WEBVTT

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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

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there's risk that our information might

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not be appro so the reasons that we have

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uh risk of information remoteness

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between the

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user and management I own shares in WW

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worths I can't really go up to ww worth

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and say hey tell me how to cash flow is

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going many issues of a going concern

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which of the stores are not performing

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well so I don't really know what's going

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on inside the business the provider of

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the information is usually

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management an agency theory tells us

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that they're biased no manager wants to

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say hey I did a sucky job this year but

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you should still pay me a bonus they

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want to make themselves look fantastic

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so there's always the bias that they're

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going to present information in a way

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that maximizes their own wealth under

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agency

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theory all right there's there's lots

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and lots and lots of data hundreds or

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thousands or millions of transactions

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how do we know which ones are correct

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which ones are not correct and then

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there's complex transactions between

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different companies within the same

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company across different borders in

00:12:16.600 --> 00:12:19.760
different jurisdictions joint ventures

00:12:19.760 --> 00:12:22.360
partial subsidiaries it can get really

00:12:22.360 --> 00:12:26.079
complicated right my parents have a

00:12:26.079 --> 00:12:28.480
whole lot of shares they're retired and

00:12:28.480 --> 00:12:29.959
my mom's assigned

00:12:29.959 --> 00:12:31.720
teacher and I said well you know what

00:12:31.720 --> 00:12:33.040
are you looking for in the financial

00:12:33.040 --> 00:12:34.600
statements you know what do you look at

00:12:34.600 --> 00:12:35.720
when you look at the numbers and she

00:12:35.720 --> 00:12:38.160
said I don't know right I'm looking for

00:12:38.160 --> 00:12:40.160
positive numbers not negative numbers in

00:12:40.160 --> 00:12:42.279
the profit I'm looking for numbers that

00:12:42.279 --> 00:12:44.560
go up but she doesn't understand

00:12:44.560 --> 00:12:46.560
anywhere near the complexity of

00:12:46.560 --> 00:12:49.800
accounting that I do as a CA to be able

00:12:49.800 --> 00:12:51.480
to interpret that information and know

00:12:51.480 --> 00:12:53.639
whether it seems appropriate or not so

00:12:53.639 --> 00:12:56.079
the audit is there to minimize this

00:12:56.079 --> 00:13:00.079
information risk to act as the uh

00:13:00.079 --> 00:13:01.639
advocate of shareholders to say well

00:13:01.639 --> 00:13:03.320
really we want information that is act

00:13:03.320 --> 00:13:04.880
and true for decision

00:13:04.880 --> 00:13:07.079
making so how could we reduce

00:13:07.079 --> 00:13:09.399
information risk we could get users to

00:13:09.399 --> 00:13:11.399
try and verify information that would be

00:13:11.399 --> 00:13:13.079
really tough especially at woolies with

00:13:13.079 --> 00:13:15.360
all of their shareholders not really

00:13:15.360 --> 00:13:18.199
reliable the user does share some risk

00:13:18.199 --> 00:13:20.360
with management because they make a risk

00:13:20.360 --> 00:13:23.839
when it comes to investing but the

00:13:23.839 --> 00:13:28.519
audit is the thing that we use to reduce

00:13:28.519 --> 00:13:33.000
agency cost cost all right so to

00:13:33.000 --> 00:13:36.279
reduce the risk of

00:13:36.279 --> 00:13:39.040
agency we have an audit we have the

00:13:39.040 --> 00:13:41.480
Auditors independently check

00:13:41.480 --> 00:13:43.720
Management's work to make sure that they

00:13:43.720 --> 00:13:45.880
are telling the truth when it comes to

00:13:45.880 --> 00:13:47.720
what they present to

00:13:47.720 --> 00:13:50.040
shareholders so here's my son you can

00:13:50.040 --> 00:13:52.000
see him there he's pretty

00:13:52.000 --> 00:13:55.279
cute um and um for those people who are

00:13:55.279 --> 00:13:57.000
wondering I'm not just getting fat so I

00:13:57.000 --> 00:13:59.360
am going to having a baby at the uh

00:13:59.360 --> 00:14:01.040
beginning of next year so we call him

00:14:01.040 --> 00:14:04.560
audit Junior um and we just recently

00:14:04.560 --> 00:14:05.959
announced well I announced on my

00:14:05.959 --> 00:14:08.000
Facebook page uh for all the students

00:14:08.000 --> 00:14:09.600
who are friends with me that um he's

00:14:09.600 --> 00:14:12.040
getting a promotion to audit senior so

00:14:12.040 --> 00:14:13.600
we'll have a new audit Junior coming

00:14:13.600 --> 00:14:15.839
along but when it comes to describing

00:14:15.839 --> 00:14:18.440
auditing I always use this picture this

00:14:18.440 --> 00:14:21.240
was only taken a few months ago and I

00:14:21.240 --> 00:14:25.360
say is this the world's cutest kid right

00:14:25.360 --> 00:14:27.880
because every parent thinks that their

00:14:27.880 --> 00:14:30.639
child is the cutest kid what ever nobody

00:14:30.639 --> 00:14:32.040
I haven't met a new parent that says

00:14:32.040 --> 00:14:33.360
well look actually my son or daughter's

00:14:33.360 --> 00:14:34.199
a bit

00:14:34.199 --> 00:14:37.079
ugly right oh everybody's like oh how a

00:14:37.079 --> 00:14:39.040
adorable how

00:14:39.040 --> 00:14:41.360
cute and the same with managers right

00:14:41.360 --> 00:14:42.839
managers are going to say we are the

00:14:42.839 --> 00:14:45.360
best ever and when I meet your parents

00:14:45.360 --> 00:14:47.600
at graduation your parents are going to

00:14:47.600 --> 00:14:51.959
say look wasn't my son just the best

00:14:51.959 --> 00:14:54.240
student sometimes I look and to be

00:14:54.240 --> 00:14:57.040
honest with you I lie sometimes so you

00:14:57.040 --> 00:14:58.759
know students who were really great I

00:14:58.759 --> 00:14:59.560
say yeah

00:14:59.560 --> 00:15:02.440
absolutely and sometimes if you know

00:15:02.440 --> 00:15:05.399
perhaps you weren't the most diligent

00:15:05.399 --> 00:15:08.079
dedicated student I will say something

00:15:08.079 --> 00:15:10.720
like oh you know they really put in some

00:15:10.720 --> 00:15:13.600
good effort that's my sort of you know

00:15:13.600 --> 00:15:15.839
safety statement

00:15:15.839 --> 00:15:19.440
there but how would we determine who is

00:15:19.440 --> 00:15:21.240
the world's cutest

00:15:21.240 --> 00:15:24.160
kid how would we figure that out that's

00:15:24.160 --> 00:15:27.399
a claim I'm making we would need to have

00:15:27.399 --> 00:15:29.800
somebody independent come with some set

00:15:29.800 --> 00:15:32.759
of Standards on child

00:15:32.759 --> 00:15:35.199
cuteness to figure out whether he really

00:15:35.199 --> 00:15:37.759
is the cutest kid or not now when it

00:15:37.759 --> 00:15:40.360
comes to financial statements that's

00:15:40.360 --> 00:15:42.120
really easy because we have our

00:15:42.120 --> 00:15:44.839
accounting standards that tell us this

00:15:44.839 --> 00:15:48.120
is what accounting should look like and

00:15:48.120 --> 00:15:49.560
so when we're trying to figure out what

00:15:49.560 --> 00:15:51.319
our management telling the truth is this

00:15:51.319 --> 00:15:53.800
the right set of financial statements is

00:15:53.800 --> 00:15:55.040
this what we should be presenting to

00:15:55.040 --> 00:15:57.519
shareholders then we use our double asbs

00:15:57.519 --> 00:16:00.440
to do that Roger will be back to tell

00:16:00.440 --> 00:16:02.160
you all sorts of other hints and tips as

00:16:02.160 --> 00:16:03.519
well about

00:16:03.519 --> 00:16:05.360
auditing so

00:16:05.360 --> 00:16:09.639
auditing is the accumulation of evidence

00:16:09.639 --> 00:16:11.360
all right so evidence is really critical

00:16:11.360 --> 00:16:14.040
because I shouldn't make a decision

00:16:14.040 --> 00:16:16.000
without having some

00:16:16.000 --> 00:16:20.079
evidence if you're sick or uh something

00:16:20.079 --> 00:16:22.519
happens to you on the way to UNI then I

00:16:22.519 --> 00:16:24.360
want evidence if you say look I miss the

00:16:24.360 --> 00:16:26.120
quiz because I fell down a flight of

00:16:26.120 --> 00:16:28.639
stairs and broke my leg I'm going to

00:16:28.639 --> 00:16:31.079
have to see your broken leg and I'd want

00:16:31.079 --> 00:16:33.120
some evidence that that was really the

00:16:33.120 --> 00:16:36.880
case right so I'm technically a doctor

00:16:36.880 --> 00:16:38.399
and um friends always ask me look could

00:16:38.399 --> 00:16:40.319
you write me a doctor's note which I

00:16:40.319 --> 00:16:43.920
can't do as a PhD sort of doctor but if

00:16:43.920 --> 00:16:46.040
you apply for something you oh look you

00:16:46.040 --> 00:16:47.839
know this is what's been going on I want

00:16:47.839 --> 00:16:49.440
to see actual evidence to know that

00:16:49.440 --> 00:16:51.399
that's the truth so just like on cop

00:16:51.399 --> 00:16:53.120
shows before they charge somebody with

00:16:53.120 --> 00:16:55.920
the crime they need evidence well we

00:16:55.920 --> 00:16:58.199
need evidence as well to be able to make

00:16:58.199 --> 00:16:59.839
our opinion

00:16:59.839 --> 00:17:02.880
and determine the degree of

00:17:02.880 --> 00:17:05.720
Correspondence between information which

00:17:05.720 --> 00:17:07.880
for us is going to be our financial

00:17:07.880 --> 00:17:09.599
statements let me put that in

00:17:09.599 --> 00:17:12.039
red financial

00:17:12.039 --> 00:17:15.679
statements and our established

00:17:15.679 --> 00:17:18.280
criteria and our established

00:17:18.280 --> 00:17:21.319
criteria are our

00:17:21.319 --> 00:17:24.240
asbs all right so we're looking at

00:17:24.240 --> 00:17:26.119
Management's information and what the

00:17:26.119 --> 00:17:29.679
double asbs say it should be and um I

00:17:29.679 --> 00:17:31.440
know would you guys have had Helen I

00:17:31.440 --> 00:17:33.080
think last semester for accounting

00:17:33.080 --> 00:17:35.120
standards so Helen would have taught you

00:17:35.120 --> 00:17:37.640
how everything needs to be laid out how

00:17:37.640 --> 00:17:40.000
all the calculations need to work so we

00:17:40.000 --> 00:17:41.480
need to check that that's part of the

00:17:41.480 --> 00:17:45.080
auditor's role so key things about the

00:17:45.080 --> 00:17:47.760
audit we need to be competent we need to

00:17:47.760 --> 00:17:49.559
have the right skills which is part of

00:17:49.559 --> 00:17:52.039
what we're doing here at Uni and we need

00:17:52.039 --> 00:17:56.039
to be independent as well all right so

00:17:56.039 --> 00:17:57.840
competency is about having the right

00:17:57.840 --> 00:18:00.400
skills and and then being independent is

00:18:00.400 --> 00:18:03.159
about being

00:18:03.159 --> 00:18:05.000
objective um and I'll give you an

00:18:05.000 --> 00:18:08.679
example so many many many years ago um

00:18:08.679 --> 00:18:10.440
my husband and I both met at an audit

00:18:10.440 --> 00:18:12.520
firm so it was an audit firm

00:18:12.520 --> 00:18:14.320
romance

00:18:14.320 --> 00:18:16.679
and we were both working on different

00:18:16.679 --> 00:18:18.960
audit clients um and one of my big

00:18:18.960 --> 00:18:21.120
clients was QBE Insurance which we've

00:18:21.120 --> 00:18:23.200
all would have seen on TV and they

00:18:23.200 --> 00:18:27.080
sponsor some sporting teams Etc but he

00:18:27.080 --> 00:18:31.480
left PWC and took a job at

00:18:31.480 --> 00:18:34.520
QBE at that point I could no longer do

00:18:34.520 --> 00:18:36.880
the audit because I was no longer

00:18:36.880 --> 00:18:38.520
independent because I knew somebody that

00:18:38.520 --> 00:18:41.440
worked there and part of his job was

00:18:41.440 --> 00:18:43.320
consolidation of all of their

00:18:43.320 --> 00:18:47.200
subsidiaries so if I discovered that he

00:18:47.200 --> 00:18:49.360
had you know somehow stolen $10 million

00:18:49.360 --> 00:18:51.520
from the company I probably wouldn't

00:18:51.520 --> 00:18:54.120
have told anybody we would have you know

00:18:54.120 --> 00:18:56.799
very quietly resigned from our jobs sold

00:18:56.799 --> 00:18:58.919
our house and skipped out a

00:18:58.919 --> 00:19:02.679
non-extradition country so we need to

00:19:02.679 --> 00:19:05.480
have Auditors who are objective and

00:19:05.480 --> 00:19:09.080
independent right to say that when some

00:19:09.080 --> 00:19:11.360
we see something that's not quite right

00:19:11.360 --> 00:19:13.640
we feel independent enough to put our

00:19:13.640 --> 00:19:15.799
hands up and say oh I don't think this

00:19:15.799 --> 00:19:17.840
should be happening or you know

00:19:17.840 --> 00:19:19.600
management are not doing the right thing

00:19:19.600 --> 00:19:20.559
so

00:19:20.559 --> 00:19:22.559
Independence is the Cornerstone of

00:19:22.559 --> 00:19:25.320
auditing you open any audit textbook and

00:19:25.320 --> 00:19:27.360
I'm a bit of an audit nerd so I have

00:19:27.360 --> 00:19:29.640
audit textbooks from the

00:19:29.640 --> 00:19:31.400
1940s and

00:19:31.400 --> 00:19:33.600
earlier um and there's no pictures no

00:19:33.600 --> 00:19:35.080
diagrams it's all in color it's all

00:19:35.080 --> 00:19:37.159
black and white just type text but they

00:19:37.159 --> 00:19:39.320
all start with this idea that audit is

00:19:39.320 --> 00:19:41.600
the Cornerstone sorry Independence is

00:19:41.600 --> 00:19:43.919
the Cornerstone of being able to do that

00:19:43.919 --> 00:19:46.559
audit to be independent just like when I

00:19:46.559 --> 00:19:49.760
say my kid has got to be the cutest kid

00:19:49.760 --> 00:19:52.320
I'm not independent so we would have to

00:19:52.320 --> 00:19:55.880
find somebody who is an independent

00:19:55.880 --> 00:19:58.799
expert in the Judgment of kid cuteness

00:19:58.799 --> 00:20:01.559
to be able to make that

00:20:01.559 --> 00:20:03.720
opinion all right so what do we need to

00:20:03.720 --> 00:20:05.679
be able to do our audit we need to have

00:20:05.679 --> 00:20:07.600
the information the financial statements

00:20:07.600 --> 00:20:09.320
and our criteria which is our double

00:20:09.320 --> 00:20:12.120
asbs that we talked about all right so

00:20:12.120 --> 00:20:15.760
our financial statements and our double

00:20:15.760 --> 00:20:18.720
asbs we need to be able to accumulate

00:20:18.720 --> 00:20:19.960
evidence and we're actually going to

00:20:19.960 --> 00:20:22.679
practice doing that designing ways to

00:20:22.679 --> 00:20:25.240
collect evidence so just like on CSI

00:20:25.240 --> 00:20:26.360
there's all these techniques for

00:20:26.360 --> 00:20:29.280
collecting fingerprints and running DN

00:20:29.280 --> 00:20:31.559
and taking a tire Triad and running it

00:20:31.559 --> 00:20:34.880
through a database we also

00:20:34.880 --> 00:20:37.840
have less cool procedures to collect

00:20:37.840 --> 00:20:39.760
evidence so there's no like you know

00:20:39.760 --> 00:20:41.960
Dart rooms with spotlights and

00:20:41.960 --> 00:20:44.039
microscopes unfortunately Auditors

00:20:44.039 --> 00:20:46.559
mostly just use our brains might use a

00:20:46.559 --> 00:20:49.880
computer pen and some paper but we're

00:20:49.880 --> 00:20:51.840
going to look at specific methods that

00:20:51.840 --> 00:20:54.280
we've developed over time to collect

00:20:54.280 --> 00:20:56.240
evidence we've talked about being

00:20:56.240 --> 00:20:57.880
competent having the right skills and

00:20:57.880 --> 00:20:59.360
being independent

00:20:59.360 --> 00:21:02.559
and then providing a report so under the

00:21:02.559 --> 00:21:03.880
corporations

00:21:03.880 --> 00:21:06.880
act

00:21:06.919 --> 00:21:09.120
oops I actually have to provide a

00:21:09.120 --> 00:21:10.120
written

00:21:10.120 --> 00:21:12.039
report that

00:21:12.039 --> 00:21:15.440
says here is the outcome of the audit

00:21:15.440 --> 00:21:18.440
yes management are telling the truth or

00:21:18.440 --> 00:21:20.880
no they're not quite being truthful

00:21:20.880 --> 00:21:22.279
about everything and here are the things

00:21:22.279 --> 00:21:25.000
that they not being honest

00:21:25.000 --> 00:21:27.080
about so what's the difference between

00:21:27.080 --> 00:21:29.360
auditing and accounting the accounting

00:21:29.360 --> 00:21:33.080
is the recording part of uh the business

00:21:33.080 --> 00:21:35.960
process so they record summarize all the

00:21:35.960 --> 00:21:38.240
debits and credits within the system and

00:21:38.240 --> 00:21:40.480
then the Auditors are actually the ones

00:21:40.480 --> 00:21:42.640
checking the accounting work so we're

00:21:42.640 --> 00:21:43.760
going to go back and we're going to look

00:21:43.760 --> 00:21:45.960
at the work of the accounts and say are

00:21:45.960 --> 00:21:48.240
they doing the right

00:21:48.240 --> 00:21:50.400
thing just going to move this over here

00:21:50.400 --> 00:21:52.919
for a second all right so we have three

00:21:52.919 --> 00:21:55.360
main types of audits uh the financial

00:21:55.360 --> 00:21:56.679
statement the performance and the

00:21:56.679 --> 00:21:58.600
compliance as I mentioned before

00:21:58.600 --> 00:21:59.679
financial statement is the one that

00:21:59.679 --> 00:22:01.440
we're going to be spending the most of

00:22:01.440 --> 00:22:04.080
our time on the performance is about are

00:22:04.080 --> 00:22:05.720
we doing things efficiently and

00:22:05.720 --> 00:22:09.000
effectively within our business so uh we

00:22:09.000 --> 00:22:11.880
might have a sales process or a complex

00:22:11.880 --> 00:22:13.520
consolidation process and we can get an

00:22:13.520 --> 00:22:15.559
auditor in to say is this the best way

00:22:15.559 --> 00:22:17.559
to do this do we need to re-engineer our

00:22:17.559 --> 00:22:20.039
business process and then the compliance

00:22:20.039 --> 00:22:22.360
audit which is about following laws and

00:22:22.360 --> 00:22:24.840
regulations um so is a company reporting

00:22:24.840 --> 00:22:27.440
GST appropriately are they following

00:22:27.440 --> 00:22:30.320
occupational health and safety um are

00:22:30.320 --> 00:22:32.360
they doing anything else that requires a

00:22:32.360 --> 00:22:34.480
specific law or regulation but we're

00:22:34.480 --> 00:22:37.000
going to focus on that one up

00:22:37.000 --> 00:22:40.080
there so there's some examples okay

00:22:40.080 --> 00:22:41.799
different types of Auditors the public

00:22:41.799 --> 00:22:43.360
accounting firms are the big four and

00:22:43.360 --> 00:22:45.880
the second tier they do most of the

00:22:45.880 --> 00:22:48.760
publicly listed companies um the auditor

00:22:48.760 --> 00:22:50.880
general are the government

00:22:50.880 --> 00:22:52.960
Auditors all right so the New South

00:22:52.960 --> 00:22:55.159
Wales audit office and the auditor

00:22:55.159 --> 00:22:57.760
general of Australia based in Cambra um

00:22:57.760 --> 00:22:59.360
New South Wales auditor general will

00:22:59.360 --> 00:23:02.320
audit state government

00:23:02.320 --> 00:23:04.960
organizations um and the auditor general

00:23:04.960 --> 00:23:07.559
will handle the audit for everything

00:23:07.559 --> 00:23:09.039
else that's

00:23:09.039 --> 00:23:11.880
Federal um so the auditor general audits

00:23:11.880 --> 00:23:14.480
the Defense Force uh they're in charge

00:23:14.480 --> 00:23:16.559
of the overall audit for

00:23:16.559 --> 00:23:20.279
Telstra um center link um other big

00:23:20.279 --> 00:23:21.919
government

00:23:21.919 --> 00:23:24.559
departments we have Auditors for tax

00:23:24.559 --> 00:23:27.039
that work specifically for the ATO um

00:23:27.039 --> 00:23:29.440
but they're more likely to be lawyers

00:23:29.440 --> 00:23:31.720
um and accountants uh not just

00:23:31.720 --> 00:23:34.480
accountants and then internal Auditors

00:23:34.480 --> 00:23:36.600
which focus on doing that compliance in

00:23:36.600 --> 00:23:39.720
the performance audit so most big top

00:23:39.720 --> 00:23:41.400
100 companies will have their own audit

00:23:41.400 --> 00:23:45.080
internal audit team um so quantis the

00:23:45.080 --> 00:23:47.840
Commonwealth Bank Coca-Cola will'll all

00:23:47.840 --> 00:23:50.679
have teams who look at internal

00:23:50.679 --> 00:23:52.080
improvements and making sure that

00:23:52.080 --> 00:23:54.000
they're following the rules and

00:23:54.000 --> 00:23:55.840
regulations and this is important

00:23:55.840 --> 00:23:57.400
because they want to try and minimize

00:23:57.400 --> 00:24:00.400
fines

00:24:01.320 --> 00:24:02.840
all right because you could get a

00:24:02.840 --> 00:24:04.799
government fine for not following a law

00:24:04.799 --> 00:24:07.080
or a regulation appropriately you could

00:24:07.080 --> 00:24:11.559
be sued it could create all sorts of

00:24:13.480 --> 00:24:16.600
issues all right so let's look the big

00:24:16.600 --> 00:24:19.880
firms um I worked for this one actually

00:24:19.880 --> 00:24:21.679
well the predecessor for this one which

00:24:21.679 --> 00:24:23.640
was Cooper and Li brand and then

00:24:23.640 --> 00:24:27.960
PWC um so the big four audit probably I

00:24:27.960 --> 00:24:30.919
think about 60% of the Australian stock

00:24:30.919 --> 00:24:34.279
exchange and then these guys here pretty

00:24:34.279 --> 00:24:38.120
much AIT the rest all right um so for

00:24:38.120 --> 00:24:40.559
those people who are going to a later

00:24:40.559 --> 00:24:43.000
afternoon toot and you'll have Kate or

00:24:43.000 --> 00:24:45.159
you'll have Nicole um we actually have

00:24:45.159 --> 00:24:47.159
an agreement with Grant thoron where

00:24:47.159 --> 00:24:49.799
they actually send real life Auditors in

00:24:49.799 --> 00:24:51.799
to teach tutorial so you'll get to hear

00:24:51.799 --> 00:24:54.399
lots of stories from them uh the people

00:24:54.399 --> 00:24:57.880
who are going to um who will have Ben

00:24:57.880 --> 00:25:01.240
this after afternoon um in the 12:00 CH

00:25:01.240 --> 00:25:04.039
and I think also the 1:31 uh Ben works

00:25:04.039 --> 00:25:07.200
at a small local firm in terms of

00:25:07.200 --> 00:25:09.840
auditing so he's got lots of experience

00:25:09.840 --> 00:25:12.279
in doing much smaller audits which are

00:25:12.279 --> 00:25:14.919
required under the corporations act um

00:25:14.919 --> 00:25:17.480
so you've got a range of Staff with a

00:25:17.480 --> 00:25:19.440
range of experience and this means that

00:25:19.440 --> 00:25:21.520
Auditors exist at all sorts of different

00:25:21.520 --> 00:25:24.279
levels so I recently did the audit for

00:25:24.279 --> 00:25:26.320
ISC which is one of the University

00:25:26.320 --> 00:25:29.120
student groups um AUD s happen for the

00:25:29.120 --> 00:25:31.960
big ASX listed companies they happen for

00:25:31.960 --> 00:25:35.080
large privately listed sorry for large

00:25:35.080 --> 00:25:37.279
private companies and they also happen

00:25:37.279 --> 00:25:39.360
for small companies that are required to

00:25:39.360 --> 00:25:42.600
have audits under the corporations act

00:25:42.600 --> 00:25:44.799
or maybe as part of Charity

00:25:44.799 --> 00:25:48.240
regulations firms do audits um but just

00:25:48.240 --> 00:25:49.720
of different sizes and of different

00:25:49.720 --> 00:25:53.640
scales so the big four are so large and

00:25:53.640 --> 00:25:56.200
so specialized that people specialize by

00:25:56.200 --> 00:25:59.399
industry so you audit mining firms or

00:25:59.399 --> 00:26:01.320
government firms or telecommunications

00:26:01.320 --> 00:26:03.559
or financial services um my

00:26:03.559 --> 00:26:05.960
specialization was financial services so

00:26:05.960 --> 00:26:08.279
I didn't get to see much I always envied

00:26:08.279 --> 00:26:09.440
the people that got to audit

00:26:09.440 --> 00:26:11.240
manufacturing firms or mining firms

00:26:11.240 --> 00:26:12.960
because you could go places and see real

00:26:12.960 --> 00:26:15.399
things happening until one time I did

00:26:15.399 --> 00:26:17.600
get put on the audit of Dairy Farmers

00:26:17.600 --> 00:26:19.720
and that's not So Glamorous like milk

00:26:19.720 --> 00:26:22.880
processing plants really don't smell

00:26:22.880 --> 00:26:25.279
great um we did get to drink you know

00:26:25.279 --> 00:26:26.799
you had access to the corporate fridge

00:26:26.799 --> 00:26:28.320
so I could drink all the milk that I

00:26:28.320 --> 00:26:30.320
could take though I'm Asian so I'm

00:26:30.320 --> 00:26:31.919
partly lactose intolerance that doesn't

00:26:31.919 --> 00:26:34.760
go down so well um but Dairy Farmers

00:26:34.760 --> 00:26:36.279
made yogurt again it couldn't eat too

00:26:36.279 --> 00:26:38.320
much of that uh but fruit juice I could

00:26:38.320 --> 00:26:39.640
drink the fruit juice all day so that

00:26:39.640 --> 00:26:42.000
was a good thing so the public

00:26:42.000 --> 00:26:44.919
accounting firms big ones and small ones

00:26:44.919 --> 00:26:47.600
provide audit services so that's a big

00:26:47.600 --> 00:26:49.600
part of their bread and butter audit

00:26:49.600 --> 00:26:50.760
Services

00:26:50.760 --> 00:26:54.240
though are high

00:26:54.240 --> 00:26:58.720
volume and low margin

00:26:59.320 --> 00:27:01.080
that means you don't make a lot of money

00:27:01.080 --> 00:27:02.240
off an

00:27:02.240 --> 00:27:04.799
audit right it's it's not a really

00:27:04.799 --> 00:27:07.440
profitable item to do but the reason

00:27:07.440 --> 00:27:09.640
that you do an audit is so that you can

00:27:09.640 --> 00:27:13.120
convince your client to hire you to do

00:27:13.120 --> 00:27:15.799
other things like tax which can be a

00:27:15.799 --> 00:27:18.039
little bit more lucrative and consulting

00:27:18.039 --> 00:27:20.360
services that could be helping them

00:27:20.360 --> 00:27:23.200
expand into a new market um choosing a

00:27:23.200 --> 00:27:25.760
new information system um you get

00:27:25.760 --> 00:27:28.679
different departments within your umm

00:27:28.679 --> 00:27:30.919
within your audit firm to do that but

00:27:30.919 --> 00:27:32.279
it's all about sort of growing the

00:27:32.279 --> 00:27:35.520
bigger uh audit firm share so something

00:27:35.520 --> 00:27:37.440
like management consulting services is

00:27:37.440 --> 00:27:40.039
really high

00:27:40.360 --> 00:27:42.640
margin and towards my the end of my

00:27:42.640 --> 00:27:44.080
career I did a lot more management

00:27:44.080 --> 00:27:47.679
consulting um and I remember back in

00:27:47.679 --> 00:27:50.480
19 oh I think it was

00:27:50.480 --> 00:27:54.760
99 we had a $20 million consulting job

00:27:54.760 --> 00:27:56.039
with the Australian Broadcasting

00:27:56.039 --> 00:27:58.279
Corporation just down the road

00:27:58.279 --> 00:28:00.279
implementing new software and that was a

00:28:00.279 --> 00:28:02.159
six-month project for $20

00:28:02.159 --> 00:28:04.279
million so and you wouldn't earn

00:28:04.279 --> 00:28:06.000
anywhere near that much on an audit

00:28:06.000 --> 00:28:07.559
you'd probably earn a few million

00:28:07.559 --> 00:28:09.159
dollars on an audit for about six to 8

00:28:09.159 --> 00:28:12.360
weeks work um so there's definitely lots

00:28:12.360 --> 00:28:14.000
of margin Aid

00:28:14.000 --> 00:28:17.240
there now you find very few firms that

00:28:17.240 --> 00:28:19.480
are in the sole proprietorship or the

00:28:19.480 --> 00:28:22.240
partnership model that's because of the

00:28:22.240 --> 00:28:24.720
idea of joint and several liability and

00:28:24.720 --> 00:28:26.720
that would mean that if the partner of

00:28:26.720 --> 00:28:28.000
the firm did something wrong and then

00:28:28.000 --> 00:28:30.080
they they skipped out of town I would be

00:28:30.080 --> 00:28:32.799
liable as one of the partners left over

00:28:32.799 --> 00:28:36.200
the big four firms these days and most

00:28:36.200 --> 00:28:37.760
of our second tier are almost all

00:28:37.760 --> 00:28:39.519
Incorporated companies so while you have

00:28:39.519 --> 00:28:41.679
Partners who are shareholders in The

00:28:41.679 --> 00:28:43.960
Firm they're not Partners in the typical

00:28:43.960 --> 00:28:46.360
sense of a a

00:28:46.360 --> 00:28:48.279
partnership now in terms of the

00:28:48.279 --> 00:28:50.399
hierarchy or the shape of an audit

00:28:50.399 --> 00:28:53.880
firm previously they looked like

00:28:53.880 --> 00:28:56.519
this all right so you had the partners

00:28:56.519 --> 00:28:59.200
at the very top and then lots of junior

00:28:59.200 --> 00:29:01.519
staff doing what we call grunt work

00:29:01.519 --> 00:29:03.120
ticking and bashing or ticking and

00:29:03.120 --> 00:29:06.559
flicking at the bottom what we're seeing

00:29:06.559 --> 00:29:08.480
in terms of Trends and the data that's

00:29:08.480 --> 00:29:09.880
coming out of

00:29:09.880 --> 00:29:12.679
CA is that the audit firm is looking a

00:29:12.679 --> 00:29:13.880
lot more

00:29:13.880 --> 00:29:16.760
rectangular now um and that you're

00:29:16.760 --> 00:29:19.600
having a lot less staff at the junior

00:29:19.600 --> 00:29:21.120
levels and that comes from a number of

00:29:21.120 --> 00:29:23.399
different reasons the first

00:29:23.399 --> 00:29:26.600
one is

00:29:26.679 --> 00:29:28.880
outsourcing or

00:29:28.880 --> 00:29:32.760
offshoring um and that's especially you

00:29:32.760 --> 00:29:34.480
scan a lot of audit documentation that

00:29:34.480 --> 00:29:37.279
you would have had graduates um interns

00:29:37.279 --> 00:29:39.519
doing a lot of ticking and checking all

00:29:39.519 --> 00:29:41.399
of that gets scanned and then sent off

00:29:41.399 --> 00:29:44.640
to India or you know Pakistan and they

00:29:44.640 --> 00:29:46.440
do a whole lot of the audit checking

00:29:46.440 --> 00:29:48.120
work for about a third the price

00:29:48.120 --> 00:29:50.480
overnight so the amount of staff doing

00:29:50.480 --> 00:29:53.480
that work is much less um and then we've

00:29:53.480 --> 00:29:55.919
also seen a lot more automation so we're

00:29:55.919 --> 00:29:58.159
using a lot more big data we're using a

00:29:58.159 --> 00:30:00.399
lot more intelligent agents um and

00:30:00.399 --> 00:30:03.480
artificial intelligence in audits so you

00:30:03.480 --> 00:30:04.799
know the future is still looking bright

00:30:04.799 --> 00:30:06.360
for auditing and auditing at this point

00:30:06.360 --> 00:30:08.919
is not going to be replaced by machines

00:30:08.919 --> 00:30:10.640
but there's a lot less at the bottom

00:30:10.640 --> 00:30:12.760
level than there was

00:30:12.760 --> 00:30:14.919
before what do the professional bodies

00:30:14.919 --> 00:30:16.880
do they do a few different things they

00:30:16.880 --> 00:30:18.440
help establish standards through the

00:30:18.440 --> 00:30:20.720
auditing Standards Board they do a lot

00:30:20.720 --> 00:30:22.760
of research and then they the biggest

00:30:22.760 --> 00:30:24.600
one is education to make sure that once

00:30:24.600 --> 00:30:27.480
you become a member you are continuously

00:30:27.480 --> 00:30:31.279
up to date on latest auditing Trends and

00:30:31.279 --> 00:30:33.480
changes within legislation especially at

00:30:33.480 --> 00:30:34.960
the international

00:30:34.960 --> 00:30:37.279
level now what about our auditing

00:30:37.279 --> 00:30:38.919
standards our auditing standards are

00:30:38.919 --> 00:30:40.679
called

00:30:40.679 --> 00:30:43.080
ASAS all right and you can find those

00:30:43.080 --> 00:30:48.919
free on the aub's website AAS

00:30:48.919 --> 00:30:50.440
sb.gov

00:30:50.440 --> 00:30:54.399
Au now remember our exam is open book so

00:30:54.399 --> 00:30:56.320
you can bring in oh somebody has one of

00:30:56.320 --> 00:30:58.880
these I'm just going to borrow this here

00:30:58.880 --> 00:31:01.200
one of these handbooks if you want all

00:31:01.200 --> 00:31:03.480
your standards in one book or you could

00:31:03.480 --> 00:31:04.440
print them

00:31:04.440 --> 00:31:06.880
out right and bring them into the exam

00:31:06.880 --> 00:31:08.159
you can bring your textbook into the

00:31:08.159 --> 00:31:11.399
exam you could bring anything you like

00:31:11.399 --> 00:31:12.600
comic books if you think you're going to

00:31:12.600 --> 00:31:14.440
have time at the end to you know have a

00:31:14.440 --> 00:31:17.320
bit of a read um so you don't

00:31:17.320 --> 00:31:19.320
necessarily need to buy the standards

00:31:19.320 --> 00:31:21.200
book if you don't want to you can look

00:31:21.200 --> 00:31:23.000
at them online and then print out the

00:31:23.000 --> 00:31:24.880
sections that you think you'll need I

00:31:24.880 --> 00:31:26.320
will actually tell you in the last week

00:31:26.320 --> 00:31:27.480
of term which ones I think are going to

00:31:27.480 --> 00:31:29.960
be key ones for the final exam so you

00:31:29.960 --> 00:31:31.440
don't have to worry about

00:31:31.440 --> 00:31:34.200
that so the

00:31:34.200 --> 00:31:37.840
aasb issues the auditing standards and

00:31:37.840 --> 00:31:39.679
uh we're internationally harmonized so

00:31:39.679 --> 00:31:41.440
they come down from the international

00:31:41.440 --> 00:31:44.960
auditing Standards Board and the key is

00:31:44.960 --> 00:31:46.519
that they are

00:31:46.519 --> 00:31:48.600
mandatory all right so while some

00:31:48.600 --> 00:31:51.000
companies or some countries sorry the

00:31:51.000 --> 00:31:54.000
auditing standards say the auditor

00:31:54.000 --> 00:31:56.639
May our auditing standards say the

00:31:56.639 --> 00:31:59.760
auditor must or the auditor shall

00:31:59.760 --> 00:32:02.240
because our requirements are enshrined

00:32:02.240 --> 00:32:05.440
within the corporations act we must do

00:32:05.440 --> 00:32:08.679
them as the minimum set of Standards you

00:32:08.679 --> 00:32:10.320
could do more than what the standard

00:32:10.320 --> 00:32:13.519
says but the minimum is contained within

00:32:13.519 --> 00:32:15.960
the ASAS and we'll be referring back and

00:32:15.960 --> 00:32:17.480
I'll show you excerpts from the

00:32:17.480 --> 00:32:20.240
standards on a regular basis of things

00:32:20.240 --> 00:32:21.639
that are really critical and important

00:32:21.639 --> 00:32:23.080
to

00:32:23.080 --> 00:32:25.440
understand all right so how do we make

00:32:25.440 --> 00:32:27.360
sure that everybody who's doing an audit

00:32:27.360 --> 00:32:29.039
is doing the right right thing that

00:32:29.039 --> 00:32:31.639
comes from quality control and so

00:32:31.639 --> 00:32:37.039
quality control needs to exist across

00:32:38.639 --> 00:32:41.880
firms and quality control also needs to

00:32:41.880 --> 00:32:45.320
exist within

00:32:45.919 --> 00:32:48.559
firms all right so I need to make sure

00:32:48.559 --> 00:32:51.320
that PWC are doing the same minimum

00:32:51.320 --> 00:32:55.679
standard as KPMG and then within pwc's

00:32:55.679 --> 00:32:57.440
however many offices we need to make

00:32:57.440 --> 00:32:59.760
sure that all staff are doing the same

00:32:59.760 --> 00:33:03.039
thing and there are specific whoops

00:33:03.039 --> 00:33:06.200
specific quality control standards um

00:33:06.200 --> 00:33:09.000
that the uh auditing standards and the

00:33:09.000 --> 00:33:11.440
corporations act actually set out so

00:33:11.440 --> 00:33:13.960
things about having leadership um

00:33:13.960 --> 00:33:15.679
meeting ethical and Independence

00:33:15.679 --> 00:33:18.200
requirements rules about how to accept

00:33:18.200 --> 00:33:21.080
clients selecting the right people doing

00:33:21.080 --> 00:33:22.919
the Audits and then monitoring or

00:33:22.919 --> 00:33:24.279
checking each

00:33:24.279 --> 00:33:27.519
other and that's where the peer review

00:33:27.519 --> 00:33:29.000
Pro

00:33:29.000 --> 00:33:31.159
program comes in from Chartered

00:33:31.159 --> 00:33:33.279
Accountants and zpa Australia where

00:33:33.279 --> 00:33:36.559
firms check each other's work to make

00:33:36.559 --> 00:33:38.519
sure that they're all following the

00:33:38.519 --> 00:33:40.639
standards

00:33:40.639 --> 00:33:44.159
appropriately so CA and CPA both have

00:33:44.159 --> 00:33:45.919
sets of Auditors that actually audit

00:33:45.919 --> 00:33:50.760
them also on top of that we have

00:33:50.760 --> 00:33:53.880
the Australian Securities and investment

00:33:53.880 --> 00:33:56.720
commission doing their own inspection

00:33:56.720 --> 00:33:59.000
program

00:33:59.000 --> 00:34:00.720
all right so they audit the big four

00:34:00.720 --> 00:34:03.360
firms every single year smaller firms on

00:34:03.360 --> 00:34:05.960
a rotating schedule and they can find

00:34:05.960 --> 00:34:08.000
audit firms for not complying with the

00:34:08.000 --> 00:34:10.480
auditing standards um I'll provide you

00:34:10.480 --> 00:34:13.000
guys with a link to look at the latest

00:34:13.000 --> 00:34:15.800
inspection report from Asic um it

00:34:15.800 --> 00:34:18.679
doesn't actually show names of firms um

00:34:18.679 --> 00:34:20.239
this also happens in the US that the US

00:34:20.239 --> 00:34:22.000
has started naming firms who are not

00:34:22.000 --> 00:34:24.280
doing the right thing so there's big

00:34:24.280 --> 00:34:27.440
bucks um in making sure that everybody

00:34:27.440 --> 00:34:30.119
Within in The Firm is doing the right

00:34:30.119 --> 00:34:31.719
thing in terms of following the order

00:34:31.719 --> 00:34:33.800
standards acting independently and

00:34:33.800 --> 00:34:35.679
acting ethically how are we doing on

00:34:35.679 --> 00:34:39.520
time oh okay all right operations act

00:34:39.520 --> 00:34:42.760
besides governing company directors

00:34:42.760 --> 00:34:46.679
setting up companies uh in Australian

00:34:46.679 --> 00:34:47.918
you guys have all done Australian

00:34:47.918 --> 00:34:50.839
company law you guys done company law

00:34:50.839 --> 00:34:52.079
yep or for the people who haven't done

00:34:52.079 --> 00:34:54.679
it yet one of the assignments many many

00:34:54.679 --> 00:34:56.918
years ago used to be prepare all the

00:34:56.918 --> 00:34:59.200
documents to start company right we'd

00:34:59.200 --> 00:35:00.359
have to actually go back to the

00:35:00.359 --> 00:35:01.920
corporations act and figure out what

00:35:01.920 --> 00:35:04.280
that is so while the corporations act

00:35:04.280 --> 00:35:06.800
specifies how companies get set up it

00:35:06.800 --> 00:35:10.119
also specifies what Auditors need to do

00:35:10.119 --> 00:35:12.280
you need to be qualified you need to be

00:35:12.280 --> 00:35:14.720
registered management can't just choose

00:35:14.720 --> 00:35:17.400
the auditor it has to be ratified by

00:35:17.400 --> 00:35:18.880
shareholders at an annual general

00:35:18.880 --> 00:35:21.280
meeting we can't just quit as an auditor

00:35:21.280 --> 00:35:22.280
there's all sorts of rules about

00:35:22.280 --> 00:35:24.599
quitting what our responsibilities are

00:35:24.599 --> 00:35:25.760
and

00:35:25.760 --> 00:35:27.800
Reporting um and you can go into those

00:35:27.800 --> 00:35:29.320
in more detail in the

00:35:29.320 --> 00:35:32.400
textbook all right so here is the output

00:35:32.400 --> 00:35:33.599
and this is really important and you

00:35:33.599 --> 00:35:35.119
might be thinking well why am I

00:35:35.119 --> 00:35:38.560
interested in looking at the end point

00:35:38.560 --> 00:35:39.920
when we're only at the beginning and

00:35:39.920 --> 00:35:42.359
this is so that you have in your mind

00:35:42.359 --> 00:35:45.480
the idea of what we're striving for or

00:35:45.480 --> 00:35:47.720
what we're uh planning to

00:35:47.720 --> 00:35:52.079
create so we're going to look at why do

00:35:52.079 --> 00:35:54.960
we have the report um what goes into

00:35:54.960 --> 00:35:56.720
something called an unmodified audit

00:35:56.720 --> 00:35:58.640
report we're we're going to look at when

00:35:58.640 --> 00:36:00.760
we might do different sorts of reports

00:36:00.760 --> 00:36:05.760
and adding extra information okay now

00:36:05.760 --> 00:36:07.800
before Oh I'm trying to remember what

00:36:07.800 --> 00:36:09.599
case it was we'll go into the cases I

00:36:09.599 --> 00:36:11.119
think uh next

00:36:11.119 --> 00:36:13.680
week there was never a legal requirement

00:36:13.680 --> 00:36:15.480
to produce a paper audit report you

00:36:15.480 --> 00:36:17.800
could have done a verbal audit report at

00:36:17.800 --> 00:36:20.520
one stage but now we must provide a

00:36:20.520 --> 00:36:22.880
written audit report about the financial

00:36:22.880 --> 00:36:24.760
statements in accordance with the

00:36:24.760 --> 00:36:27.560
Australian accounting uh uh the

00:36:27.560 --> 00:36:28.920
accounting standards and our auditing

00:36:28.920 --> 00:36:31.000
standards and Reporting is pretty

00:36:31.000 --> 00:36:33.000
similar to the point where if you go to

00:36:33.000 --> 00:36:35.319
the auditing standard on audit reporting

00:36:35.319 --> 00:36:37.480
there's actually templates in the back

00:36:37.480 --> 00:36:39.640
and if you look at almost all of the

00:36:39.640 --> 00:36:41.520
publicly listed companies their audit

00:36:41.520 --> 00:36:43.880
reports almost say exactly the same

00:36:43.880 --> 00:36:45.520
thing word for word except the company

00:36:45.520 --> 00:36:47.640
name is different and the year might be

00:36:47.640 --> 00:36:49.040
different and the name of the audit

00:36:49.040 --> 00:36:50.960
partner might be

00:36:50.960 --> 00:36:53.520
different so audit reporting is fairly

00:36:53.520 --> 00:36:56.240
standardized and it has very specific

00:36:56.240 --> 00:36:58.720
legal language because it is a legal

00:36:58.720 --> 00:37:01.040
document that exposes the auditor to

00:37:01.040 --> 00:37:04.160
liability if we've done something wrong

00:37:04.160 --> 00:37:06.400
so what is the gold standard that

00:37:06.400 --> 00:37:08.720
everybody is looking for so what most

00:37:08.720 --> 00:37:11.200
firms

00:37:12.640 --> 00:37:16.720
want firms want what we call an

00:37:16.720 --> 00:37:20.520
unmodified audit report and is also

00:37:20.520 --> 00:37:23.319
sometimes called an unqualified report

00:37:23.319 --> 00:37:25.640
now this is where it's a bit funny and a

00:37:25.640 --> 00:37:26.520
bit

00:37:26.520 --> 00:37:29.119
counterintuitive so when you do your ca

00:37:29.119 --> 00:37:31.520
or you do a medical degree or you finish

00:37:31.520 --> 00:37:34.040
your engineering qualification you

00:37:34.040 --> 00:37:35.400
become

00:37:35.400 --> 00:37:38.359
qualified right and qualified is a good

00:37:38.359 --> 00:37:41.560
thing okay when it comes to an audit it

00:37:41.560 --> 00:37:44.280
is the exact opposite the one that

00:37:44.280 --> 00:37:47.079
people want the one that

00:37:47.079 --> 00:37:50.880
says big tick management are telling the

00:37:50.880 --> 00:37:54.359
truth is something called an unqualified

00:37:54.359 --> 00:37:55.520
or an

00:37:55.520 --> 00:37:58.319
unmodified audit report

00:37:58.319 --> 00:38:00.200
okay you might think why is it that way

00:38:00.200 --> 00:38:02.480
I don't know it's probably something I

00:38:02.480 --> 00:38:04.680
could historically uh dig into the

00:38:04.680 --> 00:38:06.800
archives and look at sometimes I wonder

00:38:06.800 --> 00:38:08.400
if we do things sort of a bit back to

00:38:08.400 --> 00:38:10.960
front in auditing to make it seem really

00:38:10.960 --> 00:38:13.400
mysterious and difficult because

00:38:13.400 --> 00:38:15.160
auditing is a lot about logic and Common

00:38:15.160 --> 00:38:16.599
Sense and we don't want too many people

00:38:16.599 --> 00:38:18.359
getting into the awesome area that is

00:38:18.359 --> 00:38:20.680
auditing so we want to make it seem

00:38:20.680 --> 00:38:22.800
really complicated and Tricky by using

00:38:22.800 --> 00:38:25.240
language that doesn't quite make sense

00:38:25.240 --> 00:38:27.599
so most firms

00:38:27.599 --> 00:38:29.480
probably

00:38:29.480 --> 00:38:31.839
about I think the last time we checked

00:38:31.839 --> 00:38:35.119
it was something like 98% of firms um on

00:38:35.119 --> 00:38:38.240
the ASX get an unqualified unmodified

00:38:38.240 --> 00:38:40.800
report management are telling the truth

00:38:40.800 --> 00:38:43.240
now that sends a signal to shareholders

00:38:43.240 --> 00:38:46.200
that says management telling the truth

00:38:46.200 --> 00:38:47.720
you can rely on this information for

00:38:47.720 --> 00:38:51.079
your decision- making all right what

00:38:51.079 --> 00:38:53.760
happens do you think to company share

00:38:53.760 --> 00:38:55.920
prices if I give them the opposite if I

00:38:55.920 --> 00:38:57.920
say management are not being truthful

00:38:57.920 --> 00:39:00.200
and here are the reasons why what do you

00:39:00.200 --> 00:39:01.800
think is going to happen to share

00:39:01.800 --> 00:39:04.560
price it's going to go down and it goes

00:39:04.560 --> 00:39:07.119
down pretty quickly um in terms of what

00:39:07.119 --> 00:39:08.680
we see from the research in terms of

00:39:08.680 --> 00:39:11.280
share price reaction so firms want this

00:39:11.280 --> 00:39:13.920
managers want to work with us as the

00:39:13.920 --> 00:39:16.680
Auditors to come to an agreement on a

00:39:16.680 --> 00:39:18.240
set of financial statements that we

00:39:18.240 --> 00:39:21.839
think is unqualified is free from

00:39:21.839 --> 00:39:25.480
statement so ASA this is our first ASA

00:39:25.480 --> 00:39:27.880
700 and all the the ones on reporting

00:39:27.880 --> 00:39:30.280
you're in the 700 area say that we want

00:39:30.280 --> 00:39:33.440
to get M reasonable assurance that it's

00:39:33.440 --> 00:39:36.040
free from misstatements due to fraud or

00:39:36.040 --> 00:39:37.920
error so I'm not interest I don't care

00:39:37.920 --> 00:39:40.720
whether it's a mistake type 5,000

00:39:40.720 --> 00:39:43.640
instead of 500,000 or it's fraud I have

00:39:43.640 --> 00:39:46.280
a responsibility to detect those I want

00:39:46.280 --> 00:39:48.000
to make sure that it matches the

00:39:48.000 --> 00:39:50.880
applicable financial reporting framework

00:39:50.880 --> 00:39:54.160
which for us is at

00:39:54.319 --> 00:39:57.440
aasbs all right and that it is a fair

00:39:57.440 --> 00:39:58.599
fair

00:39:58.599 --> 00:40:01.119
presentation that it fairly represents

00:40:01.119 --> 00:40:03.040
what happened during the during the

00:40:03.040 --> 00:40:05.839
company's Financial period so if the

00:40:05.839 --> 00:40:07.480
company was exposed to a lot of

00:40:07.480 --> 00:40:10.040
fluctuation changes and adverse

00:40:10.040 --> 00:40:12.640
movements in foreign exchange and a

00:40:12.640 --> 00:40:14.560
decline in sales then we'd expect to see

00:40:14.560 --> 00:40:17.200
a loss from that company is what we're

00:40:17.200 --> 00:40:19.880
seeing uh commensurate with what we know

00:40:19.880 --> 00:40:22.359
about the firm um and then making sure

00:40:22.359 --> 00:40:24.640
that the financial report is again in

00:40:24.640 --> 00:40:28.560
accordance with our double asbs

00:40:28.560 --> 00:40:30.560
there's all sorts of parts to the audit

00:40:30.560 --> 00:40:34.000
report um and uh this has actually

00:40:34.000 --> 00:40:37.599
changed a little bit so this bit here

00:40:37.599 --> 00:40:40.000
used to be right at the end we have a

00:40:40.000 --> 00:40:41.920
new standard change so in the textbook

00:40:41.920 --> 00:40:42.760
this is going to be a little bit

00:40:42.760 --> 00:40:43.960
different than what you're looking at

00:40:43.960 --> 00:40:49.119
right here um new ASA 700 now says that

00:40:49.119 --> 00:40:51.319
we tell the shareholders the very first

00:40:51.319 --> 00:40:54.359
thing here's our opinion we used to give

00:40:54.359 --> 00:40:56.760
them all this legal jargon first all

00:40:56.760 --> 00:40:59.480
this other crap used to come first and

00:40:59.480 --> 00:41:01.160
then we would do this sort of at the end

00:41:01.160 --> 00:41:03.440
but now it's right at the front to make

00:41:03.440 --> 00:41:05.520
sure that shareholders know what's going

00:41:05.520 --> 00:41:10.119
on now on UTS online in this week's

00:41:10.119 --> 00:41:12.640
folder I've also put a whole lot of

00:41:12.640 --> 00:41:14.400
audited opinions in there for you to

00:41:14.400 --> 00:41:18.359
look at um and I'll also copy in for you

00:41:18.359 --> 00:41:21.040
um the link to the QBE

00:41:21.040 --> 00:41:24.720
Insurance annual report because it is

00:41:24.720 --> 00:41:27.440
one of the few early adopters of some

00:41:27.440 --> 00:41:29.400
new regulations and so I'll make a

00:41:29.400 --> 00:41:30.760
little video on that in a couple of

00:41:30.760 --> 00:41:34.720
weeks as well all right now what happens

00:41:34.720 --> 00:41:37.520
if management aren't being truthful how

00:41:37.520 --> 00:41:39.480
do I know what sort of opinion to give

00:41:39.480 --> 00:41:41.800
them then I'm going to use this table

00:41:41.800 --> 00:41:44.920
and this table comes out of Asa 700 uh

00:41:44.920 --> 00:41:48.160
705 sorry and so I'm just going to lean

00:41:48.160 --> 00:41:49.560
over here because I want to write some

00:41:49.560 --> 00:41:52.680
numbers here so Step One is this step

00:41:52.680 --> 00:41:54.280
over

00:41:54.280 --> 00:41:57.280
here all right the first thing I want to

00:41:57.280 --> 00:41:59.400
do is find out why I'm not giving an

00:41:59.400 --> 00:42:01.839
unqualified opinion number one the

00:42:01.839 --> 00:42:04.359
financial report is materially misstated

00:42:04.359 --> 00:42:06.880
that is essentially saying management

00:42:06.880 --> 00:42:09.520
are not being

00:42:09.640 --> 00:42:12.800
truthful about something all right so

00:42:12.800 --> 00:42:14.880
they they're understating a number

00:42:14.880 --> 00:42:16.720
they're failing to make a disclosure

00:42:16.720 --> 00:42:19.000
they're just lying about something all

00:42:19.000 --> 00:42:21.520
right the second one which is this one

00:42:21.520 --> 00:42:24.079
here is that we cannot get enough

00:42:24.079 --> 00:42:27.599
evidence all right so not

00:42:27.599 --> 00:42:30.079
enough

00:42:30.480 --> 00:42:32.760
evidence this is a bit like Donald Trump

00:42:32.760 --> 00:42:35.359
refusing to uh release his tax returns

00:42:35.359 --> 00:42:36.800
can't make an opinion if I don't have

00:42:36.800 --> 00:42:40.319
any information so Step One is I look at

00:42:40.319 --> 00:42:42.280
well what are the two reasons why I

00:42:42.280 --> 00:42:44.640
might go away from the

00:42:44.640 --> 00:42:48.040
unqualified step two is I need to look

00:42:48.040 --> 00:42:50.480
at the severity and there's two terms

00:42:50.480 --> 00:42:53.000
here material but not pervasive or

00:42:53.000 --> 00:42:55.240
material and pervasive for material

00:42:55.240 --> 00:42:56.559
means it's important enough that we

00:42:56.559 --> 00:42:59.119
think shareholders should know about it

00:42:59.119 --> 00:43:00.760
but not pervasive and I'm going to

00:43:00.760 --> 00:43:02.200
introduce you to two different

00:43:02.200 --> 00:43:03.760
characters here and I didn't name these

00:43:03.760 --> 00:43:05.160
guys actually one of my other lectures

00:43:05.160 --> 00:43:06.599
did

00:43:06.599 --> 00:43:10.359
so here we have

00:43:10.440 --> 00:43:13.559
Norman Norman the

00:43:13.559 --> 00:43:15.440
non

00:43:15.440 --> 00:43:17.640
pervasive

00:43:17.640 --> 00:43:20.839
slug all right and so Norman's there

00:43:20.839 --> 00:43:22.400
because if you imagine your financial

00:43:22.400 --> 00:43:24.720
statements let me pick a different color

00:43:24.720 --> 00:43:26.720
here so imagine you've got your

00:43:26.720 --> 00:43:29.200
financial Cal statements and all of your

00:43:29.200 --> 00:43:30.240
different

00:43:30.240 --> 00:43:33.640
accounts here if you plong to Norman on

00:43:33.640 --> 00:43:35.079
one of

00:43:35.079 --> 00:43:39.760
those all right and you said okay Norman

00:43:39.760 --> 00:43:43.359
is right here Norman's only can self

00:43:43.359 --> 00:43:45.599
contained right he's only in a small

00:43:45.599 --> 00:43:47.920
part of the financial statements so

00:43:47.920 --> 00:43:50.240
Norman is the situation where we have

00:43:50.240 --> 00:43:52.480
either something not truthful or not

00:43:52.480 --> 00:43:56.040
enough evidence in just one spot and in

00:43:56.040 --> 00:43:58.839
that case we give an opinion called a

00:43:58.839 --> 00:44:00.280
qualified

00:44:00.280 --> 00:44:04.599
opinion okay now the second person I'm

00:44:04.599 --> 00:44:07.400
going to introduce you

00:44:07.400 --> 00:44:09.920
to let me make sure my pen is a bit

00:44:09.920 --> 00:44:14.520
smaller maybe I'll type here we go

00:44:14.520 --> 00:44:16.440
is

00:44:16.440 --> 00:44:20.240
Perry the pervasive

00:44:20.240 --> 00:44:22.480
octopus and I'd always use the octopus

00:44:22.480 --> 00:44:24.559
but i' never named him and then Nelson

00:44:24.559 --> 00:44:26.839
who who does our night classes said we

00:44:26.839 --> 00:44:29.559
need to give the octopus a name so his

00:44:29.559 --> 00:44:30.800
name is

00:44:30.800 --> 00:44:34.160
Perry so if I took Perry and I put Perry

00:44:34.160 --> 00:44:35.599
on the financial

00:44:35.599 --> 00:44:38.119
statements as my

00:44:38.119 --> 00:44:41.119
octopus all

00:44:41.119 --> 00:44:44.319
right there's his body there's his

00:44:44.319 --> 00:44:46.480
little

00:44:46.480 --> 00:44:48.680
legs everywhere oh that's not that's a

00:44:48.680 --> 00:44:50.800
really you obviously I'm not you're not

00:44:50.800 --> 00:44:53.359
coming for the art but the idea with

00:44:53.359 --> 00:44:56.640
Perry is that his little tentacles reach

00:44:56.640 --> 00:44:59.000
far and wide across the financial

00:44:59.000 --> 00:45:01.040
statements so that is what we call

00:45:01.040 --> 00:45:03.319
pervasive all right there's lots of

00:45:03.319 --> 00:45:06.559
tentacles of Errors so if I have errors

00:45:06.559 --> 00:45:08.119
in the financial statements and I have

00:45:08.119 --> 00:45:09.559
lots of them across lots of different

00:45:09.559 --> 00:45:11.280
areas I say I'm going to give an adverse

00:45:11.280 --> 00:45:13.440
opinion like this is bad this is the

00:45:13.440 --> 00:45:14.920
signal to shareholders that management

00:45:14.920 --> 00:45:17.040
aren't being truthful on a range of

00:45:17.040 --> 00:45:19.960
things if I can't get enough information

00:45:19.960 --> 00:45:22.760
over a lot of different areas then

00:45:22.760 --> 00:45:24.200
Perry's going to say give me a

00:45:24.200 --> 00:45:26.520
disclaimer of an opinion and disclaimer

00:45:26.520 --> 00:45:28.520
means that I'm not actually giving an

00:45:28.520 --> 00:45:30.800
opinion at all it's no

00:45:30.800 --> 00:45:35.040
opinion all right so you've got Norman

00:45:35.040 --> 00:45:36.480
and you've got

00:45:36.480 --> 00:45:39.160
Perry okay and a lot of students even

00:45:39.160 --> 00:45:41.440
draw the little animals that's cool um

00:45:41.440 --> 00:45:42.960
but that's a way to figure out the

00:45:42.960 --> 00:45:45.760
different sorts of modified audit

00:45:45.760 --> 00:45:47.559
reports when I say I'm not going to give

00:45:47.559 --> 00:45:49.839
a an unqualified I think something's

00:45:49.839 --> 00:45:52.599
wrong then there's my options right

00:45:52.599 --> 00:45:55.359
there

00:45:55.359 --> 00:45:58.640
now okay

00:45:58.640 --> 00:46:01.880
sometimes everything is truthful I have

00:46:01.880 --> 00:46:04.839
an unmodified or unqualified report but

00:46:04.839 --> 00:46:06.920
I want to say shareholders I want to

00:46:06.920 --> 00:46:08.880
draw your attention to some extra

00:46:08.880 --> 00:46:13.400
information and I do that using an

00:46:13.400 --> 00:46:15.680
emphasis of matter paragraph what color

00:46:15.680 --> 00:46:19.119
pen am I using oh let's change that to

00:46:19.119 --> 00:46:22.520
Blue all right I use an emphasis of

00:46:22.520 --> 00:46:25.200
matter paragraph sometimes shortened to

00:46:25.200 --> 00:46:27.920
an eoom

00:46:27.920 --> 00:46:29.760
okay now the emphasis of matter

00:46:29.760 --> 00:46:33.440
paragraph says everything is fine but I

00:46:33.440 --> 00:46:36.119
just want to draw your attention to a

00:46:36.119 --> 00:46:37.880
new joint venture the company might be

00:46:37.880 --> 00:46:40.880
involved in some unusual accounting

00:46:40.880 --> 00:46:42.520
about something that is a little bit

00:46:42.520 --> 00:46:46.040
different um that we've found a mistake

00:46:46.040 --> 00:46:47.599
in the previous report and we're now

00:46:47.599 --> 00:46:50.079
revising it and reissuing it so this is

00:46:50.079 --> 00:46:51.760
still saying that management is still

00:46:51.760 --> 00:46:54.240
being truthful but my emphasis of matter

00:46:54.240 --> 00:46:57.000
is just highlighting extra information

00:46:57.000 --> 00:46:59.480
to shareholders all right and in the

00:46:59.480 --> 00:47:01.839
bundle on UTS online you'll actually see

00:47:01.839 --> 00:47:04.480
some examples of the sorts of things

00:47:04.480 --> 00:47:07.000
that could go in emphasis of matter

00:47:07.000 --> 00:47:10.160
probably the biggest one is uh emphasis

00:47:10.160 --> 00:47:12.559
of matter about going concerned do we

00:47:12.559 --> 00:47:15.040
understand the concept of going concern

00:47:15.040 --> 00:47:17.839
yes hopefully that we expect companies

00:47:17.839 --> 00:47:20.359
to continue in the future if the company

00:47:20.359 --> 00:47:22.359
is experiencing financial

00:47:22.359 --> 00:47:24.960
distress but they are being truthful

00:47:24.960 --> 00:47:27.040
about their financial distress so they

00:47:27.040 --> 00:47:29.880
showing a loss they're showing lots of

00:47:29.880 --> 00:47:32.480
uh debts and not many assets then we can

00:47:32.480 --> 00:47:34.359
still give them the big tick in the

00:47:34.359 --> 00:47:36.400
financial report because they're being

00:47:36.400 --> 00:47:38.520
truthful but we might want to say hey

00:47:38.520 --> 00:47:40.400
shareholders there are some financial

00:47:40.400 --> 00:47:42.559
difficulties at this firm we do need to

00:47:42.559 --> 00:47:46.160
warn you about those so that's important

00:47:46.160 --> 00:47:49.920
now this is new this is not going to be

00:47:49.920 --> 00:47:52.839
in any textbook um that you're looking

00:47:52.839 --> 00:47:54.720
at oh I think there's a new textbook

00:47:54.720 --> 00:47:55.800
coming out at the end of this year that

00:47:55.800 --> 00:47:58.280
will'll have it in it new standard is

00:47:58.280 --> 00:48:02.119
Asa 701 about communicating key audit

00:48:02.119 --> 00:48:04.960
matters in the auditor's report and up

00:48:04.960 --> 00:48:07.640
until this point in

00:48:07.640 --> 00:48:10.640
time what the Auditors did was a black

00:48:10.640 --> 00:48:12.480
box the audit report simply said he's

00:48:12.480 --> 00:48:15.400
our opinion unmodified unqualified or

00:48:15.400 --> 00:48:18.599
one of the other options um and that was

00:48:18.599 --> 00:48:21.920
it now the Auditors must

00:48:21.920 --> 00:48:25.079
disclose parts of the processes that

00:48:25.079 --> 00:48:27.160
they go through to make their opinion

00:48:27.160 --> 00:48:29.000
all right now not for everything oh this

00:48:29.000 --> 00:48:30.480
is how we audited sales this is how we

00:48:30.480 --> 00:48:32.000
audited cash this is how we audited a

00:48:32.000 --> 00:48:34.920
property of plant and Equipment instead

00:48:34.920 --> 00:48:38.400
it's only for areas that they think

00:48:38.400 --> 00:48:41.240
there was significant judgment or that

00:48:41.240 --> 00:48:43.119
they found particularly difficult which

00:48:43.119 --> 00:48:47.559
they call Key audit matters or

00:48:48.480 --> 00:48:51.480
k all right

00:48:51.480 --> 00:48:54.520
now the idea is to have increased

00:48:54.520 --> 00:48:57.359
transparency over decision- making if I

00:48:57.359 --> 00:49:00.520
know how Auditors made a difficult

00:49:00.520 --> 00:49:02.880
decision about writing down an

00:49:02.880 --> 00:49:06.680
intangible asset then that allows me to

00:49:06.680 --> 00:49:08.000
interpret the information in the

00:49:08.000 --> 00:49:10.040
financial report with a little bit more

00:49:10.040 --> 00:49:12.079
clarity so this is about trying to make

00:49:12.079 --> 00:49:14.920
Auditors accountable and giving expert

00:49:14.920 --> 00:49:16.640
uses of financial statements more

00:49:16.640 --> 00:49:18.400
information now I'm pretty sure the key

00:49:18.400 --> 00:49:20.400
audit matters my mom and dad are still

00:49:20.400 --> 00:49:22.319
going to gloss over and be like oh

00:49:22.319 --> 00:49:24.400
whatever right they look at the glossy

00:49:24.400 --> 00:49:25.960
front part of the annual report with

00:49:25.960 --> 00:49:28.960
smiling employees and graphs that go up

00:49:28.960 --> 00:49:30.240
they're not really looking at the the

00:49:30.240 --> 00:49:33.200
tricky bit at the back but your share

00:49:33.200 --> 00:49:35.920
analysts your fun

00:49:35.920 --> 00:49:38.119
managers um those people are going to be

00:49:38.119 --> 00:49:39.359
looking at the key audit matters and

00:49:39.359 --> 00:49:41.880
saying okay well this is an account like

00:49:41.880 --> 00:49:44.319
intangibles that has a lot of discretion

00:49:44.319 --> 00:49:46.599
by managers and the Auditors how did

00:49:46.599 --> 00:49:49.839
they handle different opinions how did

00:49:49.839 --> 00:49:52.160
they handle a standard that was really

00:49:52.160 --> 00:49:53.680
you could do a couple of different

00:49:53.680 --> 00:49:57.160
things now this must come in for all

00:49:57.160 --> 00:50:00.240
Financial years uh after the 31st of

00:50:00.240 --> 00:50:02.640
December at the end of this year however

00:50:02.640 --> 00:50:05.240
we have three firms who are early

00:50:05.240 --> 00:50:08.760
adopters QBE Insurance ccka which are

00:50:08.760 --> 00:50:11.359
the medical implants and the Australian

00:50:11.359 --> 00:50:12.960
stock exchange limited because the stock

00:50:12.960 --> 00:50:14.839
exchange is a public entity they've

00:50:14.839 --> 00:50:17.119
actually gone ahead um I'll include some

00:50:17.119 --> 00:50:18.640
links so that you can look at the actual

00:50:18.640 --> 00:50:21.280
key audit matters um and over the next

00:50:21.280 --> 00:50:22.799
coming weeks I'm going to make a video

00:50:22.799 --> 00:50:24.760
where I actually walk through their

00:50:24.760 --> 00:50:26.440
financial statements and talk a little

00:50:26.440 --> 00:50:29.520
bit about what goes into these

00:50:29.520 --> 00:50:32.240
Kam at the moment firms can write a lot

00:50:32.240 --> 00:50:34.880
or they can write a little um kamam

00:50:34.880 --> 00:50:38.000
first came in in the UK or here's the

00:50:38.000 --> 00:50:39.400
requirements that says what they need to

00:50:39.400 --> 00:50:42.880
do it's not very exciting um but there

00:50:42.880 --> 00:50:45.319
is a risk there's nothing to say how

00:50:45.319 --> 00:50:47.040
many key audit matters the auditor needs

00:50:47.040 --> 00:50:49.520
to describe and when this was first

00:50:49.520 --> 00:50:51.599
introduced and the first place it came

00:50:51.599 --> 00:50:53.640
up was in the UK

00:50:53.640 --> 00:50:58.480
about 2012 I think it it's started

00:50:58.480 --> 00:51:01.000
rollsroyce and I think it was KPMG at

00:51:01.000 --> 00:51:05.240
the time wrote something like 12 pages

00:51:05.240 --> 00:51:08.240
on key audit matters in tiny tiny tiny

00:51:08.240 --> 00:51:09.640
font it was a lot of

00:51:09.640 --> 00:51:12.680
information the very same year Vodaphone

00:51:12.680 --> 00:51:15.640
wrote about two pages uh the audit of a

00:51:15.640 --> 00:51:18.200
vone in the UK wrote about two pages on

00:51:18.200 --> 00:51:20.920
key audit matters both were deemed to be

00:51:20.920 --> 00:51:23.359
compliant with the standard so what we

00:51:23.359 --> 00:51:25.119
worry about is something that we call

00:51:25.119 --> 00:51:28.000
boiler plating so the audit partner is

00:51:28.000 --> 00:51:30.640
meant to really describe the tricky

00:51:30.640 --> 00:51:33.160
decision-making per processes they went

00:51:33.160 --> 00:51:36.440
through to look at auditing this really

00:51:36.440 --> 00:51:38.799
difficult part of the firm but what we

00:51:38.799 --> 00:51:41.240
worry about is that firms will have

00:51:41.240 --> 00:51:44.280
standard lines that they will use for

00:51:44.280 --> 00:51:46.319
different things and that won't provide

00:51:46.319 --> 00:51:48.960
too much information it'll just be a

00:51:48.960 --> 00:51:51.799
standardized line that might not say

00:51:51.799 --> 00:51:53.200
anything at all and sometimes the

00:51:53.200 --> 00:51:55.960
wording has been really really bizarre

00:51:55.960 --> 00:51:57.520
in one of the early ones I read from

00:51:57.520 --> 00:52:00.799
Rolls-Royce it said something about um

00:52:00.799 --> 00:52:04.359
the auditor is reasonably optimistic

00:52:04.359 --> 00:52:08.040
that Management's forecasts are based on

00:52:08.040 --> 00:52:10.400
reasonable assumptions of blah blah blah

00:52:10.400 --> 00:52:11.839
blah blah I'm like what does reasonably

00:52:11.839 --> 00:52:12.920
optimistic

00:52:12.920 --> 00:52:15.520
mean so there is going to be some issue

00:52:15.520 --> 00:52:18.920
about what we see um and I tell you that

00:52:18.920 --> 00:52:20.640
the auditing researchers and the

00:52:20.640 --> 00:52:22.799
linguists are all going to be looking at

00:52:22.799 --> 00:52:25.520
this information of this topic very uh

00:52:25.520 --> 00:52:27.960
closely all right oh and we're doing I'm

00:52:27.960 --> 00:52:30.160
ahead of time this is awesome so if you

00:52:30.160 --> 00:52:31.400
didn't get a subject outline they're

00:52:31.400 --> 00:52:33.040
down here at the front come grab one

00:52:33.040 --> 00:52:36.119
next week we start the weekly accessible

00:52:36.119 --> 00:52:39.400
quizzes your quizzes will start 5

00:52:39.400 --> 00:52:41.680
minutes past the start of your class

00:52:41.680 --> 00:52:44.319
time so my 9800 class in the morning

00:52:44.319 --> 00:52:47.040
quiz starts at 9:05 a.m. and if you're

00:52:47.040 --> 00:52:48.280
late that doesn't matter you don't get

00:52:48.280 --> 00:52:51.319
any extra time how do you prep you can

00:52:51.319 --> 00:52:52.799
look at the textbook there'll be some

00:52:52.799 --> 00:52:55.920
videos this lecture video will go up um

00:52:55.920 --> 00:52:58.200
and remember it's open

00:52:58.200 --> 00:53:01.160
book okay so bring as much stuff as you

00:53:01.160 --> 00:53:03.920
want you can use the internet and one

00:53:03.920 --> 00:53:08.160
other thing sh just one last thing make

00:53:08.160 --> 00:53:11.240
sure that the night before or the day

00:53:11.240 --> 00:53:12.559
before and I'm going to send you a

00:53:12.559 --> 00:53:14.839
reminder email about this that you can

00:53:14.839 --> 00:53:16.920
log into learning catalytics if you

00:53:16.920 --> 00:53:18.319
haven't written down your password

00:53:18.319 --> 00:53:20.200
somewhere make sure you write it down

00:53:20.200 --> 00:53:22.119
because the retrieve password function

00:53:22.119 --> 00:53:26.640
in LC takes 6 hours so if you need to

00:53:26.640 --> 00:53:28.359
reset your password you need to do it

00:53:28.359 --> 00:53:30.680
well ahead of time uh cuz there's no

00:53:30.680 --> 00:53:32.720
paper quizzes if you don't bring your

00:53:32.720 --> 00:53:35.319
device if you need a device or you don't

00:53:35.319 --> 00:53:37.079
have one come talk to me we do have

00:53:37.079 --> 00:53:40.160
spares you can borrow otherwise thank

00:53:40.160 --> 00:53:41.599
you for coming along to our first week

00:53:41.599 --> 00:53:45.520
and I will see you next week