Results of Caltex Australia Company Limited Audit - Example

Running Header: Auditing Research Question Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Table of Contents Running Header: Auditing Research Question 1 Table of Contents 2 Introduction 3 Use of component Auditors 4 Use an expert 9 Conclusion 11 References 12 Bryman, A. (2011). Principles of Auditing, London: SAGE Publication Ltd. 12 Introduction Caltex Australia Company Limited is one of the Australia’s leading oil refining companies. It comprises of many activities from station operations, retail service, to equity and non-equity resellers and direct sales to corporate customers. It is a multinational oil refining company which is distributed all over the world. I have discussed its annual report and how the external auditors are involved and how they are remunerated. The annual report discusses the responsibility of the auditors and their scope of work and how the auditor should obtain audit evidence for financial reporting. The external auditor of the Caltex Australia Company is the KPMG which is an international firm that offers auditing, taxation and assurance services globally. The annual report also indicates the duties of the auditor and the rights of an auditor and their qualifications. The report used is for one financial period and the results from the financial statements and books. Use of component Auditors The annual report of Caltex Company of Australia indicates that the component auditor provides opinion of the audit of the financial reports. Statements of the financial reports include branches, associates, subsidiaries and joint ventures. All this can be audited by group of auditors or by another firm called component auditors and in our case the group of auditors used is KPMG. KPMG is used to asses the Caltex Australia limited company financial statements and give out the financial report (Caltex, 2009). Objectives of the component auditors may be two fold. The auditors establish that they can act as a group and they should have enough and sufficient evidence to make an opinion of the financials. It is important to know the process of producing the financial statements when considering the components auditors goals in evidence perspective. The annual report has indicated several stages in relation to evidence. The first stage is gathering of evidence. The auditor of the group should have a proper understanding of the group, procedure of consolidation, importance of each part of the group and risk involved the information misstatement. The materiality level is determined for the members of the audit group as a whole and for each individual. The Caltex Company can be audited by different component auditors. Each group has to do its own assessment of the financial statement without relying on the report produced by the other group. The reason to this is that one of the group may consider a misstatement as material which may not be considered as material by the other group. When all the groups finish their assessment they will come to consensus on the misstatement and errors which will be considered material. The misstated areas will be investigated and necessary action will be taken to rectify the problem and the report will be free and fair. The other stage is the process of the consolidation. In groups consolidation can be complex and areas of judgment is involved which results to audit risk. There are several procedures involved to minimize audit risk. The figures used in the consolidation can be extracted from the financial statements of the group. The components of the group should be well identified. E.g. associates, subsidiaries and joint ventures. Any transaction which is of different year end should be put on the right accounting period. The gathering of the required evidence for consolidation should be made from the financial statements e.g. determining the goodwill, the figure of the unrealized profits, adjustments for the assets and liabilities and transactions dominated by the foreign currency. The evidence which is desired to get together the objectives will be provided by the component auditor and it is the obligation of the group to inform to the component auditor of the expected evidence for them to gather. There are benefits of group audit which include availability of the required materials and the audit provided is of high quality and also the accessibility of the member of staff (Adams, 2005). The members of the staff are included in the audit group of the subsidiary to improve the reliability and the efficiency in the process of the consolidation. It is sometimes difficult for two audit firms to work for the same company and these forces them to use diverse audit methods and takes them time to come up with joint audit. Joint audit is expensive to the client hence increasing the cost of auditing. The joint audit is performed so that small and medium-sized audit firms to be able to audit big firms and to continue gaining revenue. Caltex Company has written some guidelines of how to handle issues when dealing with audit firms of other countries and different geographical areas. The annual report discusses these issues depending on their type. When the audit firm is working across geographical boundaries and different times, ability of accessing other audit groups in times of emergency is very important. The ability ensures that if there is an event that can cause audit risk and material loss to be discussed so that the auditors or group responsible can respond promptly and act accordingly. The appointment of the component auditor should be done during the Caltex annual general meeting and they will hold office until the next annual general meeting i.e. for one financial year which they can be reappointed without making any resolution unless they are not capable for appointment, a resolution can be passed at the meeting to appoint another group of auditors or the group provide an expression that they will not be reappointed or the group can give the company a notice in written form of not willing to reappointed. The group can be appointed by the registrar when no group of auditors are appointed during the annual general meeting and the directors will inform the registrar for the failure to appoint the auditors (Bogazzi, & Gopinath, 2009). The Caltex annual report states that the auditors can be appointed by the directors any time before the annual general meeting. When the groups of the auditors are appointed by the directors, they can be removed during the annual general meeting and another group can be appointed by the members to fill those positions. The component auditor or group of auditors is made up of Certified public accountants professionals and all of them should have met the qualifications. A group shall not be appointed for auditing all of the members are holders of practicing certificate according to accounts act. The qualification for the auditors is that they must be certified public accountant finalist and they must have a post qualification experience in auditing for 2 years. The Caltex company cannot appoint a group if it is a partner or servants of the company or they have been disqualified for the appointment as auditors by a subsidiary company or subsidiary of the holding company. The Caltex Australia limited company annual reports states the directors can appoint the first auditors and their powers cease after immediately after the company’s first AGM and they can appoint auditors to fill the casual vacancy as a result of incapacitation, death or resignation. The annual report also states how the auditors can be removed from the office. The shareholders are the one supposed to remove the auditors from the office. An ordinary resolution in the general meeting is needed to remove the auditor from the office but a notice of 28 days should be given to the company for the intended removal. They can make the representation in writing to the shareholders which will be circulated to everyone at the company’s expense to everyone who is supposed to receive notice of the meeting. If not circulated they will be read out during the meeting (Bryman, 2011). The KPMG audits the Caltex Australia limited company and they can be asked to step down for several reasons. The disagreement between the directors and the auditors over the accounting policies or if the auditor is taking an unreasonable stance can also make the auditor to step down. The auditor can step down if the management of the holding company desires to rationalize the audits of the subsidiaries under one firm and the incompatibility between the auditor and the management. The auditor can also step down if the he threatens to expose fraud committed by the management or to prevent the management from using the company resources. The auditors can also be forced to step down if they are involve in fraud or giving the shareholders and the public that may ruin the company’s reputation. The annual reports also indicates the right external auditors i.e. KPMG. KPMG has the right to access the accounting records of the company which includes access of statutory books of accounts e.g. memorandum of association, shareholders register and minutes of important meetings. KPMG has the right to get information from the employees and officers of the company and any explanation which might necessary for audit purposes i.e. management explanations, vouchers and client books (Durkin, 2009). KPMG has right to receive notice of the general meetings, to attend and to speak during the same. KPMG has the right to add to his report any information which is material to his knowledge even after the report has been issued to the shareholders in the benefit of the shareholders. KPMG has a right of making a statement during the annual general meeting clarifying accounts e.g. correcting of statements whose impression was wrongly given to the shareholders by the board. They have the rights to be associated during any attempt to remove him from the office or an attempt not to re-appoint by sending representation to shareholders, to read representations if they are not sent in good time at the AGM because of the directors default, to receive a notice of 28 days of the meeting and speaking at the AGM. KPMG can require the subsidiaries and their auditors provide any explanations and information which might be necessary for audit purposes of the holding company. The auditor has also the right to remuneration (Elliot, 2005) i.e. they have to be paid audit fees when they become due, reimbursement of the audit expenses incurred in the course of the audit assignment. The auditor has right to technical and legal advice i.e. the auditor can use work of an expert in order to get the required knowledge about the organization and what have taken place. The Caltex Australia Company annual report highlights the duties of an auditor. The auditor should report to the members on every type of accounts laid set before the company in the general meeting i.e. the auditors should prove beyond reasonable doubt that the balance sheet and profit and loss show true and fair view of the company for the period that ended on that date. The auditors has the duty to state on his report that he received all the explanation and information and according to his opinion was important for the audit (Felix, &Eugenio, 2007), he received return that were adequate from the visited branches, that proper accounts records were maintained on his opinion and that the underlying records agree with the accounts. The auditor has the duty to provide working papers which assist the investigators to the company affairs and they summarize the important matters noticed by the auditor in the audit course. The auditor has the duty of certifying the statutory report regarding the number of shares the company has sold, the cash which has been received in the allotment and certification of the balance sheet and profit and loss in a prospectus. The auditor has the duty in his report to include any information concerning the remuneration of the directors which might have been omitted on the accounts. The auditors should consider any information in the director’s report which is not consistent with the accounts and to report the facts if there are those instances. Use an expert An expert is a person who have specialized skills, experience and knowledge in another field other than accounting and auditing. The way an auditor is trained he has only the general knowledge on matters which are outside his profession. For this reason the auditor may require advice of other experts’ e.g. lawyers. In the annual report of the Caltex Australia Company limited may require advice of an expert in several areas i.e. legal interpretation of laws, chemistry, contract and regulations, there are some assets that need valuation (Radtke, 2003) e.g. Buildings and land, minerals and precious stones, determining physical condition and quantities of assets, actuarial valuations and measurement of work to be completed in contracts or work already completed. The company consider some factors before deciding whether to use work of an expert i.e. it considers the materiality of the item to be examined in comparison to the financial statement in general, complexity and nature of the item including the misstatement and the risk of error and any other evidence of audit which can be available with reverence to the item in consideration. The auditor will have to look for a reasonable assurance that the work of an expert will constitute appropriate evidence of the audit in the support of financial statements (Stallings, 2009). The auditor will consider the competence and skills of the expert. The auditor will consider the skills of the expert and his competence in reference to a particular profession which will be done by putting to consideration the membership of an appropriate body and professional qualifications of the expert. The auditor will also consider the independence and objectivity of the expert (Haykin, & Moher, 2009). The auditor also considers the sources of data which will be used by the expert to make his conclusion and if the sources can be considered reliable the auditor can continue and use the work of an expert. The auditor will consider whether the method the expert uses to make his conclusion will be suitable to the circumstances. Conclusion There are varieties of issues that arise from group auditing. The group is complex and there exists several components that are involved in the group. In my case I have discussed KPMG as the auditing group which contains taxation, auditing and assurances which means the group have to be well planned to enable communication amongst other auditors which have to be made early in the process (Nielsen, 2009). The auditing process is a lengthy process which requires a lot time which can be continuous or non- continuous depending on the size of the company. The Caltex Australia limited engages KPMG which is the external auditor through out the financial period because the company is large. KPMG audits all the branches and subsidiaries of the Caltex Company. References Caltex, A.L (2009) Caltex 2008 annual report, 33-107 Adams, W. (2005), Assurance, Introduction to Accounting, 6, (4), 125-130. 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