This is a solution of your Auditing and Assurance Assignment-Btechnd that describes about financial audit and types of audit opinions.
a) An audit opinion is the view of the auditor on the financial statement and reporting of a company. The different types of audit opinions issued by auditors are unqualified, qualified, disclaimer and adverse.
The auditor issues an unqualified audit opinion for Rio Tinto Limited because an unqualified audit opinion refers to the opinion where an auditor has no issues with the financial statements and suggest that they have been presented well (Chen et al. 2001). According to the auditor and the Independent Auditor’s Report of the company, the financial statements of the company represent true values and have been prepared keeping all the reporting standards in mind (Rio Tinto, 2012).
Even for the Commonwealth Bank, from the Independent Auditor’s Report, it is said that the company’s financial statements have been prepared according to the standards. Hence the audit opinion for Commonwealth Bank is also unqualified (Commonwealth Bank, 2013). For more click: Risk Management Assignment
b) The opinion issued by the auditor for Commonwealth Bank is appropriate because there the disclosures of the company are fair and also has been done on the basis of the Australian Accounting Standards and the auditors also agree to the same. However, the opinion issued for Rio Tinto Limited is not agreeable because the annual report of the company demonstrates that the company has not been able to keep adequate accounting records and the auditors were not even able to receive all the information that was required for auditing. The audit opinion should have been a disclaimer of opinion because there is scope for uncertainty and limitations in the audit opinion and feedback that have been given (Joe, 2003).
c) One event that could easily alter the audit opinion of the auditors about Rio Tinto Limited was the issue of the special report by IndustriALL Global Union against the company. In its report, IndustriAll has criticized and demonstrated the controversies surrounding Rio Tinto and suggests that the business and accounting practices adopted by the company are not sustainable (Floris et al. 2013). This can lead to a negative impact on the auditor’s opinion. However, in case of Commonwealth bank, no major event has occurred that can change the auditor’s opinions. There have been changes made in the accounting standards all over Australia like the reporting of interest earnings etc. and hence it is possible that the way the company’s financial statements adopt and demonstrate these changes also affect the overall or some part of the opinion of the auditors.
a) Yes, both the companies, i.e. Rio Tinto Limited and Commonwealth Bank have audit committees that help them in carrying out the audit evidence work. According to Rio Tinto, the main responsibility of the audit committee is to provide complete assistance to the board of the company in carrying out complete analysis, execution, reporting and also monitoring of the financial statements and reports of the company. The Commonwealth Bank’s annual report also suggests that the audit committee of the company is responsible for ensuring the effectiveness of its financial statements and all the disclosures made in them.
b) The information on the audit committee of an organization is given in the governance section. The governance sections lists and summarizes all the activities and formations that are present within an organization that help in implementing controls in the organization and also helps in making sure that all activities are taking place within the defined and accepted codes of standard and practice. Since, audit committee is also largely formed to keep control over the financial reporting and preparation of financial statements (Abbott et al. 2004).
c) According to the financial standards and rules and regulations, an audit committee must contain a minimum of three independent non-executive directors and also it is important for at least one member of the company to have had recent and relevant financial experience.
Given the audit committee for Rio Pinto Ltd. it is observed that the committee consisted of three members among which all three are independent non-executive directors and attended all the meetings during their term (Carcello and Neal, 2000). The annual report of the company clearly states that the committee members are free from any form of relationship with any entity that can make their decisions or judgments partial in any manner. Also, the board has considered, Ann Godbehre to have recent and relevant financial experience and is hence considered to be the financial expert of the company (Rio Tinto, 2012).
According to the Charter of Audit Committee in Australia, an audit committee must have a minimum of three members who must be non-executive independent directors and the chairman of the committee cannot be the chairman of the Board. The audit committee of Commonwealth Bank also is found to have the correct composition in relation to audit committees (Commonwealth Bank, 2013).
d) The audit committees are definitely of benefit to all the stakeholders involved with an organization, including auditor, company, the profession of auditing and the society as a whole. The audit committee not only helps the auditors and the company in maintaining and reporting financial statements in an adequate manner but is extremely beneficial for identifying and managing financial decisions business risks associated with an organization (Braiotta et al. 2010). The benefits of audit committees can not only be recorded for the auditors and the company but are also relevant for the profession itself. The audit committee leads to the facilitation and motivation benefits of developing diversity in the profession and society. It also helps in incorporating new technical expertise and new techniques and diversification. The final statements are used by the society and investors for making informed decisions regarding investing (Vera-Munoz, 2005). Thus, it can be said that audit committees are truly of benefit to everybody.
Abbott, L.J., Parker, S. and Peters, G.F.(2004), Audit Committee Characteristics and Restatements. AUDITING: A Journal of Practice & Theory, Vol. 23, No. 1, pp. 69-87
Braiotta, L., Gazzaway, RT., Colson, R. and Ramamoorti, S.(2010), The Audit Committee Handbook, John Wiley & Sons Inc.
Vera-Munoz, S.C.(2005), Corporate Governance Reforms: Redefined Expectations of Audit Committee Responsibilities and Effectiveness, Journal of Business Ethics, vol.62, no.2, pp.115-127
Carcello, J.V. and Neal, T.(2000), Audit Committee Composition and Auditor Reporting. The Accounting Review, Vol. 75, No. 4, pp. 453-467
Floris, M., Grant, D. and Cutcher, L.(2013), Mining the Discourse: Strategizing During BHP Billiton’s Attempted Acquisition of Rio Tinto, Journal of Management Studies, vol.50, no.7, pp.1185-1215.Order Now