the financial report?.............................................................................................................. 13
Responsibilities of the Directors for the financial report ....................................................................... 13
Auditor’s responsibility for the financial report: .................................................................................... 14
Material subsequent events ................................................................................................................... 14
What follow-up questions would you ask the Auditor at the company’s Annual General Meeting? .... 14
Conclusion ................................................................................................................................................... 15
References .................................................................................................................................................. 16
Executive Summary
Auditor’s report is a written opinion provided by an auditor which is related to a
listed entity’s financial statements. It is very informative and significant issue to the
shareholders and other users as it provides the accurate and realistic information
based on the audit that was performed (Gray, Manson and Crawford, 2015).

Auditors have need to follow and maintain different rules and standards set by
national and international body of auditing & assurance like IAASB, AUSB, PCAOB,
ICAEW and so on.

IAASB (The International Auditing and Assurance Standards Board) is an

internationally independent standard setting body that ensure high quality of audit
services and reserve public interest by setting high quality of rules and standards
for auditing, quality control, review, and other assurance(Iaasb.org, 2018). Recently
IAASB has undertaken some changes to enhance and improve the quality of
existing audit reporting’s rules and standards and these new and revised Auditing
Reporting standards for audits of financial statements have already been
commenced from December 16, 2016(Iaasb.org, 2018). In this paper, the changes
and effects of the enhanced audit reporting will be described and how the
Enhanced Audit Reporting being embraced in Australia also be explained.

This paper has select AdAlta Ltd. (ASX: 1AD) a listed company of Australian Stock
Exchange for analyzing and explaining the effect and practice of new enhanced
auditor reporting standards and how it being embraced in Australia.
Introduction
For ensuring greater transparency into the financial statement audit and providing
high quality audit services, IAASB has recently undertaken some changes to
enhance and improve the quality of existing audit reporting’s rules and standards
and these new and revised Auditing Reporting standards for audits of financial
statements have already been commenced from December 16,
2016(Cpaaustralia.com.au, 2018). IAASB’s new and revised standards of audit
reporting need the communication of key audit matters in auditor’s report of listed
entities. Like other countries’ listed entities, Australian listed entities also affected
by the enhanced changing audit reporting standards and they already follow and
maintain the revised and changing standards. Auditors now more accountable to
provide additional information about the audit which is highly valued by
users(Auasb.gov.au, 2018).

The synopsis of new enhanced audit reporting standards and its effect on the
Australian listed entities are given below.

 IAASB’s new and revised Auditor Reporting Standards need the

communication of key audit matters in auditor’s report of listed entities.
 Listed entities of ASX (Australian Stock Exchange) need to report on “key
audit matters.”
 The new enhanced auditor reporting provide useful and significant
information to investors and other users.
 Auditors are bound to provide additional information about the audit which
are highly valued by users.
 Enhanced audit reporting on going concern entities.
 Increased description of management and auditor’s responsibilities.
Main Body

AdAlta Limited

AdAlta Limited (ASX: 1AD) is one of the highly innovative

drug discovery and development entity using its
innovative technology platform to update a promising
new class of protein therapeutics known as i-bodies.
AdAlta listed on Australian Stock Exchange (ASX: 1AD) in August 2016. The company
is executed by an experienced governing body and is supported by a world class
scientific advisory board (AdAlta - Developing i-body drugs to treat fibrotic
diseases, 2018).

This paper has overviewed and analyzed the auditors’ sections and other areas
relating to the auditor of Adalta Ltd. and in this part the paper would provide a
report which is summarized and evaluated the auditor’s assurances services
performed for Adalta Ltd. in accordance with enhanced and changing auditor
reporting standards which have already been commenced from 16 December,
2016.

After evaluating the financial report for 2018 of Adalta ltd. the paper has found the
listed entity (ASX: 1AD) of ASX has follow and maintain the requirements of new
enhanced audit reporting standards introduced by IAASB from 16 December, 2016.
Here the paper would carry out the application of new enhanced auditing reporting
standards within the Adalta ltd. listed entity of ASX and explain how this enhanced
audit reporting affect the Adalta’s financial report for 2018 and the assurance
services of the auditors.

Auditor’s independence declaration:

Auditor’s independence declaration indicate the independence of the internal and
external auditor from other relating parties that focus on a financial interest in the
entity being audited. It needs integrity and a specific objectives to the audit
performance. According to new enhanced audit reporting standards introduced by
IAASB every listed entities need to focus on auditor’s independence declaration.

In case of Adalta ltd., the auditor Butler Settinery has disclose the independence
declaration by mentioning following declaration.

Here the auditor Butler Settinery declared for the audit of Adalta ltd.:

 No infringement of auditor independence requirements of the Corporation

Act 2001 in relation to the audit.
 No infringement of any pertinent code of professional conduct in accordance
with the audit.

So, here the auditor has complied with Independence Requirements in relation to
IAASB’s revised and enhanced audit reporting standards.

Non-audit services provided by Butler Settinery for the audit of Adalta ltd. and
the nature of such services
Non-audit services include any sort of professional services given to an issuer by a
registered audit firm rather than those rendered to an issuer in relation to an audit
or a review of the entity’s financial statements (Kausar and Lennox, 2017).
In Adalta ltd., for the purpose of non-audit services, the Board has maintain the
provision of non-audit services which is compatible with the general standards of
independence for auditors imposed by the Corporations Act 2001. These provisions
include:

 All non-audit services and reviewed for protecting the integrity and
objectivity of the auditor.
 These non-audit services have not affect the general principles relating to
auditor independence as set out in APES 110 “Codes of Ethics for
professional Accountant.”

Adalta has paid or payable the following amounts to the auditors for non-audit
services during the current financial year.

Payment for non-audit services

2018 ($) 2017 ($)

Auditor’s remuneration
The new enhanced audit reporting standard has also ensure the disclosure of
auditor’s remuneration and in this case Adalta ltd. has follow the new revised
standards of audit reporting and they fully disclose the auditor’s remuneration
section.

Here the Auditor’s remuneration of Adalta Ltd. has shown in a table and also
provided the comparison with prior year and given other related explanation.

Payment of Auditor’s Remuneration

Auditors 2018 2017 Percentage

remuneration ($) ($) changes
Audit services
Auditors of the 24,943 21,092 18.11%
Company
Butler Settineri (Audit)
Pty Ltd
Other Services
Butler Settineri (Audit) ------ 8,000 -100%
Pty Ltd.

From the above table, we see that the auditor’s remuneration fee has classified
into audit services and other services and the percentage changes in case of audit
services is 18.11%. On the other hand in case of other services the percentage has
minus changing as in current year no other services are occurred.
New section to communicate Key Audit Matters (KAM)
The enhanced audit reporting standards has introduced new section to
communicate Key Audit Matters (KAM) and these are compulsory need to be
communicated by auditors of listed entities.

KAMs are those matter that in the auditor’s professional judgment and these are
most significant issues for the audit of financial report for the current year (ASA
701, Paragraph 8).

The main goals of communicating KAMs is to present insights to the investors and
other users of the financial report. The main KAMs are those that-

 are those who need significant auditor attention (ASA 701, Para-A 12)
 are of higher risk of material misstatement (ASA 701, Para-9(a)).
 are considered complex and need to significant judgment (ASA 701, Para-
9(b))
 involved with specialists and experts (ASA 701, Para-A (14))
 create challenges to obtain sufficient audit evidence (ASA 701, Para- A(13))

How are KAMs described in the Auditor’s Report?

According to ASA 701, Paragraphe 13 the following procedures are urgent to
describe KAMs in the Auditor’s Report.

 “why the matter is considered to be one of most significance in the audit and
therefore determined to be a KAM
  what the auditor did to address the matter and form their conclusions
 reference to the disclosures, if any, in the financial report.”

In case of Adalta ltd., the auditor has communicated the KAMs in some different
way. Basically they ignore the main procedures of KAMs as they have not provided
a specific opinion on Key Audit Matters. They disclose and identify their KAMs by
following way.

Key Audit Matters (KAMs) How the auditors addressed the Key
Audit Matters
Intellectual property rights and  audit procedures included
obligations arising from research and obtaining copies of major
Development Agreements agreements.
 Review the agreements to
identify any commitments,
provisions and other theories.
 Compare the commitments and
obligations with Australian
Accounting Standards.

Equity & Capital Structure 1. Audit procedures included

overview of issuing ordinary
shares during the financial year.
 2. They also assess the not-share
based payments that recognized
in Employee Share Option Plan.
Research and Development Tax  Audit process included an
Incentives examination of the
methodologies, concepts and
provisions for preparing R&D Tax
Income application.
Deferred Taxation  Audit procedures included an
evaluation of the assumptions
and concepts for preparing
deferred taxes.

Audit Committee
As the new enhanced audit reporting standards has no specific guidelines for
disclosing audit committee, the selected entity Adalta has not provide detail
information about the audit committee. They only inform on their financial report
that they have audit and risk committee charter but there is little information about
this charter. So, in this section, the paper has no information about the audit
committee of Adalta to evaluate.
Audit opinions and their criteria
According to enhanced audit reporting standards introduced by IAASB, auditors
need to provide opinion section in case of auditing of listed entities.

According to Ivestopedia audit opinion means, “An auditor's opinion is a

certification that accompanies financial statements based on an audit of an
accountant's opinion on the procedures and records used to produce the statements
regardless of whether material misstatements exist in the financial statements.”
Basically there are three types of audit opinions which are given below (Kutz, 2014).

 Unqualified audit opinion: auditors report unqualified opinion when the

financial statements of an entity are free from any material misstatements.
 Qualified audit opinion: when the financial statements have not presented
in relation to generally accepted accounting principles (GAAP) then, auditor
provide qualified audit opinion.
 Unadjusted opinion: auditors report unadjusted opinion when the financial
statements records are not in accordance to GAAP and have some material
misstatement.

Audit opinion provided by Butler Settinery for Adalta ltd.

Butler Settinery audited the financial statement of Adalta ltd., and they provide
the following opinion.

Opinion
 As the Adalta ltd. has follow the proper standards and rules and there are no
material misstatement found so the auditor Butler Settinery ltd. provided an
unqualified audit opinion.

How do the Directors’ and Management’s responsibilities differ from the

Auditor’s responsibilities in relation to the financial report?
The enhanced and modified audit reporting standard 2016 has provide separate
section for management’s and auditor’s responsibilities in relation to the financial
report(Publicaccountants.org.au, 2018). And so there are some specific difference
between management’s and auditor’s responsibilities which are discussed below
under Adalta ltd’s perspective.

Responsibilities of the Directors for the financial report

The directors and other governing members are accountable for the preparation of
the Adalta’s financial statements that represent a true and fair view in accordance
to the Australian Accounting Standards. The directors are also responsible for
ensuring a material misstatement free and fraud and error free financial
statements that provide the actual information to the users.
During the period of financial statements for Adalta ltd. the directors have need to
provide the necessary data information for assessing the entity’s ability to continue
as a going concern entity.

Auditor’s responsibility for the financial report:

The auditor of Adalta ltd. has need to maintain the standards which are relevant to
Australian Auditing Standards and also need to exercise the professional judgment.
Further they also need to maintain the professional skepticism throughout the
audit performance. The basic responsibilities of Butler Settinery for the auditing of
Adatla’s financial report are given below.

 They need to assess the risks of material misstatement of the financial

statements of Adalta ltd.
 They also need to understand the internal control of the audit.
 They need to assess the appropriateness of accounting policies and related
disclosures made by the managerial body of Adalta ltd.

Material subsequent events

Adalta’s financial report has not disclose any material subsequent events so the
paper has little knowing about any material subsequent event of Adalta ltd.

What follow-up questions would you ask the Auditor at the company’s Annual
General Meeting?
There are some significant questions arises after the commencement of new
enhanced audit reporting and these questions may be asked to the auditors at the
company’s Annual General Meeting. Here these types of follow-up questions are
discussed.

Key Audit Matters related questions.

  Why certain procedures in relation to a KAM were performed?
 Why matters have been identified as KAMs?
 The level of uncorrected misstatements in relation to KAMs.
 What are the accounting policies in relation to KAMs?
 What should be internal control procedures in case of KAM?

Other information related questions.

 What procedures the auditor has need to be performed on the other

information?
 What does constitute other information?
 What is the auditor’s responsibility in accordance to other information?

Conclusion
The enhanced auditing reporting standards introducing by IAASB are very
significant and for the users of financial report and these standards ensure high
quality of audit services and fulfill the demand of public interest and other users
by providing more details information and disclosures. The new and revised
auditor reporting standards has already commenced in Australia and the listed
entities of ASX have also need to follow and maintain the enhanced standards
of audit reporting. IAASB has make some significant changes in audit reporting
standards and add some new standards which are also very important for the
listed entities and auditors. Here, the paper describe the synopsis of the revised
and enhanced audit reporting standards.

 The new and revised standards enhance auditors report by providing

additional relevant information to users including critical audit matters.
  Introduce new section to communicate Key Audit Matters.
 Disclose the name of the engagement partner.
 Need to present opinion section.
 Enhanced auditor report on going concern entity.

These new and modified features of audit reporting standards ensure the
disclosures of useful and relevant information to investors and other users. It also
bound the auditor to provide additional information about the audit, which is
highly valued by users.

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