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awesome all right so welcome everybody

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to lecture one who's excited to be here

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for

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auditing hey those people down the front

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woohoo and everyone else is like I'm

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here because I have to be it's in the

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major so hopefully over the semester um

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you'll get to learn a little bit about

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what auditing is all about even if you

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don't want to be an auditor if you want

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to work in business or you want to work

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in marketing or human resources then

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we're going to look at some key Concepts

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that going to help you no matter what

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sort of business career you're

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after and the other thing that we do

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here as well is that we also have our

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annotated lecture slides so you'll also

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see me writing and that sort of thing on

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them this is all captured on the video

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the video will go on to UTS online and

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also gets uploaded to YouTube okay so um

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you'll get files um and access both ways

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so we're going to cover a lot in a f in

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the first week you already know about

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the subject from the prep week stuff you

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know about learning catalytics from

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looking online in our assessment so I'm

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not going to go through those all right

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so we're going to cover two chapters out

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of the textbook today we're going to

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cover why the hell do we have an audit

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in the first place and then we're also

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going to cover um the idea of what is

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the output or the final um product of

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our audit so we're going to look at a

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whole range of

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different objectives let me just put my

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highlighter on here here okay is my

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highlighter the right size no I want

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this

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one all right so we're going to look at

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some basic stuff about describing what

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Assurance is all about why audit is

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important in regards to reducing the

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risk of shareholders the idea of

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information risk uh we're going to look

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at describing auditing which is one

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small subset of assurance we're going to

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look at the difference between auditing

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and accounting we're going to look at

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some types of audits and some different

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types of audit firms that provide them

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and the big four

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firms uh we're going to look at what the

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professional bodies do so CA and CPA

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we're going to look at the auditing

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standards and why they're important to

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us uh we're going to look a little bit

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at quality control not too much and then

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also the basics of the corporations act

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so it sounds like a lot but there's

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actually just a few basic key Concepts

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now in the lectures and in the lecture

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notes I pull out the most important

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things that I want you to learn from the

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textbook now there are still going to be

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some things in the textbook that I would

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like you to read but the things I think

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are most important are the things that

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are going to be in the lecture notes and

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the things I'm going to discuss and then

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out of those the things that I think are

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key or most important are going to be

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the things that um will come up in the

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quizzes each week all right so that'll

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give you a guide as to what I think is

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most important when it comes to exam

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prep um so if there's you know a whole

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section in the textbook that I don't

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really touch on you might want to have a

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read of it just for background but not

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go too in

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depth all right so what's our first

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objective what the hell is Assurance so

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Assurance is about having someone

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independent that's ask the auditor being

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objective trying to improve the quality

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of information for decision

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makers all right we want decision makers

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to have accurate reliable information so

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that they can make the best decisions

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for themselves and they could be

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shareholders they could be Regulators it

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could be managers within the company so

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no matter who you are you make decisions

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based on information very rarely in

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business do we make decisions just based

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on flipping a coin or our gut we're

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going to need to use information and so

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the process of assurance is about

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providing quality and then also the idea

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of reliability

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to that

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information

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[Music]

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oops all right so right down

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here oh that's really bright can we

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still see the uh slides if I leave the

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curtains open yep we've been in a

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basement room this morning I think just

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having some natural light will help me

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realize it's

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daytime so who can perform an audit our

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public accounting firms plus we're going

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to look at some government Auditors as

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well there's different levels of

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assurance which which we'll talk about

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in a future weeks um

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mostly our Assurance is provided on

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historic information so historic things

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like the financial statements we do see

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some growth towards looking at forward

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looking information but it's hard to

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provide reliability on information about

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the future it's easy to prove that

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information about the past about

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transactions that have already happened

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are reliable it's a lot easier for us to

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do

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so in terms of what we're going to be

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studying this semester our audit issues

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a written communication so we're going

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to look at the audit report that

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provides a conclusion about the

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reliability of written assertions or

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statements of another party so let's

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break that

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down we've got our audit of our

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financial statements now this one almost

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dropped my pen this is what we're going

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to spend our entire semester looking at

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right audits must be done under the

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corporations act for every company

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that's listed um and that requires an

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audit where we give an opinion about

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whether the financial statements are

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true and fair are a true representation

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of the underlying economic transactions

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and events that have occurred within

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that

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firm the review is a slightly

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lesser amount of assurance so we're

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giving very high levels of assurance in

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the audit we're giving less levels in

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the review and then there are other

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services which we're not really going to

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get into too much detail

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on

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so uh we can also have Assurance over it

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so if you go on to PayPal or Ebay they

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have assurance that the information you

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send to them or you store with them is

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securely kept isn't uh H passed on to

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other people so we can provide Assurance

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on anything right there's actually an

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assurance service that exists over Lotto

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so we have the lotto balls that go into

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Power Ball Etc there are actually

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Auditors whose job it is is to make sure

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that every single power ball or Lotto

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ball is exactly the same size is exactly

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the same weight and is exactly round and

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that security processes over those mean

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that you can't manipulate the lotto

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balls in any way to get a particular

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outcome so we could provide Assurance

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over anything and it's new southwell

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state government that provides Assurance

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over the lotteries

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but you could have Assurance over a

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range of different processes and

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information as well so if you jump on to

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potifa which is a u political

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factchecking website you'll discover

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that I think less than 3% of all Donald

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Trump statements can actually be assured

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or be reliable so he says 97% of stuff

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that's not reliable um but you can

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provide Assurance on

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anything so what we're looking at is

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this this very small bit here all right

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so there's Assurance of all sorts of

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different areas we've got Consulting and

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non-assurance Services I can provide

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Assurance over all sorts of it

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systems um but we're going to be looking

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at just this little bit here the audit

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of the financial statements and that is

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what drives most of our big four firms

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big revenues um and large proportions of

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Staff just involved in this little

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component so what is the idea about

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information risk right the risk that the

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information I have might not be suitable

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for my decision-making purposes and that

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risk comes about well the possibility

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that information was made on uh a

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decision was made on information that

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was inaccurate I'll give you an example

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of information

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risk um you'll uh meet my son on some of

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our audit slides um we affectionately

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call him audit Junior um um and he's

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come to every single open day since he

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was born and he's I'm starting to get

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him to the point where uh we're going to

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start training him up to talk in our

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audit videos but when he was one I sent

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out invitations for his first birthday

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and I put two numbers on there for

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people to RSVP I left my mobile number

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and I left my husband's mobile

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number and I

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assumed that if my people had called my

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husband and said we're coming I assumed

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that he was going to pass that

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information on to me

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so I made all these plans for how many

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people and how much catering and how

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many party bags and all the rest of it

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based on the people that had RSVP to me

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and the assumption that he was going to

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tell me if anyone had contacted him and

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said that they were going to

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go bad assumption so I made all these

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decisions and then two days before the

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party I said to him oh look I'm really

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surprised that so and so is not coming

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and he said oh no they sent me a text

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message they're coming and I said why

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didn't you tell me he goes I thought you

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would have

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asked so 2 days before suddenly I have

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like 20 more people coming to this party

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but i' made a decision based on

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information that was inaccurate now all

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it meant was that I had to go out and

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buy more food and I was severely

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stressed out and I made him decorate

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like hundreds of cupcakes for the extra

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people and that wasn't lifethreatening

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or it wasn't going to bankrupt a

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business but I made it decision based on

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bad information it wasn't complete it

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didn't have everything that I was

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looking for so if I'm doing this in a

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business I may might make decisions

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about a whole range of different things

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what raw materials to buy what prices

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I'm going to set for my products all

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right am I going to offer any

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discounts I might make changes based

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on manufacturing or marketing

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and if I make those decisions based on

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the wrong information that could have

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serious consequences for my company now

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if I'm a

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shareholder then what are my decisions

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about my decisions are about whether to

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whoops

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undo

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buy

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sell or hold my

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investment right and if I don't have

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accurate information as a shareholder

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then I might make the wrong choice when

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it comes to doing that decision so

279
00:11:04,360 --> 00:11:06,720
there's risk that our information might

280
00:11:06,720 --> 00:11:09,839
not be appro so the reasons that we have

281
00:11:09,839 --> 00:11:12,639
uh risk of information remoteness

282
00:11:12,639 --> 00:11:15,519
between the

283
00:11:16,000 --> 00:11:19,639
user and management I own shares in WW

284
00:11:19,639 --> 00:11:21,240
worths I can't really go up to ww worth

285
00:11:21,240 --> 00:11:23,720
and say hey tell me how to cash flow is

286
00:11:23,720 --> 00:11:26,240
going many issues of a going concern

287
00:11:26,240 --> 00:11:27,880
which of the stores are not performing

288
00:11:27,880 --> 00:11:30,240
well so I don't really know what's going

289
00:11:30,240 --> 00:11:33,000
on inside the business the provider of

290
00:11:33,000 --> 00:11:34,760
the information is usually

291
00:11:34,760 --> 00:11:37,079
management an agency theory tells us

292
00:11:37,079 --> 00:11:39,000
that they're biased no manager wants to

293
00:11:39,000 --> 00:11:41,519
say hey I did a sucky job this year but

294
00:11:41,519 --> 00:11:43,560
you should still pay me a bonus they

295
00:11:43,560 --> 00:11:45,200
want to make themselves look fantastic

296
00:11:45,200 --> 00:11:46,839
so there's always the bias that they're

297
00:11:46,839 --> 00:11:49,000
going to present information in a way

298
00:11:49,000 --> 00:11:52,320
that maximizes their own wealth under

299
00:11:52,320 --> 00:11:54,839
agency

300
00:11:57,320 --> 00:11:59,720
theory all right there's there's lots

301
00:11:59,720 --> 00:12:02,480
and lots and lots of data hundreds or

302
00:12:02,480 --> 00:12:05,120
thousands or millions of transactions

303
00:12:05,120 --> 00:12:06,399
how do we know which ones are correct

304
00:12:06,399 --> 00:12:08,680
which ones are not correct and then

305
00:12:08,680 --> 00:12:12,160
there's complex transactions between

306
00:12:12,160 --> 00:12:14,160
different companies within the same

307
00:12:14,160 --> 00:12:16,600
company across different borders in

308
00:12:16,600 --> 00:12:19,760
different jurisdictions joint ventures

309
00:12:19,760 --> 00:12:22,360
partial subsidiaries it can get really

310
00:12:22,360 --> 00:12:26,079
complicated right my parents have a

311
00:12:26,079 --> 00:12:28,480
whole lot of shares they're retired and

312
00:12:28,480 --> 00:12:29,959
my mom's assigned

313
00:12:29,959 --> 00:12:31,720
teacher and I said well you know what

314
00:12:31,720 --> 00:12:33,040
are you looking for in the financial

315
00:12:33,040 --> 00:12:34,600
statements you know what do you look at

316
00:12:34,600 --> 00:12:35,720
when you look at the numbers and she

317
00:12:35,720 --> 00:12:38,160
said I don't know right I'm looking for

318
00:12:38,160 --> 00:12:40,160
positive numbers not negative numbers in

319
00:12:40,160 --> 00:12:42,279
the profit I'm looking for numbers that

320
00:12:42,279 --> 00:12:44,560
go up but she doesn't understand

321
00:12:44,560 --> 00:12:46,560
anywhere near the complexity of

322
00:12:46,560 --> 00:12:49,800
accounting that I do as a CA to be able

323
00:12:49,800 --> 00:12:51,480
to interpret that information and know

324
00:12:51,480 --> 00:12:53,639
whether it seems appropriate or not so

325
00:12:53,639 --> 00:12:56,079
the audit is there to minimize this

326
00:12:56,079 --> 00:13:00,079
information risk to act as the uh

327
00:13:00,079 --> 00:13:01,639
advocate of shareholders to say well

328
00:13:01,639 --> 00:13:03,320
really we want information that is act

329
00:13:03,320 --> 00:13:04,880
and true for decision

330
00:13:04,880 --> 00:13:07,079
making so how could we reduce

331
00:13:07,079 --> 00:13:09,399
information risk we could get users to

332
00:13:09,399 --> 00:13:11,399
try and verify information that would be

333
00:13:11,399 --> 00:13:13,079
really tough especially at woolies with

334
00:13:13,079 --> 00:13:15,360
all of their shareholders not really

335
00:13:15,360 --> 00:13:18,199
reliable the user does share some risk

336
00:13:18,199 --> 00:13:20,360
with management because they make a risk

337
00:13:20,360 --> 00:13:23,839
when it comes to investing but the

338
00:13:23,839 --> 00:13:28,519
audit is the thing that we use to reduce

339
00:13:28,519 --> 00:13:33,000
agency cost cost all right so to

340
00:13:33,000 --> 00:13:36,279
reduce the risk of

341
00:13:36,279 --> 00:13:39,040
agency we have an audit we have the

342
00:13:39,040 --> 00:13:41,480
Auditors independently check

343
00:13:41,480 --> 00:13:43,720
Management's work to make sure that they

344
00:13:43,720 --> 00:13:45,880
are telling the truth when it comes to

345
00:13:45,880 --> 00:13:47,720
what they present to

346
00:13:47,720 --> 00:13:50,040
shareholders so here's my son you can

347
00:13:50,040 --> 00:13:52,000
see him there he's pretty

348
00:13:52,000 --> 00:13:55,279
cute um and um for those people who are

349
00:13:55,279 --> 00:13:57,000
wondering I'm not just getting fat so I

350
00:13:57,000 --> 00:13:59,360
am going to having a baby at the uh

351
00:13:59,360 --> 00:14:01,040
beginning of next year so we call him

352
00:14:01,040 --> 00:14:04,560
audit Junior um and we just recently

353
00:14:04,560 --> 00:14:05,959
announced well I announced on my

354
00:14:05,959 --> 00:14:08,000
Facebook page uh for all the students

355
00:14:08,000 --> 00:14:09,600
who are friends with me that um he's

356
00:14:09,600 --> 00:14:12,040
getting a promotion to audit senior so

357
00:14:12,040 --> 00:14:13,600
we'll have a new audit Junior coming

358
00:14:13,600 --> 00:14:15,839
along but when it comes to describing

359
00:14:15,839 --> 00:14:18,440
auditing I always use this picture this

360
00:14:18,440 --> 00:14:21,240
was only taken a few months ago and I

361
00:14:21,240 --> 00:14:25,360
say is this the world's cutest kid right

362
00:14:25,360 --> 00:14:27,880
because every parent thinks that their

363
00:14:27,880 --> 00:14:30,639
child is the cutest kid what ever nobody

364
00:14:30,639 --> 00:14:32,040
I haven't met a new parent that says

365
00:14:32,040 --> 00:14:33,360
well look actually my son or daughter's

366
00:14:33,360 --> 00:14:34,199
a bit

367
00:14:34,199 --> 00:14:37,079
ugly right oh everybody's like oh how a

368
00:14:37,079 --> 00:14:39,040
adorable how

369
00:14:39,040 --> 00:14:41,360
cute and the same with managers right

370
00:14:41,360 --> 00:14:42,839
managers are going to say we are the

371
00:14:42,839 --> 00:14:45,360
best ever and when I meet your parents

372
00:14:45,360 --> 00:14:47,600
at graduation your parents are going to

373
00:14:47,600 --> 00:14:51,959
say look wasn't my son just the best

374
00:14:51,959 --> 00:14:54,240
student sometimes I look and to be

375
00:14:54,240 --> 00:14:57,040
honest with you I lie sometimes so you

376
00:14:57,040 --> 00:14:58,759
know students who were really great I

377
00:14:58,759 --> 00:14:59,560
say yeah

378
00:14:59,560 --> 00:15:02,440
absolutely and sometimes if you know

379
00:15:02,440 --> 00:15:05,399
perhaps you weren't the most diligent

380
00:15:05,399 --> 00:15:08,079
dedicated student I will say something

381
00:15:08,079 --> 00:15:10,720
like oh you know they really put in some

382
00:15:10,720 --> 00:15:13,600
good effort that's my sort of you know

383
00:15:13,600 --> 00:15:15,839
safety statement

384
00:15:15,839 --> 00:15:19,440
there but how would we determine who is

385
00:15:19,440 --> 00:15:21,240
the world's cutest

386
00:15:21,240 --> 00:15:24,160
kid how would we figure that out that's

387
00:15:24,160 --> 00:15:27,399
a claim I'm making we would need to have

388
00:15:27,399 --> 00:15:29,800
somebody independent come with some set

389
00:15:29,800 --> 00:15:32,759
of Standards on child

390
00:15:32,759 --> 00:15:35,199
cuteness to figure out whether he really

391
00:15:35,199 --> 00:15:37,759
is the cutest kid or not now when it

392
00:15:37,759 --> 00:15:40,360
comes to financial statements that's

393
00:15:40,360 --> 00:15:42,120
really easy because we have our

394
00:15:42,120 --> 00:15:44,839
accounting standards that tell us this

395
00:15:44,839 --> 00:15:48,120
is what accounting should look like and

396
00:15:48,120 --> 00:15:49,560
so when we're trying to figure out what

397
00:15:49,560 --> 00:15:51,319
our management telling the truth is this

398
00:15:51,319 --> 00:15:53,800
the right set of financial statements is

399
00:15:53,800 --> 00:15:55,040
this what we should be presenting to

400
00:15:55,040 --> 00:15:57,519
shareholders then we use our double asbs

401
00:15:57,519 --> 00:16:00,440
to do that Roger will be back to tell

402
00:16:00,440 --> 00:16:02,160
you all sorts of other hints and tips as

403
00:16:02,160 --> 00:16:03,519
well about

404
00:16:03,519 --> 00:16:05,360
auditing so

405
00:16:05,360 --> 00:16:09,639
auditing is the accumulation of evidence

406
00:16:09,639 --> 00:16:11,360
all right so evidence is really critical

407
00:16:11,360 --> 00:16:14,040
because I shouldn't make a decision

408
00:16:14,040 --> 00:16:16,000
without having some

409
00:16:16,000 --> 00:16:20,079
evidence if you're sick or uh something

410
00:16:20,079 --> 00:16:22,519
happens to you on the way to UNI then I

411
00:16:22,519 --> 00:16:24,360
want evidence if you say look I miss the

412
00:16:24,360 --> 00:16:26,120
quiz because I fell down a flight of

413
00:16:26,120 --> 00:16:28,639
stairs and broke my leg I'm going to

414
00:16:28,639 --> 00:16:31,079
have to see your broken leg and I'd want

415
00:16:31,079 --> 00:16:33,120
some evidence that that was really the

416
00:16:33,120 --> 00:16:36,880
case right so I'm technically a doctor

417
00:16:36,880 --> 00:16:38,399
and um friends always ask me look could

418
00:16:38,399 --> 00:16:40,319
you write me a doctor's note which I

419
00:16:40,319 --> 00:16:43,920
can't do as a PhD sort of doctor but if

420
00:16:43,920 --> 00:16:46,040
you apply for something you oh look you

421
00:16:46,040 --> 00:16:47,839
know this is what's been going on I want

422
00:16:47,839 --> 00:16:49,440
to see actual evidence to know that

423
00:16:49,440 --> 00:16:51,399
that's the truth so just like on cop

424
00:16:51,399 --> 00:16:53,120
shows before they charge somebody with

425
00:16:53,120 --> 00:16:55,920
the crime they need evidence well we

426
00:16:55,920 --> 00:16:58,199
need evidence as well to be able to make

427
00:16:58,199 --> 00:16:59,839
our opinion

428
00:16:59,839 --> 00:17:02,880
and determine the degree of

429
00:17:02,880 --> 00:17:05,720
Correspondence between information which

430
00:17:05,720 --> 00:17:07,880
for us is going to be our financial

431
00:17:07,880 --> 00:17:09,599
statements let me put that in

432
00:17:09,599 --> 00:17:12,039
red financial

433
00:17:12,039 --> 00:17:15,679
statements and our established

434
00:17:15,679 --> 00:17:18,280
criteria and our established

435
00:17:18,280 --> 00:17:21,319
criteria are our

436
00:17:21,319 --> 00:17:24,240
asbs all right so we're looking at

437
00:17:24,240 --> 00:17:26,119
Management's information and what the

438
00:17:26,119 --> 00:17:29,679
double asbs say it should be and um I

439
00:17:29,679 --> 00:17:31,440
know would you guys have had Helen I

440
00:17:31,440 --> 00:17:33,080
think last semester for accounting

441
00:17:33,080 --> 00:17:35,120
standards so Helen would have taught you

442
00:17:35,120 --> 00:17:37,640
how everything needs to be laid out how

443
00:17:37,640 --> 00:17:40,000
all the calculations need to work so we

444
00:17:40,000 --> 00:17:41,480
need to check that that's part of the

445
00:17:41,480 --> 00:17:45,080
auditor's role so key things about the

446
00:17:45,080 --> 00:17:47,760
audit we need to be competent we need to

447
00:17:47,760 --> 00:17:49,559
have the right skills which is part of

448
00:17:49,559 --> 00:17:52,039
what we're doing here at Uni and we need

449
00:17:52,039 --> 00:17:56,039
to be independent as well all right so

450
00:17:56,039 --> 00:17:57,840
competency is about having the right

451
00:17:57,840 --> 00:18:00,400
skills and and then being independent is

452
00:18:00,400 --> 00:18:03,159
about being

453
00:18:03,159 --> 00:18:05,000
objective um and I'll give you an

454
00:18:05,000 --> 00:18:08,679
example so many many many years ago um

455
00:18:08,679 --> 00:18:10,440
my husband and I both met at an audit

456
00:18:10,440 --> 00:18:12,520
firm so it was an audit firm

457
00:18:12,520 --> 00:18:14,320
romance

458
00:18:14,320 --> 00:18:16,679
and we were both working on different

459
00:18:16,679 --> 00:18:18,960
audit clients um and one of my big

460
00:18:18,960 --> 00:18:21,120
clients was QBE Insurance which we've

461
00:18:21,120 --> 00:18:23,200
all would have seen on TV and they

462
00:18:23,200 --> 00:18:27,080
sponsor some sporting teams Etc but he

463
00:18:27,080 --> 00:18:31,480
left PWC and took a job at

464
00:18:31,480 --> 00:18:34,520
QBE at that point I could no longer do

465
00:18:34,520 --> 00:18:36,880
the audit because I was no longer

466
00:18:36,880 --> 00:18:38,520
independent because I knew somebody that

467
00:18:38,520 --> 00:18:41,440
worked there and part of his job was

468
00:18:41,440 --> 00:18:43,320
consolidation of all of their

469
00:18:43,320 --> 00:18:47,200
subsidiaries so if I discovered that he

470
00:18:47,200 --> 00:18:49,360
had you know somehow stolen $10 million

471
00:18:49,360 --> 00:18:51,520
from the company I probably wouldn't

472
00:18:51,520 --> 00:18:54,120
have told anybody we would have you know

473
00:18:54,120 --> 00:18:56,799
very quietly resigned from our jobs sold

474
00:18:56,799 --> 00:18:58,919
our house and skipped out a

475
00:18:58,919 --> 00:19:02,679
non-extradition country so we need to

476
00:19:02,679 --> 00:19:05,480
have Auditors who are objective and

477
00:19:05,480 --> 00:19:09,080
independent right to say that when some

478
00:19:09,080 --> 00:19:11,360
we see something that's not quite right

479
00:19:11,360 --> 00:19:13,640
we feel independent enough to put our

480
00:19:13,640 --> 00:19:15,799
hands up and say oh I don't think this

481
00:19:15,799 --> 00:19:17,840
should be happening or you know

482
00:19:17,840 --> 00:19:19,600
management are not doing the right thing

483
00:19:19,600 --> 00:19:20,559
so

484
00:19:20,559 --> 00:19:22,559
Independence is the Cornerstone of

485
00:19:22,559 --> 00:19:25,320
auditing you open any audit textbook and

486
00:19:25,320 --> 00:19:27,360
I'm a bit of an audit nerd so I have

487
00:19:27,360 --> 00:19:29,640
audit textbooks from the

488
00:19:29,640 --> 00:19:31,400
1940s and

489
00:19:31,400 --> 00:19:33,600
earlier um and there's no pictures no

490
00:19:33,600 --> 00:19:35,080
diagrams it's all in color it's all

491
00:19:35,080 --> 00:19:37,159
black and white just type text but they

492
00:19:37,159 --> 00:19:39,320
all start with this idea that audit is

493
00:19:39,320 --> 00:19:41,600
the Cornerstone sorry Independence is

494
00:19:41,600 --> 00:19:43,919
the Cornerstone of being able to do that

495
00:19:43,919 --> 00:19:46,559
audit to be independent just like when I

496
00:19:46,559 --> 00:19:49,760
say my kid has got to be the cutest kid

497
00:19:49,760 --> 00:19:52,320
I'm not independent so we would have to

498
00:19:52,320 --> 00:19:55,880
find somebody who is an independent

499
00:19:55,880 --> 00:19:58,799
expert in the Judgment of kid cuteness

500
00:19:58,799 --> 00:20:01,559
to be able to make that

501
00:20:01,559 --> 00:20:03,720
opinion all right so what do we need to

502
00:20:03,720 --> 00:20:05,679
be able to do our audit we need to have

503
00:20:05,679 --> 00:20:07,600
the information the financial statements

504
00:20:07,600 --> 00:20:09,320
and our criteria which is our double

505
00:20:09,320 --> 00:20:12,120
asbs that we talked about all right so

506
00:20:12,120 --> 00:20:15,760
our financial statements and our double

507
00:20:15,760 --> 00:20:18,720
asbs we need to be able to accumulate

508
00:20:18,720 --> 00:20:19,960
evidence and we're actually going to

509
00:20:19,960 --> 00:20:22,679
practice doing that designing ways to

510
00:20:22,679 --> 00:20:25,240
collect evidence so just like on CSI

511
00:20:25,240 --> 00:20:26,360
there's all these techniques for

512
00:20:26,360 --> 00:20:29,280
collecting fingerprints and running DN

513
00:20:29,280 --> 00:20:31,559
and taking a tire Triad and running it

514
00:20:31,559 --> 00:20:34,880
through a database we also

515
00:20:34,880 --> 00:20:37,840
have less cool procedures to collect

516
00:20:37,840 --> 00:20:39,760
evidence so there's no like you know

517
00:20:39,760 --> 00:20:41,960
Dart rooms with spotlights and

518
00:20:41,960 --> 00:20:44,039
microscopes unfortunately Auditors

519
00:20:44,039 --> 00:20:46,559
mostly just use our brains might use a

520
00:20:46,559 --> 00:20:49,880
computer pen and some paper but we're

521
00:20:49,880 --> 00:20:51,840
going to look at specific methods that

522
00:20:51,840 --> 00:20:54,280
we've developed over time to collect

523
00:20:54,280 --> 00:20:56,240
evidence we've talked about being

524
00:20:56,240 --> 00:20:57,880
competent having the right skills and

525
00:20:57,880 --> 00:20:59,360
being independent

526
00:20:59,360 --> 00:21:02,559
and then providing a report so under the

527
00:21:02,559 --> 00:21:03,880
corporations

528
00:21:03,880 --> 00:21:06,880
act

529
00:21:06,919 --> 00:21:09,120
oops I actually have to provide a

530
00:21:09,120 --> 00:21:10,120
written

531
00:21:10,120 --> 00:21:12,039
report that

532
00:21:12,039 --> 00:21:15,440
says here is the outcome of the audit

533
00:21:15,440 --> 00:21:18,440
yes management are telling the truth or

534
00:21:18,440 --> 00:21:20,880
no they're not quite being truthful

535
00:21:20,880 --> 00:21:22,279
about everything and here are the things

536
00:21:22,279 --> 00:21:25,000
that they not being honest

537
00:21:25,000 --> 00:21:27,080
about so what's the difference between

538
00:21:27,080 --> 00:21:29,360
auditing and accounting the accounting

539
00:21:29,360 --> 00:21:33,080
is the recording part of uh the business

540
00:21:33,080 --> 00:21:35,960
process so they record summarize all the

541
00:21:35,960 --> 00:21:38,240
debits and credits within the system and

542
00:21:38,240 --> 00:21:40,480
then the Auditors are actually the ones

543
00:21:40,480 --> 00:21:42,640
checking the accounting work so we're

544
00:21:42,640 --> 00:21:43,760
going to go back and we're going to look

545
00:21:43,760 --> 00:21:45,960
at the work of the accounts and say are

546
00:21:45,960 --> 00:21:48,240
they doing the right

547
00:21:48,240 --> 00:21:50,400
thing just going to move this over here

548
00:21:50,400 --> 00:21:52,919
for a second all right so we have three

549
00:21:52,919 --> 00:21:55,360
main types of audits uh the financial

550
00:21:55,360 --> 00:21:56,679
statement the performance and the

551
00:21:56,679 --> 00:21:58,600
compliance as I mentioned before

552
00:21:58,600 --> 00:21:59,679
financial statement is the one that

553
00:21:59,679 --> 00:22:01,440
we're going to be spending the most of

554
00:22:01,440 --> 00:22:04,080
our time on the performance is about are

555
00:22:04,080 --> 00:22:05,720
we doing things efficiently and

556
00:22:05,720 --> 00:22:09,000
effectively within our business so uh we

557
00:22:09,000 --> 00:22:11,880
might have a sales process or a complex

558
00:22:11,880 --> 00:22:13,520
consolidation process and we can get an

559
00:22:13,520 --> 00:22:15,559
auditor in to say is this the best way

560
00:22:15,559 --> 00:22:17,559
to do this do we need to re-engineer our

561
00:22:17,559 --> 00:22:20,039
business process and then the compliance

562
00:22:20,039 --> 00:22:22,360
audit which is about following laws and

563
00:22:22,360 --> 00:22:24,840
regulations um so is a company reporting

564
00:22:24,840 --> 00:22:27,440
GST appropriately are they following

565
00:22:27,440 --> 00:22:30,320
occupational health and safety um are

566
00:22:30,320 --> 00:22:32,360
they doing anything else that requires a

567
00:22:32,360 --> 00:22:34,480
specific law or regulation but we're

568
00:22:34,480 --> 00:22:37,000
going to focus on that one up

569
00:22:37,000 --> 00:22:40,080
there so there's some examples okay

570
00:22:40,080 --> 00:22:41,799
different types of Auditors the public

571
00:22:41,799 --> 00:22:43,360
accounting firms are the big four and

572
00:22:43,360 --> 00:22:45,880
the second tier they do most of the

573
00:22:45,880 --> 00:22:48,760
publicly listed companies um the auditor

574
00:22:48,760 --> 00:22:50,880
general are the government

575
00:22:50,880 --> 00:22:52,960
Auditors all right so the New South

576
00:22:52,960 --> 00:22:55,159
Wales audit office and the auditor

577
00:22:55,159 --> 00:22:57,760
general of Australia based in Cambra um

578
00:22:57,760 --> 00:22:59,360
New South Wales auditor general will

579
00:22:59,360 --> 00:23:02,320
audit state government

580
00:23:02,320 --> 00:23:04,960
organizations um and the auditor general

581
00:23:04,960 --> 00:23:07,559
will handle the audit for everything

582
00:23:07,559 --> 00:23:09,039
else that's

583
00:23:09,039 --> 00:23:11,880
Federal um so the auditor general audits

584
00:23:11,880 --> 00:23:14,480
the Defense Force uh they're in charge

585
00:23:14,480 --> 00:23:16,559
of the overall audit for

586
00:23:16,559 --> 00:23:20,279
Telstra um center link um other big

587
00:23:20,279 --> 00:23:21,919
government

588
00:23:21,919 --> 00:23:24,559
departments we have Auditors for tax

589
00:23:24,559 --> 00:23:27,039
that work specifically for the ATO um

590
00:23:27,039 --> 00:23:29,440
but they're more likely to be lawyers

591
00:23:29,440 --> 00:23:31,720
um and accountants uh not just

592
00:23:31,720 --> 00:23:34,480
accountants and then internal Auditors

593
00:23:34,480 --> 00:23:36,600
which focus on doing that compliance in

594
00:23:36,600 --> 00:23:39,720
the performance audit so most big top

595
00:23:39,720 --> 00:23:41,400
100 companies will have their own audit

596
00:23:41,400 --> 00:23:45,080
internal audit team um so quantis the

597
00:23:45,080 --> 00:23:47,840
Commonwealth Bank Coca-Cola will'll all

598
00:23:47,840 --> 00:23:50,679
have teams who look at internal

599
00:23:50,679 --> 00:23:52,080
improvements and making sure that

600
00:23:52,080 --> 00:23:54,000
they're following the rules and

601
00:23:54,000 --> 00:23:55,840
regulations and this is important

602
00:23:55,840 --> 00:23:57,400
because they want to try and minimize

603
00:23:57,400 --> 00:24:00,400
fines

604
00:24:01,320 --> 00:24:02,840
all right because you could get a

605
00:24:02,840 --> 00:24:04,799
government fine for not following a law

606
00:24:04,799 --> 00:24:07,080
or a regulation appropriately you could

607
00:24:07,080 --> 00:24:11,559
be sued it could create all sorts of

608
00:24:13,480 --> 00:24:16,600
issues all right so let's look the big

609
00:24:16,600 --> 00:24:19,880
firms um I worked for this one actually

610
00:24:19,880 --> 00:24:21,679
well the predecessor for this one which

611
00:24:21,679 --> 00:24:23,640
was Cooper and Li brand and then

612
00:24:23,640 --> 00:24:27,960
PWC um so the big four audit probably I

613
00:24:27,960 --> 00:24:30,919
think about 60% of the Australian stock

614
00:24:30,919 --> 00:24:34,279
exchange and then these guys here pretty

615
00:24:34,279 --> 00:24:38,120
much AIT the rest all right um so for

616
00:24:38,120 --> 00:24:40,559
those people who are going to a later

617
00:24:40,559 --> 00:24:43,000
afternoon toot and you'll have Kate or

618
00:24:43,000 --> 00:24:45,159
you'll have Nicole um we actually have

619
00:24:45,159 --> 00:24:47,159
an agreement with Grant thoron where

620
00:24:47,159 --> 00:24:49,799
they actually send real life Auditors in

621
00:24:49,799 --> 00:24:51,799
to teach tutorial so you'll get to hear

622
00:24:51,799 --> 00:24:54,399
lots of stories from them uh the people

623
00:24:54,399 --> 00:24:57,880
who are going to um who will have Ben

624
00:24:57,880 --> 00:25:01,240
this after afternoon um in the 12:00 CH

625
00:25:01,240 --> 00:25:04,039
and I think also the 1:31 uh Ben works

626
00:25:04,039 --> 00:25:07,200
at a small local firm in terms of

627
00:25:07,200 --> 00:25:09,840
auditing so he's got lots of experience

628
00:25:09,840 --> 00:25:12,279
in doing much smaller audits which are

629
00:25:12,279 --> 00:25:14,919
required under the corporations act um

630
00:25:14,919 --> 00:25:17,480
so you've got a range of Staff with a

631
00:25:17,480 --> 00:25:19,440
range of experience and this means that

632
00:25:19,440 --> 00:25:21,520
Auditors exist at all sorts of different

633
00:25:21,520 --> 00:25:24,279
levels so I recently did the audit for

634
00:25:24,279 --> 00:25:26,320
ISC which is one of the University

635
00:25:26,320 --> 00:25:29,120
student groups um AUD s happen for the

636
00:25:29,120 --> 00:25:31,960
big ASX listed companies they happen for

637
00:25:31,960 --> 00:25:35,080
large privately listed sorry for large

638
00:25:35,080 --> 00:25:37,279
private companies and they also happen

639
00:25:37,279 --> 00:25:39,360
for small companies that are required to

640
00:25:39,360 --> 00:25:42,600
have audits under the corporations act

641
00:25:42,600 --> 00:25:44,799
or maybe as part of Charity

642
00:25:44,799 --> 00:25:48,240
regulations firms do audits um but just

643
00:25:48,240 --> 00:25:49,720
of different sizes and of different

644
00:25:49,720 --> 00:25:53,640
scales so the big four are so large and

645
00:25:53,640 --> 00:25:56,200
so specialized that people specialize by

646
00:25:56,200 --> 00:25:59,399
industry so you audit mining firms or

647
00:25:59,399 --> 00:26:01,320
government firms or telecommunications

648
00:26:01,320 --> 00:26:03,559
or financial services um my

649
00:26:03,559 --> 00:26:05,960
specialization was financial services so

650
00:26:05,960 --> 00:26:08,279
I didn't get to see much I always envied

651
00:26:08,279 --> 00:26:09,440
the people that got to audit

652
00:26:09,440 --> 00:26:11,240
manufacturing firms or mining firms

653
00:26:11,240 --> 00:26:12,960
because you could go places and see real

654
00:26:12,960 --> 00:26:15,399
things happening until one time I did

655
00:26:15,399 --> 00:26:17,600
get put on the audit of Dairy Farmers

656
00:26:17,600 --> 00:26:19,720
and that's not So Glamorous like milk

657
00:26:19,720 --> 00:26:22,880
processing plants really don't smell

658
00:26:22,880 --> 00:26:25,279
great um we did get to drink you know

659
00:26:25,279 --> 00:26:26,799
you had access to the corporate fridge

660
00:26:26,799 --> 00:26:28,320
so I could drink all the milk that I

661
00:26:28,320 --> 00:26:30,320
could take though I'm Asian so I'm

662
00:26:30,320 --> 00:26:31,919
partly lactose intolerance that doesn't

663
00:26:31,919 --> 00:26:34,760
go down so well um but Dairy Farmers

664
00:26:34,760 --> 00:26:36,279
made yogurt again it couldn't eat too

665
00:26:36,279 --> 00:26:38,320
much of that uh but fruit juice I could

666
00:26:38,320 --> 00:26:39,640
drink the fruit juice all day so that

667
00:26:39,640 --> 00:26:42,000
was a good thing so the public

668
00:26:42,000 --> 00:26:44,919
accounting firms big ones and small ones

669
00:26:44,919 --> 00:26:47,600
provide audit services so that's a big

670
00:26:47,600 --> 00:26:49,600
part of their bread and butter audit

671
00:26:49,600 --> 00:26:50,760
Services

672
00:26:50,760 --> 00:26:54,240
though are high

673
00:26:54,240 --> 00:26:58,720
volume and low margin

674
00:26:59,320 --> 00:27:01,080
that means you don't make a lot of money

675
00:27:01,080 --> 00:27:02,240
off an

676
00:27:02,240 --> 00:27:04,799
audit right it's it's not a really

677
00:27:04,799 --> 00:27:07,440
profitable item to do but the reason

678
00:27:07,440 --> 00:27:09,640
that you do an audit is so that you can

679
00:27:09,640 --> 00:27:13,120
convince your client to hire you to do

680
00:27:13,120 --> 00:27:15,799
other things like tax which can be a

681
00:27:15,799 --> 00:27:18,039
little bit more lucrative and consulting

682
00:27:18,039 --> 00:27:20,360
services that could be helping them

683
00:27:20,360 --> 00:27:23,200
expand into a new market um choosing a

684
00:27:23,200 --> 00:27:25,760
new information system um you get

685
00:27:25,760 --> 00:27:28,679
different departments within your umm

686
00:27:28,679 --> 00:27:30,919
within your audit firm to do that but

687
00:27:30,919 --> 00:27:32,279
it's all about sort of growing the

688
00:27:32,279 --> 00:27:35,520
bigger uh audit firm share so something

689
00:27:35,520 --> 00:27:37,440
like management consulting services is

690
00:27:37,440 --> 00:27:40,039
really high

691
00:27:40,360 --> 00:27:42,640
margin and towards my the end of my

692
00:27:42,640 --> 00:27:44,080
career I did a lot more management

693
00:27:44,080 --> 00:27:47,679
consulting um and I remember back in

694
00:27:47,679 --> 00:27:50,480
19 oh I think it was

695
00:27:50,480 --> 00:27:54,760
99 we had a $20 million consulting job

696
00:27:54,760 --> 00:27:56,039
with the Australian Broadcasting

697
00:27:56,039 --> 00:27:58,279
Corporation just down the road

698
00:27:58,279 --> 00:28:00,279
implementing new software and that was a

699
00:28:00,279 --> 00:28:02,159
six-month project for $20

700
00:28:02,159 --> 00:28:04,279
million so and you wouldn't earn

701
00:28:04,279 --> 00:28:06,000
anywhere near that much on an audit

702
00:28:06,000 --> 00:28:07,559
you'd probably earn a few million

703
00:28:07,559 --> 00:28:09,159
dollars on an audit for about six to 8

704
00:28:09,159 --> 00:28:12,360
weeks work um so there's definitely lots

705
00:28:12,360 --> 00:28:14,000
of margin Aid

706
00:28:14,000 --> 00:28:17,240
there now you find very few firms that

707
00:28:17,240 --> 00:28:19,480
are in the sole proprietorship or the

708
00:28:19,480 --> 00:28:22,240
partnership model that's because of the

709
00:28:22,240 --> 00:28:24,720
idea of joint and several liability and

710
00:28:24,720 --> 00:28:26,720
that would mean that if the partner of

711
00:28:26,720 --> 00:28:28,000
the firm did something wrong and then

712
00:28:28,000 --> 00:28:30,080
they they skipped out of town I would be

713
00:28:30,080 --> 00:28:32,799
liable as one of the partners left over

714
00:28:32,799 --> 00:28:36,200
the big four firms these days and most

715
00:28:36,200 --> 00:28:37,760
of our second tier are almost all

716
00:28:37,760 --> 00:28:39,519
Incorporated companies so while you have

717
00:28:39,519 --> 00:28:41,679
Partners who are shareholders in The

718
00:28:41,679 --> 00:28:43,960
Firm they're not Partners in the typical

719
00:28:43,960 --> 00:28:46,360
sense of a a

720
00:28:46,360 --> 00:28:48,279
partnership now in terms of the

721
00:28:48,279 --> 00:28:50,399
hierarchy or the shape of an audit

722
00:28:50,399 --> 00:28:53,880
firm previously they looked like

723
00:28:53,880 --> 00:28:56,519
this all right so you had the partners

724
00:28:56,519 --> 00:28:59,200
at the very top and then lots of junior

725
00:28:59,200 --> 00:29:01,519
staff doing what we call grunt work

726
00:29:01,519 --> 00:29:03,120
ticking and bashing or ticking and

727
00:29:03,120 --> 00:29:06,559
flicking at the bottom what we're seeing

728
00:29:06,559 --> 00:29:08,480
in terms of Trends and the data that's

729
00:29:08,480 --> 00:29:09,880
coming out of

730
00:29:09,880 --> 00:29:12,679
CA is that the audit firm is looking a

731
00:29:12,679 --> 00:29:13,880
lot more

732
00:29:13,880 --> 00:29:16,760
rectangular now um and that you're

733
00:29:16,760 --> 00:29:19,600
having a lot less staff at the junior

734
00:29:19,600 --> 00:29:21,120
levels and that comes from a number of

735
00:29:21,120 --> 00:29:23,399
different reasons the first

736
00:29:23,399 --> 00:29:26,600
one is

737
00:29:26,679 --> 00:29:28,880
outsourcing or

738
00:29:28,880 --> 00:29:32,760
offshoring um and that's especially you

739
00:29:32,760 --> 00:29:34,480
scan a lot of audit documentation that

740
00:29:34,480 --> 00:29:37,279
you would have had graduates um interns

741
00:29:37,279 --> 00:29:39,519
doing a lot of ticking and checking all

742
00:29:39,519 --> 00:29:41,399
of that gets scanned and then sent off

743
00:29:41,399 --> 00:29:44,640
to India or you know Pakistan and they

744
00:29:44,640 --> 00:29:46,440
do a whole lot of the audit checking

745
00:29:46,440 --> 00:29:48,120
work for about a third the price

746
00:29:48,120 --> 00:29:50,480
overnight so the amount of staff doing

747
00:29:50,480 --> 00:29:53,480
that work is much less um and then we've

748
00:29:53,480 --> 00:29:55,919
also seen a lot more automation so we're

749
00:29:55,919 --> 00:29:58,159
using a lot more big data we're using a

750
00:29:58,159 --> 00:30:00,399
lot more intelligent agents um and

751
00:30:00,399 --> 00:30:03,480
artificial intelligence in audits so you

752
00:30:03,480 --> 00:30:04,799
know the future is still looking bright

753
00:30:04,799 --> 00:30:06,360
for auditing and auditing at this point

754
00:30:06,360 --> 00:30:08,919
is not going to be replaced by machines

755
00:30:08,919 --> 00:30:10,640
but there's a lot less at the bottom

756
00:30:10,640 --> 00:30:12,760
level than there was

757
00:30:12,760 --> 00:30:14,919
before what do the professional bodies

758
00:30:14,919 --> 00:30:16,880
do they do a few different things they

759
00:30:16,880 --> 00:30:18,440
help establish standards through the

760
00:30:18,440 --> 00:30:20,720
auditing Standards Board they do a lot

761
00:30:20,720 --> 00:30:22,760
of research and then they the biggest

762
00:30:22,760 --> 00:30:24,600
one is education to make sure that once

763
00:30:24,600 --> 00:30:27,480
you become a member you are continuously

764
00:30:27,480 --> 00:30:31,279
up to date on latest auditing Trends and

765
00:30:31,279 --> 00:30:33,480
changes within legislation especially at

766
00:30:33,480 --> 00:30:34,960
the international

767
00:30:34,960 --> 00:30:37,279
level now what about our auditing

768
00:30:37,279 --> 00:30:38,919
standards our auditing standards are

769
00:30:38,919 --> 00:30:40,679
called

770
00:30:40,679 --> 00:30:43,080
ASAS all right and you can find those

771
00:30:43,080 --> 00:30:48,919
free on the aub's website AAS

772
00:30:48,919 --> 00:30:50,440
sb.gov

773
00:30:50,440 --> 00:30:54,399
Au now remember our exam is open book so

774
00:30:54,399 --> 00:30:56,320
you can bring in oh somebody has one of

775
00:30:56,320 --> 00:30:58,880
these I'm just going to borrow this here

776
00:30:58,880 --> 00:31:01,200
one of these handbooks if you want all

777
00:31:01,200 --> 00:31:03,480
your standards in one book or you could

778
00:31:03,480 --> 00:31:04,440
print them

779
00:31:04,440 --> 00:31:06,880
out right and bring them into the exam

780
00:31:06,880 --> 00:31:08,159
you can bring your textbook into the

781
00:31:08,159 --> 00:31:11,399
exam you could bring anything you like

782
00:31:11,399 --> 00:31:12,600
comic books if you think you're going to

783
00:31:12,600 --> 00:31:14,440
have time at the end to you know have a

784
00:31:14,440 --> 00:31:17,320
bit of a read um so you don't

785
00:31:17,320 --> 00:31:19,320
necessarily need to buy the standards

786
00:31:19,320 --> 00:31:21,200
book if you don't want to you can look

787
00:31:21,200 --> 00:31:23,000
at them online and then print out the

788
00:31:23,000 --> 00:31:24,880
sections that you think you'll need I

789
00:31:24,880 --> 00:31:26,320
will actually tell you in the last week

790
00:31:26,320 --> 00:31:27,480
of term which ones I think are going to

791
00:31:27,480 --> 00:31:29,960
be key ones for the final exam so you

792
00:31:29,960 --> 00:31:31,440
don't have to worry about

793
00:31:31,440 --> 00:31:34,200
that so the

794
00:31:34,200 --> 00:31:37,840
aasb issues the auditing standards and

795
00:31:37,840 --> 00:31:39,679
uh we're internationally harmonized so

796
00:31:39,679 --> 00:31:41,440
they come down from the international

797
00:31:41,440 --> 00:31:44,960
auditing Standards Board and the key is

798
00:31:44,960 --> 00:31:46,519
that they are

799
00:31:46,519 --> 00:31:48,600
mandatory all right so while some

800
00:31:48,600 --> 00:31:51,000
companies or some countries sorry the

801
00:31:51,000 --> 00:31:54,000
auditing standards say the auditor

802
00:31:54,000 --> 00:31:56,639
May our auditing standards say the

803
00:31:56,639 --> 00:31:59,760
auditor must or the auditor shall

804
00:31:59,760 --> 00:32:02,240
because our requirements are enshrined

805
00:32:02,240 --> 00:32:05,440
within the corporations act we must do

806
00:32:05,440 --> 00:32:08,679
them as the minimum set of Standards you

807
00:32:08,679 --> 00:32:10,320
could do more than what the standard

808
00:32:10,320 --> 00:32:13,519
says but the minimum is contained within

809
00:32:13,519 --> 00:32:15,960
the ASAS and we'll be referring back and

810
00:32:15,960 --> 00:32:17,480
I'll show you excerpts from the

811
00:32:17,480 --> 00:32:20,240
standards on a regular basis of things

812
00:32:20,240 --> 00:32:21,639
that are really critical and important

813
00:32:21,639 --> 00:32:23,080
to

814
00:32:23,080 --> 00:32:25,440
understand all right so how do we make

815
00:32:25,440 --> 00:32:27,360
sure that everybody who's doing an audit

816
00:32:27,360 --> 00:32:29,039
is doing the right right thing that

817
00:32:29,039 --> 00:32:31,639
comes from quality control and so

818
00:32:31,639 --> 00:32:37,039
quality control needs to exist across

819
00:32:38,639 --> 00:32:41,880
firms and quality control also needs to

820
00:32:41,880 --> 00:32:45,320
exist within

821
00:32:45,919 --> 00:32:48,559
firms all right so I need to make sure

822
00:32:48,559 --> 00:32:51,320
that PWC are doing the same minimum

823
00:32:51,320 --> 00:32:55,679
standard as KPMG and then within pwc's

824
00:32:55,679 --> 00:32:57,440
however many offices we need to make

825
00:32:57,440 --> 00:32:59,760
sure that all staff are doing the same

826
00:32:59,760 --> 00:33:03,039
thing and there are specific whoops

827
00:33:03,039 --> 00:33:06,200
specific quality control standards um

828
00:33:06,200 --> 00:33:09,000
that the uh auditing standards and the

829
00:33:09,000 --> 00:33:11,440
corporations act actually set out so

830
00:33:11,440 --> 00:33:13,960
things about having leadership um

831
00:33:13,960 --> 00:33:15,679
meeting ethical and Independence

832
00:33:15,679 --> 00:33:18,200
requirements rules about how to accept

833
00:33:18,200 --> 00:33:21,080
clients selecting the right people doing

834
00:33:21,080 --> 00:33:22,919
the Audits and then monitoring or

835
00:33:22,919 --> 00:33:24,279
checking each

836
00:33:24,279 --> 00:33:27,519
other and that's where the peer review

837
00:33:27,519 --> 00:33:29,000
Pro

838
00:33:29,000 --> 00:33:31,159
program comes in from Chartered

839
00:33:31,159 --> 00:33:33,279
Accountants and zpa Australia where

840
00:33:33,279 --> 00:33:36,559
firms check each other's work to make

841
00:33:36,559 --> 00:33:38,519
sure that they're all following the

842
00:33:38,519 --> 00:33:40,639
standards

843
00:33:40,639 --> 00:33:44,159
appropriately so CA and CPA both have

844
00:33:44,159 --> 00:33:45,919
sets of Auditors that actually audit

845
00:33:45,919 --> 00:33:50,760
them also on top of that we have

846
00:33:50,760 --> 00:33:53,880
the Australian Securities and investment

847
00:33:53,880 --> 00:33:56,720
commission doing their own inspection

848
00:33:56,720 --> 00:33:59,000
program

849
00:33:59,000 --> 00:34:00,720
all right so they audit the big four

850
00:34:00,720 --> 00:34:03,360
firms every single year smaller firms on

851
00:34:03,360 --> 00:34:05,960
a rotating schedule and they can find

852
00:34:05,960 --> 00:34:08,000
audit firms for not complying with the

853
00:34:08,000 --> 00:34:10,480
auditing standards um I'll provide you

854
00:34:10,480 --> 00:34:13,000
guys with a link to look at the latest

855
00:34:13,000 --> 00:34:15,800
inspection report from Asic um it

856
00:34:15,800 --> 00:34:18,679
doesn't actually show names of firms um

857
00:34:18,679 --> 00:34:20,239
this also happens in the US that the US

858
00:34:20,239 --> 00:34:22,000
has started naming firms who are not

859
00:34:22,000 --> 00:34:24,280
doing the right thing so there's big

860
00:34:24,280 --> 00:34:27,440
bucks um in making sure that everybody

861
00:34:27,440 --> 00:34:30,119
Within in The Firm is doing the right

862
00:34:30,119 --> 00:34:31,719
thing in terms of following the order

863
00:34:31,719 --> 00:34:33,800
standards acting independently and

864
00:34:33,800 --> 00:34:35,679
acting ethically how are we doing on

865
00:34:35,679 --> 00:34:39,520
time oh okay all right operations act

866
00:34:39,520 --> 00:34:42,760
besides governing company directors

867
00:34:42,760 --> 00:34:46,679
setting up companies uh in Australian

868
00:34:46,679 --> 00:34:47,918
you guys have all done Australian

869
00:34:47,918 --> 00:34:50,839
company law you guys done company law

870
00:34:50,839 --> 00:34:52,079
yep or for the people who haven't done

871
00:34:52,079 --> 00:34:54,679
it yet one of the assignments many many

872
00:34:54,679 --> 00:34:56,918
years ago used to be prepare all the

873
00:34:56,918 --> 00:34:59,200
documents to start company right we'd

874
00:34:59,200 --> 00:35:00,359
have to actually go back to the

875
00:35:00,359 --> 00:35:01,920
corporations act and figure out what

876
00:35:01,920 --> 00:35:04,280
that is so while the corporations act

877
00:35:04,280 --> 00:35:06,800
specifies how companies get set up it

878
00:35:06,800 --> 00:35:10,119
also specifies what Auditors need to do

879
00:35:10,119 --> 00:35:12,280
you need to be qualified you need to be

880
00:35:12,280 --> 00:35:14,720
registered management can't just choose

881
00:35:14,720 --> 00:35:17,400
the auditor it has to be ratified by

882
00:35:17,400 --> 00:35:18,880
shareholders at an annual general

883
00:35:18,880 --> 00:35:21,280
meeting we can't just quit as an auditor

884
00:35:21,280 --> 00:35:22,280
there's all sorts of rules about

885
00:35:22,280 --> 00:35:24,599
quitting what our responsibilities are

886
00:35:24,599 --> 00:35:25,760
and

887
00:35:25,760 --> 00:35:27,800
Reporting um and you can go into those

888
00:35:27,800 --> 00:35:29,320
in more detail in the

889
00:35:29,320 --> 00:35:32,400
textbook all right so here is the output

890
00:35:32,400 --> 00:35:33,599
and this is really important and you

891
00:35:33,599 --> 00:35:35,119
might be thinking well why am I

892
00:35:35,119 --> 00:35:38,560
interested in looking at the end point

893
00:35:38,560 --> 00:35:39,920
when we're only at the beginning and

894
00:35:39,920 --> 00:35:42,359
this is so that you have in your mind

895
00:35:42,359 --> 00:35:45,480
the idea of what we're striving for or

896
00:35:45,480 --> 00:35:47,720
what we're uh planning to

897
00:35:47,720 --> 00:35:52,079
create so we're going to look at why do

898
00:35:52,079 --> 00:35:54,960
we have the report um what goes into

899
00:35:54,960 --> 00:35:56,720
something called an unmodified audit

900
00:35:56,720 --> 00:35:58,640
report we're we're going to look at when

901
00:35:58,640 --> 00:36:00,760
we might do different sorts of reports

902
00:36:00,760 --> 00:36:05,760
and adding extra information okay now

903
00:36:05,760 --> 00:36:07,800
before Oh I'm trying to remember what

904
00:36:07,800 --> 00:36:09,599
case it was we'll go into the cases I

905
00:36:09,599 --> 00:36:11,119
think uh next

906
00:36:11,119 --> 00:36:13,680
week there was never a legal requirement

907
00:36:13,680 --> 00:36:15,480
to produce a paper audit report you

908
00:36:15,480 --> 00:36:17,800
could have done a verbal audit report at

909
00:36:17,800 --> 00:36:20,520
one stage but now we must provide a

910
00:36:20,520 --> 00:36:22,880
written audit report about the financial

911
00:36:22,880 --> 00:36:24,760
statements in accordance with the

912
00:36:24,760 --> 00:36:27,560
Australian accounting uh uh the

913
00:36:27,560 --> 00:36:28,920
accounting standards and our auditing

914
00:36:28,920 --> 00:36:31,000
standards and Reporting is pretty

915
00:36:31,000 --> 00:36:33,000
similar to the point where if you go to

916
00:36:33,000 --> 00:36:35,319
the auditing standard on audit reporting

917
00:36:35,319 --> 00:36:37,480
there's actually templates in the back

918
00:36:37,480 --> 00:36:39,640
and if you look at almost all of the

919
00:36:39,640 --> 00:36:41,520
publicly listed companies their audit

920
00:36:41,520 --> 00:36:43,880
reports almost say exactly the same

921
00:36:43,880 --> 00:36:45,520
thing word for word except the company

922
00:36:45,520 --> 00:36:47,640
name is different and the year might be

923
00:36:47,640 --> 00:36:49,040
different and the name of the audit

924
00:36:49,040 --> 00:36:50,960
partner might be

925
00:36:50,960 --> 00:36:53,520
different so audit reporting is fairly

926
00:36:53,520 --> 00:36:56,240
standardized and it has very specific

927
00:36:56,240 --> 00:36:58,720
legal language because it is a legal

928
00:36:58,720 --> 00:37:01,040
document that exposes the auditor to

929
00:37:01,040 --> 00:37:04,160
liability if we've done something wrong

930
00:37:04,160 --> 00:37:06,400
so what is the gold standard that

931
00:37:06,400 --> 00:37:08,720
everybody is looking for so what most

932
00:37:08,720 --> 00:37:11,200
firms

933
00:37:12,640 --> 00:37:16,720
want firms want what we call an

934
00:37:16,720 --> 00:37:20,520
unmodified audit report and is also

935
00:37:20,520 --> 00:37:23,319
sometimes called an unqualified report

936
00:37:23,319 --> 00:37:25,640
now this is where it's a bit funny and a

937
00:37:25,640 --> 00:37:26,520
bit

938
00:37:26,520 --> 00:37:29,119
counterintuitive so when you do your ca

939
00:37:29,119 --> 00:37:31,520
or you do a medical degree or you finish

940
00:37:31,520 --> 00:37:34,040
your engineering qualification you

941
00:37:34,040 --> 00:37:35,400
become

942
00:37:35,400 --> 00:37:38,359
qualified right and qualified is a good

943
00:37:38,359 --> 00:37:41,560
thing okay when it comes to an audit it

944
00:37:41,560 --> 00:37:44,280
is the exact opposite the one that

945
00:37:44,280 --> 00:37:47,079
people want the one that

946
00:37:47,079 --> 00:37:50,880
says big tick management are telling the

947
00:37:50,880 --> 00:37:54,359
truth is something called an unqualified

948
00:37:54,359 --> 00:37:55,520
or an

949
00:37:55,520 --> 00:37:58,319
unmodified audit report

950
00:37:58,319 --> 00:38:00,200
okay you might think why is it that way

951
00:38:00,200 --> 00:38:02,480
I don't know it's probably something I

952
00:38:02,480 --> 00:38:04,680
could historically uh dig into the

953
00:38:04,680 --> 00:38:06,800
archives and look at sometimes I wonder

954
00:38:06,800 --> 00:38:08,400
if we do things sort of a bit back to

955
00:38:08,400 --> 00:38:10,960
front in auditing to make it seem really

956
00:38:10,960 --> 00:38:13,400
mysterious and difficult because

957
00:38:13,400 --> 00:38:15,160
auditing is a lot about logic and Common

958
00:38:15,160 --> 00:38:16,599
Sense and we don't want too many people

959
00:38:16,599 --> 00:38:18,359
getting into the awesome area that is

960
00:38:18,359 --> 00:38:20,680
auditing so we want to make it seem

961
00:38:20,680 --> 00:38:22,800
really complicated and Tricky by using

962
00:38:22,800 --> 00:38:25,240
language that doesn't quite make sense

963
00:38:25,240 --> 00:38:27,599
so most firms

964
00:38:27,599 --> 00:38:29,480
probably

965
00:38:29,480 --> 00:38:31,839
about I think the last time we checked

966
00:38:31,839 --> 00:38:35,119
it was something like 98% of firms um on

967
00:38:35,119 --> 00:38:38,240
the ASX get an unqualified unmodified

968
00:38:38,240 --> 00:38:40,800
report management are telling the truth

969
00:38:40,800 --> 00:38:43,240
now that sends a signal to shareholders

970
00:38:43,240 --> 00:38:46,200
that says management telling the truth

971
00:38:46,200 --> 00:38:47,720
you can rely on this information for

972
00:38:47,720 --> 00:38:51,079
your decision- making all right what

973
00:38:51,079 --> 00:38:53,760
happens do you think to company share

974
00:38:53,760 --> 00:38:55,920
prices if I give them the opposite if I

975
00:38:55,920 --> 00:38:57,920
say management are not being truthful

976
00:38:57,920 --> 00:39:00,200
and here are the reasons why what do you

977
00:39:00,200 --> 00:39:01,800
think is going to happen to share

978
00:39:01,800 --> 00:39:04,560
price it's going to go down and it goes

979
00:39:04,560 --> 00:39:07,119
down pretty quickly um in terms of what

980
00:39:07,119 --> 00:39:08,680
we see from the research in terms of

981
00:39:08,680 --> 00:39:11,280
share price reaction so firms want this

982
00:39:11,280 --> 00:39:13,920
managers want to work with us as the

983
00:39:13,920 --> 00:39:16,680
Auditors to come to an agreement on a

984
00:39:16,680 --> 00:39:18,240
set of financial statements that we

985
00:39:18,240 --> 00:39:21,839
think is unqualified is free from

986
00:39:21,839 --> 00:39:25,480
statement so ASA this is our first ASA

987
00:39:25,480 --> 00:39:27,880
700 and all the the ones on reporting

988
00:39:27,880 --> 00:39:30,280
you're in the 700 area say that we want

989
00:39:30,280 --> 00:39:33,440
to get M reasonable assurance that it's

990
00:39:33,440 --> 00:39:36,040
free from misstatements due to fraud or

991
00:39:36,040 --> 00:39:37,920
error so I'm not interest I don't care

992
00:39:37,920 --> 00:39:40,720
whether it's a mistake type 5,000

993
00:39:40,720 --> 00:39:43,640
instead of 500,000 or it's fraud I have

994
00:39:43,640 --> 00:39:46,280
a responsibility to detect those I want

995
00:39:46,280 --> 00:39:48,000
to make sure that it matches the

996
00:39:48,000 --> 00:39:50,880
applicable financial reporting framework

997
00:39:50,880 --> 00:39:54,160
which for us is at

998
00:39:54,319 --> 00:39:57,440
aasbs all right and that it is a fair

999
00:39:57,440 --> 00:39:58,599
fair

1000
00:39:58,599 --> 00:40:01,119
presentation that it fairly represents

1001
00:40:01,119 --> 00:40:03,040
what happened during the during the

1002
00:40:03,040 --> 00:40:05,839
company's Financial period so if the

1003
00:40:05,839 --> 00:40:07,480
company was exposed to a lot of

1004
00:40:07,480 --> 00:40:10,040
fluctuation changes and adverse

1005
00:40:10,040 --> 00:40:12,640
movements in foreign exchange and a

1006
00:40:12,640 --> 00:40:14,560
decline in sales then we'd expect to see

1007
00:40:14,560 --> 00:40:17,200
a loss from that company is what we're

1008
00:40:17,200 --> 00:40:19,880
seeing uh commensurate with what we know

1009
00:40:19,880 --> 00:40:22,359
about the firm um and then making sure

1010
00:40:22,359 --> 00:40:24,640
that the financial report is again in

1011
00:40:24,640 --> 00:40:28,560
accordance with our double asbs

1012
00:40:28,560 --> 00:40:30,560
there's all sorts of parts to the audit

1013
00:40:30,560 --> 00:40:34,000
report um and uh this has actually

1014
00:40:34,000 --> 00:40:37,599
changed a little bit so this bit here

1015
00:40:37,599 --> 00:40:40,000
used to be right at the end we have a

1016
00:40:40,000 --> 00:40:41,920
new standard change so in the textbook

1017
00:40:41,920 --> 00:40:42,760
this is going to be a little bit

1018
00:40:42,760 --> 00:40:43,960
different than what you're looking at

1019
00:40:43,960 --> 00:40:49,119
right here um new ASA 700 now says that

1020
00:40:49,119 --> 00:40:51,319
we tell the shareholders the very first

1021
00:40:51,319 --> 00:40:54,359
thing here's our opinion we used to give

1022
00:40:54,359 --> 00:40:56,760
them all this legal jargon first all

1023
00:40:56,760 --> 00:40:59,480
this other crap used to come first and

1024
00:40:59,480 --> 00:41:01,160
then we would do this sort of at the end

1025
00:41:01,160 --> 00:41:03,440
but now it's right at the front to make

1026
00:41:03,440 --> 00:41:05,520
sure that shareholders know what's going

1027
00:41:05,520 --> 00:41:10,119
on now on UTS online in this week's

1028
00:41:10,119 --> 00:41:12,640
folder I've also put a whole lot of

1029
00:41:12,640 --> 00:41:14,400
audited opinions in there for you to

1030
00:41:14,400 --> 00:41:18,359
look at um and I'll also copy in for you

1031
00:41:18,359 --> 00:41:21,040
um the link to the QBE

1032
00:41:21,040 --> 00:41:24,720
Insurance annual report because it is

1033
00:41:24,720 --> 00:41:27,440
one of the few early adopters of some

1034
00:41:27,440 --> 00:41:29,400
new regulations and so I'll make a

1035
00:41:29,400 --> 00:41:30,760
little video on that in a couple of

1036
00:41:30,760 --> 00:41:34,720
weeks as well all right now what happens

1037
00:41:34,720 --> 00:41:37,520
if management aren't being truthful how

1038
00:41:37,520 --> 00:41:39,480
do I know what sort of opinion to give

1039
00:41:39,480 --> 00:41:41,800
them then I'm going to use this table

1040
00:41:41,800 --> 00:41:44,920
and this table comes out of Asa 700 uh

1041
00:41:44,920 --> 00:41:48,160
705 sorry and so I'm just going to lean

1042
00:41:48,160 --> 00:41:49,560
over here because I want to write some

1043
00:41:49,560 --> 00:41:52,680
numbers here so Step One is this step

1044
00:41:52,680 --> 00:41:54,280
over

1045
00:41:54,280 --> 00:41:57,280
here all right the first thing I want to

1046
00:41:57,280 --> 00:41:59,400
do is find out why I'm not giving an

1047
00:41:59,400 --> 00:42:01,839
unqualified opinion number one the

1048
00:42:01,839 --> 00:42:04,359
financial report is materially misstated

1049
00:42:04,359 --> 00:42:06,880
that is essentially saying management

1050
00:42:06,880 --> 00:42:09,520
are not being

1051
00:42:09,640 --> 00:42:12,800
truthful about something all right so

1052
00:42:12,800 --> 00:42:14,880
they they're understating a number

1053
00:42:14,880 --> 00:42:16,720
they're failing to make a disclosure

1054
00:42:16,720 --> 00:42:19,000
they're just lying about something all

1055
00:42:19,000 --> 00:42:21,520
right the second one which is this one

1056
00:42:21,520 --> 00:42:24,079
here is that we cannot get enough

1057
00:42:24,079 --> 00:42:27,599
evidence all right so not

1058
00:42:27,599 --> 00:42:30,079
enough

1059
00:42:30,480 --> 00:42:32,760
evidence this is a bit like Donald Trump

1060
00:42:32,760 --> 00:42:35,359
refusing to uh release his tax returns

1061
00:42:35,359 --> 00:42:36,800
can't make an opinion if I don't have

1062
00:42:36,800 --> 00:42:40,319
any information so Step One is I look at

1063
00:42:40,319 --> 00:42:42,280
well what are the two reasons why I

1064
00:42:42,280 --> 00:42:44,640
might go away from the

1065
00:42:44,640 --> 00:42:48,040
unqualified step two is I need to look

1066
00:42:48,040 --> 00:42:50,480
at the severity and there's two terms

1067
00:42:50,480 --> 00:42:53,000
here material but not pervasive or

1068
00:42:53,000 --> 00:42:55,240
material and pervasive for material

1069
00:42:55,240 --> 00:42:56,559
means it's important enough that we

1070
00:42:56,559 --> 00:42:59,119
think shareholders should know about it

1071
00:42:59,119 --> 00:43:00,760
but not pervasive and I'm going to

1072
00:43:00,760 --> 00:43:02,200
introduce you to two different

1073
00:43:02,200 --> 00:43:03,760
characters here and I didn't name these

1074
00:43:03,760 --> 00:43:05,160
guys actually one of my other lectures

1075
00:43:05,160 --> 00:43:06,599
did

1076
00:43:06,599 --> 00:43:10,359
so here we have

1077
00:43:10,440 --> 00:43:13,559
Norman Norman the

1078
00:43:13,559 --> 00:43:15,440
non

1079
00:43:15,440 --> 00:43:17,640
pervasive

1080
00:43:17,640 --> 00:43:20,839
slug all right and so Norman's there

1081
00:43:20,839 --> 00:43:22,400
because if you imagine your financial

1082
00:43:22,400 --> 00:43:24,720
statements let me pick a different color

1083
00:43:24,720 --> 00:43:26,720
here so imagine you've got your

1084
00:43:26,720 --> 00:43:29,200
financial Cal statements and all of your

1085
00:43:29,200 --> 00:43:30,240
different

1086
00:43:30,240 --> 00:43:33,640
accounts here if you plong to Norman on

1087
00:43:33,640 --> 00:43:35,079
one of

1088
00:43:35,079 --> 00:43:39,760
those all right and you said okay Norman

1089
00:43:39,760 --> 00:43:43,359
is right here Norman's only can self

1090
00:43:43,359 --> 00:43:45,599
contained right he's only in a small

1091
00:43:45,599 --> 00:43:47,920
part of the financial statements so

1092
00:43:47,920 --> 00:43:50,240
Norman is the situation where we have

1093
00:43:50,240 --> 00:43:52,480
either something not truthful or not

1094
00:43:52,480 --> 00:43:56,040
enough evidence in just one spot and in

1095
00:43:56,040 --> 00:43:58,839
that case we give an opinion called a

1096
00:43:58,839 --> 00:44:00,280
qualified

1097
00:44:00,280 --> 00:44:04,599
opinion okay now the second person I'm

1098
00:44:04,599 --> 00:44:07,400
going to introduce you

1099
00:44:07,400 --> 00:44:09,920
to let me make sure my pen is a bit

1100
00:44:09,920 --> 00:44:14,520
smaller maybe I'll type here we go

1101
00:44:14,520 --> 00:44:16,440
is

1102
00:44:16,440 --> 00:44:20,240
Perry the pervasive

1103
00:44:20,240 --> 00:44:22,480
octopus and I'd always use the octopus

1104
00:44:22,480 --> 00:44:24,559
but i' never named him and then Nelson

1105
00:44:24,559 --> 00:44:26,839
who who does our night classes said we

1106
00:44:26,839 --> 00:44:29,559
need to give the octopus a name so his

1107
00:44:29,559 --> 00:44:30,800
name is

1108
00:44:30,800 --> 00:44:34,160
Perry so if I took Perry and I put Perry

1109
00:44:34,160 --> 00:44:35,599
on the financial

1110
00:44:35,599 --> 00:44:38,119
statements as my

1111
00:44:38,119 --> 00:44:41,119
octopus all

1112
00:44:41,119 --> 00:44:44,319
right there's his body there's his

1113
00:44:44,319 --> 00:44:46,480
little

1114
00:44:46,480 --> 00:44:48,680
legs everywhere oh that's not that's a

1115
00:44:48,680 --> 00:44:50,800
really you obviously I'm not you're not

1116
00:44:50,800 --> 00:44:53,359
coming for the art but the idea with

1117
00:44:53,359 --> 00:44:56,640
Perry is that his little tentacles reach

1118
00:44:56,640 --> 00:44:59,000
far and wide across the financial

1119
00:44:59,000 --> 00:45:01,040
statements so that is what we call

1120
00:45:01,040 --> 00:45:03,319
pervasive all right there's lots of

1121
00:45:03,319 --> 00:45:06,559
tentacles of Errors so if I have errors

1122
00:45:06,559 --> 00:45:08,119
in the financial statements and I have

1123
00:45:08,119 --> 00:45:09,559
lots of them across lots of different

1124
00:45:09,559 --> 00:45:11,280
areas I say I'm going to give an adverse

1125
00:45:11,280 --> 00:45:13,440
opinion like this is bad this is the

1126
00:45:13,440 --> 00:45:14,920
signal to shareholders that management

1127
00:45:14,920 --> 00:45:17,040
aren't being truthful on a range of

1128
00:45:17,040 --> 00:45:19,960
things if I can't get enough information

1129
00:45:19,960 --> 00:45:22,760
over a lot of different areas then

1130
00:45:22,760 --> 00:45:24,200
Perry's going to say give me a

1131
00:45:24,200 --> 00:45:26,520
disclaimer of an opinion and disclaimer

1132
00:45:26,520 --> 00:45:28,520
means that I'm not actually giving an

1133
00:45:28,520 --> 00:45:30,800
opinion at all it's no

1134
00:45:30,800 --> 00:45:35,040
opinion all right so you've got Norman

1135
00:45:35,040 --> 00:45:36,480
and you've got

1136
00:45:36,480 --> 00:45:39,160
Perry okay and a lot of students even

1137
00:45:39,160 --> 00:45:41,440
draw the little animals that's cool um

1138
00:45:41,440 --> 00:45:42,960
but that's a way to figure out the

1139
00:45:42,960 --> 00:45:45,760
different sorts of modified audit

1140
00:45:45,760 --> 00:45:47,559
reports when I say I'm not going to give

1141
00:45:47,559 --> 00:45:49,839
a an unqualified I think something's

1142
00:45:49,839 --> 00:45:52,599
wrong then there's my options right

1143
00:45:52,599 --> 00:45:55,359
there

1144
00:45:55,359 --> 00:45:58,640
now okay

1145
00:45:58,640 --> 00:46:01,880
sometimes everything is truthful I have

1146
00:46:01,880 --> 00:46:04,839
an unmodified or unqualified report but

1147
00:46:04,839 --> 00:46:06,920
I want to say shareholders I want to

1148
00:46:06,920 --> 00:46:08,880
draw your attention to some extra

1149
00:46:08,880 --> 00:46:13,400
information and I do that using an

1150
00:46:13,400 --> 00:46:15,680
emphasis of matter paragraph what color

1151
00:46:15,680 --> 00:46:19,119
pen am I using oh let's change that to

1152
00:46:19,119 --> 00:46:22,520
Blue all right I use an emphasis of

1153
00:46:22,520 --> 00:46:25,200
matter paragraph sometimes shortened to

1154
00:46:25,200 --> 00:46:27,920
an eoom

1155
00:46:27,920 --> 00:46:29,760
okay now the emphasis of matter

1156
00:46:29,760 --> 00:46:33,440
paragraph says everything is fine but I

1157
00:46:33,440 --> 00:46:36,119
just want to draw your attention to a

1158
00:46:36,119 --> 00:46:37,880
new joint venture the company might be

1159
00:46:37,880 --> 00:46:40,880
involved in some unusual accounting

1160
00:46:40,880 --> 00:46:42,520
about something that is a little bit

1161
00:46:42,520 --> 00:46:46,040
different um that we've found a mistake

1162
00:46:46,040 --> 00:46:47,599
in the previous report and we're now

1163
00:46:47,599 --> 00:46:50,079
revising it and reissuing it so this is

1164
00:46:50,079 --> 00:46:51,760
still saying that management is still

1165
00:46:51,760 --> 00:46:54,240
being truthful but my emphasis of matter

1166
00:46:54,240 --> 00:46:57,000
is just highlighting extra information

1167
00:46:57,000 --> 00:46:59,480
to shareholders all right and in the

1168
00:46:59,480 --> 00:47:01,839
bundle on UTS online you'll actually see

1169
00:47:01,839 --> 00:47:04,480
some examples of the sorts of things

1170
00:47:04,480 --> 00:47:07,000
that could go in emphasis of matter

1171
00:47:07,000 --> 00:47:10,160
probably the biggest one is uh emphasis

1172
00:47:10,160 --> 00:47:12,559
of matter about going concerned do we

1173
00:47:12,559 --> 00:47:15,040
understand the concept of going concern

1174
00:47:15,040 --> 00:47:17,839
yes hopefully that we expect companies

1175
00:47:17,839 --> 00:47:20,359
to continue in the future if the company

1176
00:47:20,359 --> 00:47:22,359
is experiencing financial

1177
00:47:22,359 --> 00:47:24,960
distress but they are being truthful

1178
00:47:24,960 --> 00:47:27,040
about their financial distress so they

1179
00:47:27,040 --> 00:47:29,880
showing a loss they're showing lots of

1180
00:47:29,880 --> 00:47:32,480
uh debts and not many assets then we can

1181
00:47:32,480 --> 00:47:34,359
still give them the big tick in the

1182
00:47:34,359 --> 00:47:36,400
financial report because they're being

1183
00:47:36,400 --> 00:47:38,520
truthful but we might want to say hey

1184
00:47:38,520 --> 00:47:40,400
shareholders there are some financial

1185
00:47:40,400 --> 00:47:42,559
difficulties at this firm we do need to

1186
00:47:42,559 --> 00:47:46,160
warn you about those so that's important

1187
00:47:46,160 --> 00:47:49,920
now this is new this is not going to be

1188
00:47:49,920 --> 00:47:52,839
in any textbook um that you're looking

1189
00:47:52,839 --> 00:47:54,720
at oh I think there's a new textbook

1190
00:47:54,720 --> 00:47:55,800
coming out at the end of this year that

1191
00:47:55,800 --> 00:47:58,280
will'll have it in it new standard is

1192
00:47:58,280 --> 00:48:02,119
Asa 701 about communicating key audit

1193
00:48:02,119 --> 00:48:04,960
matters in the auditor's report and up

1194
00:48:04,960 --> 00:48:07,640
until this point in

1195
00:48:07,640 --> 00:48:10,640
time what the Auditors did was a black

1196
00:48:10,640 --> 00:48:12,480
box the audit report simply said he's

1197
00:48:12,480 --> 00:48:15,400
our opinion unmodified unqualified or

1198
00:48:15,400 --> 00:48:18,599
one of the other options um and that was

1199
00:48:18,599 --> 00:48:21,920
it now the Auditors must

1200
00:48:21,920 --> 00:48:25,079
disclose parts of the processes that

1201
00:48:25,079 --> 00:48:27,160
they go through to make their opinion

1202
00:48:27,160 --> 00:48:29,000
all right now not for everything oh this

1203
00:48:29,000 --> 00:48:30,480
is how we audited sales this is how we

1204
00:48:30,480 --> 00:48:32,000
audited cash this is how we audited a

1205
00:48:32,000 --> 00:48:34,920
property of plant and Equipment instead

1206
00:48:34,920 --> 00:48:38,400
it's only for areas that they think

1207
00:48:38,400 --> 00:48:41,240
there was significant judgment or that

1208
00:48:41,240 --> 00:48:43,119
they found particularly difficult which

1209
00:48:43,119 --> 00:48:47,559
they call Key audit matters or

1210
00:48:48,480 --> 00:48:51,480
k all right

1211
00:48:51,480 --> 00:48:54,520
now the idea is to have increased

1212
00:48:54,520 --> 00:48:57,359
transparency over decision- making if I

1213
00:48:57,359 --> 00:49:00,520
know how Auditors made a difficult

1214
00:49:00,520 --> 00:49:02,880
decision about writing down an

1215
00:49:02,880 --> 00:49:06,680
intangible asset then that allows me to

1216
00:49:06,680 --> 00:49:08,000
interpret the information in the

1217
00:49:08,000 --> 00:49:10,040
financial report with a little bit more

1218
00:49:10,040 --> 00:49:12,079
clarity so this is about trying to make

1219
00:49:12,079 --> 00:49:14,920
Auditors accountable and giving expert

1220
00:49:14,920 --> 00:49:16,640
uses of financial statements more

1221
00:49:16,640 --> 00:49:18,400
information now I'm pretty sure the key

1222
00:49:18,400 --> 00:49:20,400
audit matters my mom and dad are still

1223
00:49:20,400 --> 00:49:22,319
going to gloss over and be like oh

1224
00:49:22,319 --> 00:49:24,400
whatever right they look at the glossy

1225
00:49:24,400 --> 00:49:25,960
front part of the annual report with

1226
00:49:25,960 --> 00:49:28,960
smiling employees and graphs that go up

1227
00:49:28,960 --> 00:49:30,240
they're not really looking at the the

1228
00:49:30,240 --> 00:49:33,200
tricky bit at the back but your share

1229
00:49:33,200 --> 00:49:35,920
analysts your fun

1230
00:49:35,920 --> 00:49:38,119
managers um those people are going to be

1231
00:49:38,119 --> 00:49:39,359
looking at the key audit matters and

1232
00:49:39,359 --> 00:49:41,880
saying okay well this is an account like

1233
00:49:41,880 --> 00:49:44,319
intangibles that has a lot of discretion

1234
00:49:44,319 --> 00:49:46,599
by managers and the Auditors how did

1235
00:49:46,599 --> 00:49:49,839
they handle different opinions how did

1236
00:49:49,839 --> 00:49:52,160
they handle a standard that was really

1237
00:49:52,160 --> 00:49:53,680
you could do a couple of different

1238
00:49:53,680 --> 00:49:57,160
things now this must come in for all

1239
00:49:57,160 --> 00:50:00,240
Financial years uh after the 31st of

1240
00:50:00,240 --> 00:50:02,640
December at the end of this year however

1241
00:50:02,640 --> 00:50:05,240
we have three firms who are early

1242
00:50:05,240 --> 00:50:08,760
adopters QBE Insurance ccka which are

1243
00:50:08,760 --> 00:50:11,359
the medical implants and the Australian

1244
00:50:11,359 --> 00:50:12,960
stock exchange limited because the stock

1245
00:50:12,960 --> 00:50:14,839
exchange is a public entity they've

1246
00:50:14,839 --> 00:50:17,119
actually gone ahead um I'll include some

1247
00:50:17,119 --> 00:50:18,640
links so that you can look at the actual

1248
00:50:18,640 --> 00:50:21,280
key audit matters um and over the next

1249
00:50:21,280 --> 00:50:22,799
coming weeks I'm going to make a video

1250
00:50:22,799 --> 00:50:24,760
where I actually walk through their

1251
00:50:24,760 --> 00:50:26,440
financial statements and talk a little

1252
00:50:26,440 --> 00:50:29,520
bit about what goes into these

1253
00:50:29,520 --> 00:50:32,240
Kam at the moment firms can write a lot

1254
00:50:32,240 --> 00:50:34,880
or they can write a little um kamam

1255
00:50:34,880 --> 00:50:38,000
first came in in the UK or here's the

1256
00:50:38,000 --> 00:50:39,400
requirements that says what they need to

1257
00:50:39,400 --> 00:50:42,880
do it's not very exciting um but there

1258
00:50:42,880 --> 00:50:45,319
is a risk there's nothing to say how

1259
00:50:45,319 --> 00:50:47,040
many key audit matters the auditor needs

1260
00:50:47,040 --> 00:50:49,520
to describe and when this was first

1261
00:50:49,520 --> 00:50:51,599
introduced and the first place it came

1262
00:50:51,599 --> 00:50:53,640
up was in the UK

1263
00:50:53,640 --> 00:50:58,480
about 2012 I think it it's started

1264
00:50:58,480 --> 00:51:01,000
rollsroyce and I think it was KPMG at

1265
00:51:01,000 --> 00:51:05,240
the time wrote something like 12 pages

1266
00:51:05,240 --> 00:51:08,240
on key audit matters in tiny tiny tiny

1267
00:51:08,240 --> 00:51:09,640
font it was a lot of

1268
00:51:09,640 --> 00:51:12,680
information the very same year Vodaphone

1269
00:51:12,680 --> 00:51:15,640
wrote about two pages uh the audit of a

1270
00:51:15,640 --> 00:51:18,200
vone in the UK wrote about two pages on

1271
00:51:18,200 --> 00:51:20,920
key audit matters both were deemed to be

1272
00:51:20,920 --> 00:51:23,359
compliant with the standard so what we

1273
00:51:23,359 --> 00:51:25,119
worry about is something that we call

1274
00:51:25,119 --> 00:51:28,000
boiler plating so the audit partner is

1275
00:51:28,000 --> 00:51:30,640
meant to really describe the tricky

1276
00:51:30,640 --> 00:51:33,160
decision-making per processes they went

1277
00:51:33,160 --> 00:51:36,440
through to look at auditing this really

1278
00:51:36,440 --> 00:51:38,799
difficult part of the firm but what we

1279
00:51:38,799 --> 00:51:41,240
worry about is that firms will have

1280
00:51:41,240 --> 00:51:44,280
standard lines that they will use for

1281
00:51:44,280 --> 00:51:46,319
different things and that won't provide

1282
00:51:46,319 --> 00:51:48,960
too much information it'll just be a

1283
00:51:48,960 --> 00:51:51,799
standardized line that might not say

1284
00:51:51,799 --> 00:51:53,200
anything at all and sometimes the

1285
00:51:53,200 --> 00:51:55,960
wording has been really really bizarre

1286
00:51:55,960 --> 00:51:57,520
in one of the early ones I read from

1287
00:51:57,520 --> 00:52:00,799
Rolls-Royce it said something about um

1288
00:52:00,799 --> 00:52:04,359
the auditor is reasonably optimistic

1289
00:52:04,359 --> 00:52:08,040
that Management's forecasts are based on

1290
00:52:08,040 --> 00:52:10,400
reasonable assumptions of blah blah blah

1291
00:52:10,400 --> 00:52:11,839
blah blah I'm like what does reasonably

1292
00:52:11,839 --> 00:52:12,920
optimistic

1293
00:52:12,920 --> 00:52:15,520
mean so there is going to be some issue

1294
00:52:15,520 --> 00:52:18,920
about what we see um and I tell you that

1295
00:52:18,920 --> 00:52:20,640
the auditing researchers and the

1296
00:52:20,640 --> 00:52:22,799
linguists are all going to be looking at

1297
00:52:22,799 --> 00:52:25,520
this information of this topic very uh

1298
00:52:25,520 --> 00:52:27,960
closely all right oh and we're doing I'm

1299
00:52:27,960 --> 00:52:30,160
ahead of time this is awesome so if you

1300
00:52:30,160 --> 00:52:31,400
didn't get a subject outline they're

1301
00:52:31,400 --> 00:52:33,040
down here at the front come grab one

1302
00:52:33,040 --> 00:52:36,119
next week we start the weekly accessible

1303
00:52:36,119 --> 00:52:39,400
quizzes your quizzes will start 5

1304
00:52:39,400 --> 00:52:41,680
minutes past the start of your class

1305
00:52:41,680 --> 00:52:44,319
time so my 9800 class in the morning

1306
00:52:44,319 --> 00:52:47,040
quiz starts at 9:05 a.m. and if you're

1307
00:52:47,040 --> 00:52:48,280
late that doesn't matter you don't get

1308
00:52:48,280 --> 00:52:51,319
any extra time how do you prep you can

1309
00:52:51,319 --> 00:52:52,799
look at the textbook there'll be some

1310
00:52:52,799 --> 00:52:55,920
videos this lecture video will go up um

1311
00:52:55,920 --> 00:52:58,200
and remember it's open

1312
00:52:58,200 --> 00:53:01,160
book okay so bring as much stuff as you

1313
00:53:01,160 --> 00:53:03,920
want you can use the internet and one

1314
00:53:03,920 --> 00:53:08,160
other thing sh just one last thing make

1315
00:53:08,160 --> 00:53:11,240
sure that the night before or the day

1316
00:53:11,240 --> 00:53:12,559
before and I'm going to send you a

1317
00:53:12,559 --> 00:53:14,839
reminder email about this that you can

1318
00:53:14,839 --> 00:53:16,920
log into learning catalytics if you

1319
00:53:16,920 --> 00:53:18,319
haven't written down your password

1320
00:53:18,319 --> 00:53:20,200
somewhere make sure you write it down

1321
00:53:20,200 --> 00:53:22,119
because the retrieve password function

1322
00:53:22,119 --> 00:53:26,640
in LC takes 6 hours so if you need to

1323
00:53:26,640 --> 00:53:28,359
reset your password you need to do it

1324
00:53:28,359 --> 00:53:30,680
well ahead of time uh cuz there's no

1325
00:53:30,680 --> 00:53:32,720
paper quizzes if you don't bring your

1326
00:53:32,720 --> 00:53:35,319
device if you need a device or you don't

1327
00:53:35,319 --> 00:53:37,079
have one come talk to me we do have

1328
00:53:37,079 --> 00:53:40,160
spares you can borrow otherwise thank

1329
00:53:40,160 --> 00:53:41,599
you for coming along to our first week

1330
00:53:41,599 --> 00:53:45,520
and I will see you next week