0:00:01.120,0:00:03.439 Awesome. Alright. So welcome, everybody, 0:00:03.439,0:00:05.400 to Lecture 1. Who's excited to be here 0:00:05.400,0:00:06.919 for auditing? 0:00:06.919,0:00:09.440 Hey, those people down the front. 0:00:09.440,0:00:11.480 Woo hoo. And everyone else is like, "I'm 0:00:11.480,0:00:13.120 here because I have to be. It's in the 0:00:13.120,0:00:17.439 major." So hopefully, over the semester, 0:00:17.439,0:00:18.880 you'll get to learn a little bit about 0:00:18.880,0:00:21.279 what auditing is all about. Even if you 0:00:21.279,0:00:23.000 don't want to be an auditor, if you want 0:00:23.000,0:00:24.560 to work in business or you want to work 0:00:24.560,0:00:27.160 in marketing or human resources, then 0:00:27.160,0:00:28.720 we're going to look at some key concepts 0:00:28.720,0:00:30.400 that going to help you no matter what 0:00:30.400,0:00:32.159 sort of business career you're 0:00:32.159,0:00:34.200 after. And the other thing that we do 0:00:34.200,0:00:35.840 here as well is that we also have our 0:00:35.840,0:00:38.120 annotated lecture slides. So you'll also 0:00:38.120,0:00:39.960 see me writing and that sort of thing on 0:00:39.960,0:00:42.640 them. This is all captured on the video. 0:00:42.640,0:00:45.399 The video will go on to UTS online and 0:00:45.399,0:00:48.559 also gets uploaded to YouTube. Okay. So, 0:00:48.559,0:00:53.520 you'll get files and access both ways. 0:00:53.520,0:00:55.239 So we're going to cover a lot in 0:00:55.239,0:00:56.280 the first week. You already know about 0:00:56.280,0:01:00.079 the subject from the prep week stuff. You 0:01:00.079,0:01:01.640 know about learning analytics from 0:01:01.640,0:01:03.399 looking online and our assessment, so I'm 0:01:03.399,0:01:07.320 not going to go through those. Alright. 0:01:07.320,0:01:09.240 So we're going to cover two chapters out 0:01:09.240,0:01:10.880 of the textbook today. We're going to 0:01:10.880,0:01:12.720 cover, well, why the hell do we have an audit 0:01:12.720,0:01:14.640 in the first place? And then we're also 0:01:14.640,0:01:17.680 going to cover the idea of what is 0:01:17.680,0:01:22.240 the output or the final product of 0:01:22.240,0:01:24.119 our audit. So we're going to look at a 0:01:24.119,0:01:26.720 whole range of 0:01:26.720,0:01:29.159 different objectives. Let me just put my 0:01:29.159,0:01:32.360 highlighter on here. Okay. Is my 0:01:32.360,0:01:34.119 highlighter the right size? No, I want 0:01:34.119,0:01:35.560 this 0:01:35.560,0:01:37.600 one. Alright. So we're going to look at 0:01:37.600,0:01:40.600 some basic stuff about describing what 0:01:40.600,0:01:43.280 assurance is all about. Why audit is 0:01:43.280,0:01:45.880 important in regards to reducing the 0:01:45.880,0:01:47.680 risk of shareholders, the idea of 0:01:47.680,0:01:49.640 information risk. We're going to look 0:01:49.640,0:01:51.479 at describing auditing, which is one 0:01:51.479,0:01:53.640 small subset of assurance. We're going to 0:01:53.640,0:01:55.600 look at the difference between auditing 0:01:55.600,0:01:57.719 and accounting. We're going to look at 0:01:57.719,0:01:59.439 some types of audits and some different 0:01:59.439,0:02:01.520 types of audit firms that provide them, 0:02:01.520,0:02:03.000 and the big four 0:02:03.000,0:02:05.079 firms. We're going to look at what the 0:02:05.079,0:02:08.038 professional bodies do, so CA and CPA. 0:02:08.038,0:02:09.520 We're going to look at the auditing 0:02:09.520,0:02:11.080 standards and why they're important to 0:02:11.080,0:02:12.920 us. We're going to look a little bit 0:02:12.920,0:02:15.000 at quality control, not too much, and then 0:02:15.000,0:02:16.840 also the basics of the Corporations Act. 0:02:16.840,0:02:18.160 So it sounds like a lot, but there's 0:02:18.160,0:02:21.360 actually just a few basic key concepts. 0:02:21.360,0:02:24.360 Now, in the lectures and in the lecture 0:02:24.360,0:02:26.920 notes, I pull out the most important 0:02:26.920,0:02:28.200 things that I want you to learn from the 0:02:28.200,0:02:30.120 textbook. Now, there are still going to be 0:02:30.120,0:02:31.440 some things in the textbook that I would 0:02:31.440,0:02:33.400 like you to read, but the things I think 0:02:33.400,0:02:35.040 are most important are the things that 0:02:35.040,0:02:36.440 are going to be in the lecture notes and 0:02:36.440,0:02:39.159 the things I'm going to discuss. And then 0:02:39.159,0:02:41.400 out of those, the things that I think are 0:02:41.400,0:02:43.280 key or most important are going to be 0:02:43.280,0:02:46.239 the things that will come up in the 0:02:46.239,0:02:49.760 quizzes each week. Alright? So that'll 0:02:49.760,0:02:51.720 give you a guide as to what I think is 0:02:51.720,0:02:54.920 most important when it comes to exam 0:02:54.920,0:02:58.080 prep. So if there's you know a whole 0:02:58.080,0:03:00.239 section in the textbook that I don't 0:03:00.239,0:03:01.760 really touch on, you might want to have a 0:03:01.760,0:03:04.000 read of it just for background but not 0:03:04.000,0:03:05.640 go too in-depth. 0:03:05.640,0:03:07.560 Alright. So what's our first 0:03:07.560,0:03:11.000 objective? What the hell is assurance? So 0:03:11.000,0:03:13.760 assurance is about having someone 0:03:13.760,0:03:17.000 independent, and that's us, the auditor, being 0:03:17.000,0:03:20.480 objective, trying to improve the quality 0:03:20.480,0:03:22.360 of information for decision 0:03:22.360,0:03:25.440 makers. Alright? We want decision makers 0:03:25.440,0:03:28.959 to have accurate, reliable information so 0:03:28.959,0:03:31.760 that they can make the best decisions 0:03:31.760,0:03:33.640 for themselves. And they could be 0:03:33.640,0:03:36.480 shareholders. They could be regulators. It 0:03:36.480,0:03:38.360 could be managers within the company. So 0:03:38.360,0:03:41.040 no matter who you are, you make decisions 0:03:41.040,0:03:43.120 based on information. Very rarely in 0:03:43.120,0:03:45.000 business do we make decisions just based 0:03:45.000,0:03:47.840 on flipping a coin or our gut. We're 0:03:47.840,0:03:50.159 going to need to use information. And so 0:03:50.159,0:03:51.840 the process of assurance is about 0:03:51.840,0:03:56.400 providing quality and then also the idea 0:03:56.400,0:04:00.400 of reliability 0:04:00.959,0:04:02.609 to that information. 0:04:03.330,0:04:05.877 Oops, -ilty. 0:04:06.557,0:04:07.766 Alright. So right down 0:04:07.766,0:04:08.753 here. 0:04:10.093,0:04:11.599 Oh, that's really bright. Can we 0:04:11.599,0:04:14.280 still see the slides if I leave the 0:04:14.280,0:04:16.639 curtains open? Yep. We've been in a 0:04:16.639,0:04:18.238 basement room this morning. I think just 0:04:18.238,0:04:20.160 having some natural light will help me 0:04:20.160,0:04:21.720 realize it's 0:04:21.720,0:04:24.360 daytime. So who can perform an audit? Our 0:04:24.360,0:04:25.960 public accounting firms, plus we're going 0:04:25.960,0:04:27.440 to look at some government auditors as 0:04:27.440,0:04:29.160 well. There's different levels of 0:04:29.160,0:04:30.360 assurance, which we'll talk about 0:04:30.360,0:04:33.800 in a future weeks. 0:04:33.800,0:04:36.759 Mostly, our assurance is provided on 0:04:36.759,0:04:39.919 historic information. So historic things 0:04:39.919,0:04:42.520 like the financial statements. We do see 0:04:42.520,0:04:45.960 some growth towards looking at forward- 0:04:45.960,0:04:47.680 looking information, but it's hard to 0:04:47.680,0:04:50.199 provide reliability on information about 0:04:50.199,0:04:52.440 the future. It's easy to prove that 0:04:52.440,0:04:54.120 information about the past, about 0:04:54.120,0:04:56.560 transactions that have already happened, 0:04:56.560,0:04:59.160 is reliable. It's a lot easier for us to 0:04:59.160,0:05:00.029 do. 0:05:01.639,0:05:03.039 So in terms of what we're going to be 0:05:03.039,0:05:06.720 studying this semester, our audit issues 0:05:06.720,0:05:08.600 are written communication. So we're going 0:05:08.600,0:05:10.759 to look at the audit report that 0:05:10.759,0:05:13.880 provides a conclusion about the 0:05:13.880,0:05:16.759 reliability of written assertions or 0:05:16.759,0:05:18.919 statements of another party. So let's 0:05:18.919,0:05:20.400 break that 0:05:20.400,0:05:22.479 down. We've got our audit of our 0:05:22.479,0:05:25.400 financial statements. Now, this one--oh, I almost 0:05:25.400,0:05:27.360 dropped my pen. This is what we're going 0:05:27.360,0:05:30.039 to spend our entire semester looking at. 0:05:30.039,0:05:31.680 Alright. Audits must be done under the 0:05:31.680,0:05:34.199 Corporations Act for every company 0:05:34.199,0:05:36.360 that's listed, and that requires an 0:05:36.360,0:05:38.520 audit where we give an opinion about 0:05:38.520,0:05:40.039 whether the financial statements are 0:05:40.039,0:05:43.319 true and fair, are a true representation 0:05:43.319,0:05:45.720 of the underlying economic transactions 0:05:45.720,0:05:47.120 and events that have occurred within 0:05:47.120,0:05:47.840 that 0:05:47.840,0:05:51.919 firm. The review is a slightly 0:05:51.919,0:05:54.479 lesser amount of assurance. So we're 0:05:54.479,0:05:56.960 giving very high levels of assurance in 0:05:56.960,0:05:59.680 the audit. We're giving less levels in 0:05:59.680,0:06:01.680 the review. And then there are other 0:06:01.680,0:06:02.960 services which we're not really going to 0:06:02.960,0:06:05.599 get into too much detail 0:06:05.599,0:06:07.560 on. 0:06:07.560,0:06:10.960 So, we can also have assurance over IT. 0:06:10.960,0:06:13.599 So if you go onto PayPal or eBay, they 0:06:13.599,0:06:15.840 have assurance that the information you 0:06:15.840,0:06:18.720 send to them or you store with them is 0:06:18.720,0:06:21.880 securely kept, isn't passed on to 0:06:21.880,0:06:23.759 other people. So we can provide assurance 0:06:23.759,0:06:27.039 on anything. Alright. There's actually an 0:06:27.039,0:06:30.400 assurance service that exists over lotto. 0:06:30.400,0:06:33.000 So we have the lotto balls that go into 0:06:33.000,0:06:35.240 Powerball, etc. There are actually 0:06:35.240,0:06:37.360 auditors whose job it is to make sure 0:06:37.360,0:06:39.680 that every single Powerball or lotto 0:06:39.680,0:06:43.400 ball is exactly the same size, is exactly 0:06:43.400,0:06:46.440 the same weight, and is exactly round. And 0:06:46.440,0:06:48.400 that security processes over those mean 0:06:48.400,0:06:50.120 that you can't manipulate the lotto 0:06:50.120,0:06:51.720 balls in any way to get a particular 0:06:51.720,0:06:54.280 outcome. So we could provide assurance 0:06:54.280,0:06:56.080 over anything. And it's the New South Wales 0:06:56.080,0:06:58.080 state government that provides assurance 0:06:58.080,0:07:00.280 over the lotteries, 0:07:00.280,0:07:02.240 but you could have assurance over a 0:07:02.240,0:07:04.759 range of different processes and 0:07:04.759,0:07:07.319 information as well. So if you jump onto 0:07:07.319,0:07:09.560 PolitiFact, which is a political 0:07:09.560,0:07:12.000 fact-checking website, you'll discover 0:07:12.000,0:07:15.560 that I think less than 3% of all Donald 0:07:15.560,0:07:19.160 Trump's statements can actually be assured 0:07:19.160,0:07:22.360 or be reliable. So he says 97% of stuff 0:07:22.360,0:07:24.599 that's not reliable. But you can 0:07:24.599,0:07:26.039 provide assurance on 0:07:26.039,0:07:29.319 anything. So what we're looking at is 0:07:29.319,0:07:32.520 this very small bit here. Alright? 0:07:32.520,0:07:34.160 So there's assurance of all sorts of 0:07:34.160,0:07:36.000 different areas. We've got consulting and 0:07:36.000,0:07:38.400 non-assurance services. I can provide 0:07:38.400,0:07:41.680 assurance over all sorts of IT 0:07:41.680,0:07:43.919 systems, but we're going to be looking 0:07:43.919,0:07:46.280 at just this little bit here, the audit 0:07:46.280,0:07:49.120 of the financial statements. And that is 0:07:49.120,0:07:51.560 what drives most of our big four firms. 0:07:51.560,0:07:55.080 Big revenues, and large proportions of 0:07:55.080,0:07:58.120 staff just involved in this little 0:07:58.120,0:08:01.039 component. So what is the idea about 0:08:01.039,0:08:04.199 information risk? Right? The risk that the 0:08:04.199,0:08:06.840 information I have might not be suitable 0:08:06.840,0:08:09.560 for my decision-making purposes. And that 0:08:09.560,0:08:12.560 risk comes about, well, the possibility 0:08:12.560,0:08:15.639 that information was made on a 0:08:15.639,0:08:17.199 decision that was made on information that 0:08:17.199,0:08:19.800 was inaccurate. I'll give you an example 0:08:19.800,0:08:21.360 of information 0:08:21.360,0:08:25.039 risk. You'll meet my son on some of 0:08:25.039,0:08:27.560 our audit slides. We affectionately 0:08:27.560,0:08:30.440 call him Audit Junior. And he's 0:08:30.440,0:08:32.080 come to every single open day since he 0:08:32.080,0:08:34.360 was born. And I'm starting to get 0:08:34.360,0:08:35.919 him to the point where we're going to 0:08:35.919,0:08:37.279 start training him up to talk in our 0:08:37.279,0:08:40.719 audit videos. But when he was one, I sent 0:08:40.719,0:08:43.279 out invitations for his first birthday, 0:08:43.279,0:08:45.080 and I put two numbers on there for 0:08:45.080,0:08:47.600 people to RSVP. I left my mobile number, 0:08:47.600,0:08:49.680 and I left my husband's mobile 0:08:49.680,0:08:51.959 number. And I 0:08:51.959,0:08:54.640 assumed that if my people had called my 0:08:54.640,0:08:57.320 husband and said we're coming, I assumed 0:08:57.320,0:08:58.600 that he was going to pass that 0:08:58.600,0:09:00.320 information on to me. 0:09:00.320,0:09:02.320 So I made all these plans for how many 0:09:02.320,0:09:04.279 people and how much catering and how 0:09:04.279,0:09:06.640 many party bags and all the rest of it 0:09:06.640,0:09:09.920 based on the people that had RSVP'd to me 0:09:09.920,0:09:12.760 and the assumption that he was going to 0:09:12.760,0:09:15.160 tell me if anyone had contacted him and 0:09:15.160,0:09:16.560 said that they were going to 0:09:16.560,0:09:19.920 go. Bad assumption. So I made all these 0:09:19.920,0:09:22.120 decisions. And then two days before the 0:09:22.120,0:09:23.880 party, I said to him, "Oh, look, I'm really 0:09:23.880,0:09:26.360 surprised that so and so is not coming." 0:09:26.360,0:09:28.200 And he said, "Oh, no. They sent me a text 0:09:28.200,0:09:30.920 message. They're coming." And I said, "Well, why 0:09:30.920,0:09:33.399 didn't you tell me?" He goes, "I thought you 0:09:33.399,0:09:35.079 would have 0:09:35.079,0:09:38.040 asked." So two days before, suddenly I have 0:09:38.040,0:09:40.440 like 20 more people coming to this party, 0:09:40.440,0:09:42.800 but I'd made a decision based on 0:09:42.800,0:09:45.040 information that was inaccurate. Now all 0:09:45.040,0:09:46.320 it meant was that I had to go out and 0:09:46.320,0:09:48.320 buy more food, and I was severely 0:09:48.320,0:09:49.760 stressed out, and I made him decorate 0:09:49.760,0:09:53.320 like hundreds of cupcakes for the extra 0:09:53.320,0:09:55.680 people. And that wasn't life-threatening 0:09:55.680,0:09:57.640 or it wasn't going to bankrupt a 0:09:57.640,0:10:00.480 business, but I made a decision based on 0:10:00.480,0:10:02.640 bad information. It wasn't complete. It 0:10:02.640,0:10:04.399 didn't have everything that I was 0:10:04.399,0:10:06.959 looking for. So if I'm doing this in a 0:10:06.959,0:10:09.680 business, I might make decisions 0:10:09.680,0:10:12.279 about a whole range of different things. 0:10:12.279,0:10:16.839 What raw materials to buy? What prices 0:10:16.839,0:10:18.959 I'm going to set for my products? 0:10:18.959,0:10:22.160 Alright. Am I going to offer any 0:10:22.160,0:10:25.839 discounts? I might make changes based 0:10:25.839,0:10:30.720 on manufacturing or marketing. 0:10:30.720,0:10:32.959 And if I make those decisions based on 0:10:32.959,0:10:34.959 the wrong information, that could have 0:10:34.959,0:10:38.000 serious consequences for my company. Now, 0:10:38.000,0:10:39.800 if I'm a 0:10:39.800,0:10:42.279 shareholder, then what are my decisions 0:10:42.279,0:10:44.519 about? My decisions are about whether to-- 0:10:44.519,0:10:46.120 whoops. 0:10:46.120,0:10:47.720 Undo. 0:10:47.720,0:10:49.140 Buy, 0:10:49.140,0:10:53.080 sell, or hold my 0:10:53.080,0:10:55.760 investment. Right? and if I don't have 0:10:55.760,0:10:58.800 accurate information as a shareholder, 0:10:58.800,0:11:02.440 then I might make the wrong choice when 0:11:02.440,0:11:04.360 it comes to doing that decision. So 0:11:04.360,0:11:06.720 there's risk that our information might 0:11:06.720,0:11:09.839 not be appropriate. So the reasons that we have 0:11:09.839,0:11:12.639 risk of information: remoteness 0:11:12.639,0:11:15.519 between the 0:11:16.000,0:11:19.639 user and management. I own shares in Woolworths. 0:11:19.639,0:11:21.240 I can't really go up to Woolworths 0:11:21.240,0:11:23.720 and say, "Hey, tell me how to cash flow is 0:11:23.720,0:11:26.240 going. How many issues of a going concern? 0:11:26.240,0:11:27.880 Which of the stores are not performing 0:11:27.880,0:11:30.240 well?" So I don't really know what's going 0:11:30.240,0:11:33.000 on inside the business. The provider of 0:11:33.000,0:11:34.760 the information is usually 0:11:34.760,0:11:37.079 management. And agency theory tells us 0:11:37.079,0:11:39.000 that they're biased. No manager wants to 0:11:39.000,0:11:41.519 say, "Hey, I did a sucky job this year, but 0:11:41.519,0:11:43.560 you should still pay me a bonus." They 0:11:43.560,0:11:45.200 want to make themselves look fantastic. 0:11:45.200,0:11:46.839 So there's always the bias that they're 0:11:46.839,0:11:49.000 going to present information in a way 0:11:49.000,0:11:52.320 that maximizes their own wealth under 0:11:52.320,0:11:54.839 agency 0:11:57.320,0:11:59.720 theory. Alright. There's lots 0:11:59.720,0:12:02.480 and lots and lots of data. Hundreds or 0:12:02.480,0:12:05.120 thousands or millions of transactions. 0:12:05.120,0:12:06.399 How do we know which ones are correct and 0:12:06.399,0:12:08.680 which ones are not correct? And then 0:12:08.680,0:12:12.160 there's complex transactions between 0:12:12.160,0:12:14.160 different companies within the same 0:12:14.160,0:12:16.600 company, across different borders, in 0:12:16.600,0:12:19.760 different jurisdictions, joint ventures, 0:12:19.760,0:12:22.360 partial subsidiaries. It can get really 0:12:22.360,0:12:26.079 complicated. Right? My parents have a 0:12:26.079,0:12:28.480 whole lot of shares. They're retired. And 0:12:28.480,0:12:29.959 my mom's a science 0:12:29.959,0:12:31.720 teacher. And I said, "Well, you know, what 0:12:31.720,0:12:33.040 are you looking for in the financial 0:12:33.040,0:12:34.600 statements? You know, what do you look at 0:12:34.600,0:12:35.720 when you look at the numbers?" And she 0:12:35.720,0:12:38.160 said, "I don't know." Right? I'm looking for 0:12:38.160,0:12:40.160 positive numbers, not negative numbers, in 0:12:40.160,0:12:42.279 the profit. I'm looking for numbers that 0:12:42.279,0:12:44.560 go up. But she doesn't understand 0:12:44.560,0:12:46.560 anywhere near the complexity of 0:12:46.560,0:12:49.800 accounting that I do as a CA to be able 0:12:49.800,0:12:51.480 to interpret that information and know 0:12:51.480,0:12:53.639 whether it seems appropriate or not. So 0:12:53.639,0:12:56.079 the audit is there to minimize this 0:12:56.079,0:13:00.079 information risk, to act as the 0:13:00.079,0:13:01.639 advocate of shareholders to say, "Well, 0:13:01.639,0:13:03.320 really, we want information that is absolutely 0:13:03.320,0:13:05.330 true for decision-making. 0:13:05.330,0:13:07.079 So how could we reduce 0:13:07.079,0:13:09.399 information risk? We could get users to 0:13:09.399,0:13:11.399 try and verify information. That would be 0:13:11.399,0:13:13.079 really tough, especially at Woolies with 0:13:13.079,0:13:15.360 all of their shareholders. Not really 0:13:15.360,0:13:18.199 reliable. The user does share some risk 0:13:18.199,0:13:20.360 with management because they make a risk 0:13:20.360,0:13:23.839 when it comes to investing, but the 0:13:23.839,0:13:28.519 audit is the thing that we use to reduce 0:13:28.519,0:13:33.000 agency cost. Alright. So to 0:13:33.000,0:13:36.279 reduce the risk of 0:13:36.279,0:13:39.040 agency, we have an audit. We have the 0:13:39.040,0:13:41.480 auditors independently check 0:13:41.480,0:13:43.720 management's work to make sure that they 0:13:43.720,0:13:45.880 are telling the truth when it comes to 0:13:45.880,0:13:47.720 what they present to 0:13:47.720,0:13:50.040 shareholders. So here's my son. You can 0:13:50.040,0:13:52.000 see him there. He's pretty 0:13:52.000,0:13:55.279 cute. And for those people who are 0:13:55.279,0:13:57.000 wondering, I'm not just getting fat. I 0:13:57.000,0:13:59.360 am going to having a baby at the 0:13:59.360,0:14:01.040 beginning of next year. So we call him 0:14:01.040,0:14:04.560 Audit Junior, and we just recently 0:14:04.560,0:14:05.959 announced--well, I announced on my 0:14:05.959,0:14:08.000 Facebook page, for all the students 0:14:08.000,0:14:09.600 who are friends with me--that he's 0:14:09.600,0:14:12.040 getting a promotion to Audit Senior. So 0:14:12.040,0:14:13.600 we'll have a new Audit Junior coming 0:14:13.600,0:14:15.839 along. But when it comes to describing 0:14:15.839,0:14:18.440 auditing, I always use this picture. This 0:14:18.440,0:14:21.240 was only taken a few months ago. And I 0:14:21.240,0:14:25.360 say, "Is this the world's cutest kid?" Right? 0:14:25.360,0:14:27.880 Because every parent thinks that their 0:14:27.880,0:14:30.639 child is the cutest kid ever. Nobody-- 0:14:30.639,0:14:32.040 I haven't met a new parent that says, 0:14:32.040,0:14:33.360 "Well, look, actually my son or daughter 0:14:33.360,0:14:34.199 is a bit 0:14:34.199,0:14:37.079 ugly." Right? Oh, everybody's like, "Oh, how 0:14:37.079,0:14:39.040 adorable. How 0:14:39.040,0:14:41.360 cute." And the same with managers. Right? 0:14:41.360,0:14:42.839 Managers are going to say, "We are the 0:14:42.839,0:14:45.360 best ever." And when I meet your parents 0:14:45.360,0:14:47.600 at graduation, your parents are going to 0:14:47.600,0:14:51.959 say, "Look, wasn't my son just the best 0:14:51.959,0:14:54.240 student?" Sometimes, Iook. And to be 0:14:54.240,0:14:57.040 honest with you, I lie sometimes. So, you 0:14:57.040,0:14:58.759 know, students who were really great--I 0:14:58.759,0:14:59.560 say, "Yeah, 0:14:59.560,0:15:02.440 absolutely." And sometimes if, you know, 0:15:02.440,0:15:05.399 perhaps you weren't the most diligent, 0:15:05.399,0:15:08.079 dedicated student, I will say something 0:15:08.079,0:15:10.720 like, "Oh, you know, they really put in some 0:15:10.720,0:15:13.600 good effort." That's my sort of, you know, 0:15:13.600,0:15:15.839 safety statement 0:15:15.839,0:15:19.440 there. But how would we determine who is 0:15:19.440,0:15:21.240 the world's cutest 0:15:21.240,0:15:24.160 kid? How would we figure that out? That's 0:15:24.160,0:15:27.399 a claim I'm making. We would need to have 0:15:27.399,0:15:29.800 somebody independent come up with some set 0:15:29.800,0:15:32.759 of standards on child 0:15:32.759,0:15:35.199 cuteness to figure out whether he really 0:15:35.199,0:15:37.759 is the cutest kid or not. Now, when it 0:15:37.759,0:15:40.360 comes to financial statements, that's 0:15:40.360,0:15:42.120 really easy because we have our 0:15:42.120,0:15:44.839 accounting standards that tell us this 0:15:44.839,0:15:48.120 is what accounting should look like. And 0:15:48.120,0:15:49.560 so when we're trying to figure out, "Well, 0:15:49.560,0:15:51.319 are management telling the truth? Is this 0:15:51.319,0:15:53.800 the right set of financial statements? Is 0:15:53.800,0:15:55.040 this what we should be presenting to 0:15:55.040,0:15:57.519 shareholders?" then we use our double AASBs 0:15:57.519,0:16:00.440 to do that. Rodri will be back to tell 0:16:00.440,0:16:02.160 you all sorts of other hints and tips as 0:16:02.160,0:16:03.519 well about 0:16:03.519,0:16:05.360 auditing. So 0:16:05.360,0:16:09.639 auditing is the accumulation of evidence. 0:16:09.639,0:16:11.360 all right so evidence is really critical 0:16:11.360,0:16:14.040 because I shouldn't make a decision 0:16:14.040,0:16:16.000 without having some 0:16:16.000,0:16:20.079 evidence if you're sick or uh something 0:16:20.079,0:16:22.519 happens to you on the way to UNI then I 0:16:22.519,0:16:24.360 want evidence if you say look I miss the 0:16:24.360,0:16:26.120 quiz because I fell down a flight of 0:16:26.120,0:16:28.639 stairs and broke my leg I'm going to 0:16:28.639,0:16:31.079 have to see your broken leg and I'd want 0:16:31.079,0:16:33.120 some evidence that that was really the 0:16:33.120,0:16:36.880 case right so I'm technically a doctor 0:16:36.880,0:16:38.399 and um friends always ask me look could 0:16:38.399,0:16:40.319 you write me a doctor's note which I 0:16:40.319,0:16:43.920 can't do as a PhD sort of doctor but if 0:16:43.920,0:16:46.040 you apply for something you oh look you 0:16:46.040,0:16:47.839 know this is what's been going on I want 0:16:47.839,0:16:49.440 to see actual evidence to know that 0:16:49.440,0:16:51.399 that's the truth so just like on cop 0:16:51.399,0:16:53.120 shows before they charge somebody with 0:16:53.120,0:16:55.920 the crime they need evidence well we 0:16:55.920,0:16:58.199 need evidence as well to be able to make 0:16:58.199,0:16:59.839 our opinion 0:16:59.839,0:17:02.880 and determine the degree of 0:17:02.880,0:17:05.720 Correspondence between information which 0:17:05.720,0:17:07.880 for us is going to be our financial 0:17:07.880,0:17:09.599 statements let me put that in 0:17:09.599,0:17:12.039 red financial 0:17:12.039,0:17:15.679 statements and our established 0:17:15.679,0:17:18.280 criteria and our established 0:17:18.280,0:17:21.319 criteria are our 0:17:21.319,0:17:24.240 asbs all right so we're looking at 0:17:24.240,0:17:26.119 Management's information and what the 0:17:26.119,0:17:29.679 double asbs say it should be and um I 0:17:29.679,0:17:31.440 know would you guys have had Helen I 0:17:31.440,0:17:33.080 think last semester for accounting 0:17:33.080,0:17:35.120 standards so Helen would have taught you 0:17:35.120,0:17:37.640 how everything needs to be laid out how 0:17:37.640,0:17:40.000 all the calculations need to work so we 0:17:40.000,0:17:41.480 need to check that that's part of the 0:17:41.480,0:17:45.080 auditor's role so key things about the 0:17:45.080,0:17:47.760 audit we need to be competent we need to 0:17:47.760,0:17:49.559 have the right skills which is part of 0:17:49.559,0:17:52.039 what we're doing here at Uni and we need 0:17:52.039,0:17:56.039 to be independent as well all right so 0:17:56.039,0:17:57.840 competency is about having the right 0:17:57.840,0:18:00.400 skills and and then being independent is 0:18:00.400,0:18:03.159 about being 0:18:03.159,0:18:05.000 objective um and I'll give you an 0:18:05.000,0:18:08.679 example so many many many years ago um 0:18:08.679,0:18:10.440 my husband and I both met at an audit 0:18:10.440,0:18:12.520 firm so it was an audit firm 0:18:12.520,0:18:14.320 romance 0:18:14.320,0:18:16.679 and we were both working on different 0:18:16.679,0:18:18.960 audit clients um and one of my big 0:18:18.960,0:18:21.120 clients was QBE Insurance which we've 0:18:21.120,0:18:23.200 all would have seen on TV and they 0:18:23.200,0:18:27.080 sponsor some sporting teams Etc but he 0:18:27.080,0:18:31.480 left PWC and took a job at 0:18:31.480,0:18:34.520 QBE at that point I could no longer do 0:18:34.520,0:18:36.880 the audit because I was no longer 0:18:36.880,0:18:38.520 independent because I knew somebody that 0:18:38.520,0:18:41.440 worked there and part of his job was 0:18:41.440,0:18:43.320 consolidation of all of their 0:18:43.320,0:18:47.200 subsidiaries so if I discovered that he 0:18:47.200,0:18:49.360 had you know somehow stolen $10 million 0:18:49.360,0:18:51.520 from the company I probably wouldn't 0:18:51.520,0:18:54.120 have told anybody we would have you know 0:18:54.120,0:18:56.799 very quietly resigned from our jobs sold 0:18:56.799,0:18:58.919 our house and skipped out a 0:18:58.919,0:19:02.679 non-extradition country so we need to 0:19:02.679,0:19:05.480 have Auditors who are objective and 0:19:05.480,0:19:09.080 independent right to say that when some 0:19:09.080,0:19:11.360 we see something that's not quite right 0:19:11.360,0:19:13.640 we feel independent enough to put our 0:19:13.640,0:19:15.799 hands up and say oh I don't think this 0:19:15.799,0:19:17.840 should be happening or you know 0:19:17.840,0:19:19.600 management are not doing the right thing 0:19:19.600,0:19:20.559 so 0:19:20.559,0:19:22.559 Independence is the Cornerstone of 0:19:22.559,0:19:25.320 auditing you open any audit textbook and 0:19:25.320,0:19:27.360 I'm a bit of an audit nerd so I have 0:19:27.360,0:19:29.640 audit textbooks from the 0:19:29.640,0:19:31.400 1940s and 0:19:31.400,0:19:33.600 earlier um and there's no pictures no 0:19:33.600,0:19:35.080 diagrams it's all in color it's all 0:19:35.080,0:19:37.159 black and white just type text but they 0:19:37.159,0:19:39.320 all start with this idea that audit is 0:19:39.320,0:19:41.600 the Cornerstone sorry Independence is 0:19:41.600,0:19:43.919 the Cornerstone of being able to do that 0:19:43.919,0:19:46.559 audit to be independent just like when I 0:19:46.559,0:19:49.760 say my kid has got to be the cutest kid 0:19:49.760,0:19:52.320 I'm not independent so we would have to 0:19:52.320,0:19:55.880 find somebody who is an independent 0:19:55.880,0:19:58.799 expert in the Judgment of kid cuteness 0:19:58.799,0:20:01.559 to be able to make that 0:20:01.559,0:20:03.720 opinion all right so what do we need to 0:20:03.720,0:20:05.679 be able to do our audit we need to have 0:20:05.679,0:20:07.600 the information the financial statements 0:20:07.600,0:20:09.320 and our criteria which is our double 0:20:09.320,0:20:12.120 asbs that we talked about all right so 0:20:12.120,0:20:15.760 our financial statements and our double 0:20:15.760,0:20:18.720 asbs we need to be able to accumulate 0:20:18.720,0:20:19.960 evidence and we're actually going to 0:20:19.960,0:20:22.679 practice doing that designing ways to 0:20:22.679,0:20:25.240 collect evidence so just like on CSI 0:20:25.240,0:20:26.360 there's all these techniques for 0:20:26.360,0:20:29.280 collecting fingerprints and running DN 0:20:29.280,0:20:31.559 and taking a tire Triad and running it 0:20:31.559,0:20:34.880 through a database we also 0:20:34.880,0:20:37.840 have less cool procedures to collect 0:20:37.840,0:20:39.760 evidence so there's no like you know 0:20:39.760,0:20:41.960 Dart rooms with spotlights and 0:20:41.960,0:20:44.039 microscopes unfortunately Auditors 0:20:44.039,0:20:46.559 mostly just use our brains might use a 0:20:46.559,0:20:49.880 computer pen and some paper but we're 0:20:49.880,0:20:51.840 going to look at specific methods that 0:20:51.840,0:20:54.280 we've developed over time to collect 0:20:54.280,0:20:56.240 evidence we've talked about being 0:20:56.240,0:20:57.880 competent having the right skills and 0:20:57.880,0:20:59.360 being independent 0:20:59.360,0:21:02.559 and then providing a report so under the 0:21:02.559,0:21:03.880 corporations 0:21:03.880,0:21:06.880 act 0:21:06.919,0:21:09.120 oops I actually have to provide a 0:21:09.120,0:21:10.120 written 0:21:10.120,0:21:12.039 report that 0:21:12.039,0:21:15.440 says here is the outcome of the audit 0:21:15.440,0:21:18.440 yes management are telling the truth or 0:21:18.440,0:21:20.880 no they're not quite being truthful 0:21:20.880,0:21:22.279 about everything and here are the things 0:21:22.279,0:21:25.000 that they not being honest 0:21:25.000,0:21:27.080 about so what's the difference between 0:21:27.080,0:21:29.360 auditing and accounting the accounting 0:21:29.360,0:21:33.080 is the recording part of uh the business 0:21:33.080,0:21:35.960 process so they record summarize all the 0:21:35.960,0:21:38.240 debits and credits within the system and 0:21:38.240,0:21:40.480 then the Auditors are actually the ones 0:21:40.480,0:21:42.640 checking the accounting work so we're 0:21:42.640,0:21:43.760 going to go back and we're going to look 0:21:43.760,0:21:45.960 at the work of the accounts and say are 0:21:45.960,0:21:48.240 they doing the right 0:21:48.240,0:21:50.400 thing just going to move this over here 0:21:50.400,0:21:52.919 for a second all right so we have three 0:21:52.919,0:21:55.360 main types of audits uh the financial 0:21:55.360,0:21:56.679 statement the performance and the 0:21:56.679,0:21:58.600 compliance as I mentioned before 0:21:58.600,0:21:59.679 financial statement is the one that 0:21:59.679,0:22:01.440 we're going to be spending the most of 0:22:01.440,0:22:04.080 our time on the performance is about are 0:22:04.080,0:22:05.720 we doing things efficiently and 0:22:05.720,0:22:09.000 effectively within our business so uh we 0:22:09.000,0:22:11.880 might have a sales process or a complex 0:22:11.880,0:22:13.520 consolidation process and we can get an 0:22:13.520,0:22:15.559 auditor in to say is this the best way 0:22:15.559,0:22:17.559 to do this do we need to re-engineer our 0:22:17.559,0:22:20.039 business process and then the compliance 0:22:20.039,0:22:22.360 audit which is about following laws and 0:22:22.360,0:22:24.840 regulations um so is a company reporting 0:22:24.840,0:22:27.440 GST appropriately are they following 0:22:27.440,0:22:30.320 occupational health and safety um are 0:22:30.320,0:22:32.360 they doing anything else that requires a 0:22:32.360,0:22:34.480 specific law or regulation but we're 0:22:34.480,0:22:37.000 going to focus on that one up 0:22:37.000,0:22:40.080 there so there's some examples okay 0:22:40.080,0:22:41.799 different types of Auditors the public 0:22:41.799,0:22:43.360 accounting firms are the big four and 0:22:43.360,0:22:45.880 the second tier they do most of the 0:22:45.880,0:22:48.760 publicly listed companies um the auditor 0:22:48.760,0:22:50.880 general are the government 0:22:50.880,0:22:52.960 Auditors all right so the New South 0:22:52.960,0:22:55.159 Wales audit office and the auditor 0:22:55.159,0:22:57.760 general of Australia based in Cambra um 0:22:57.760,0:22:59.360 New South Wales auditor general will 0:22:59.360,0:23:02.320 audit state government 0:23:02.320,0:23:04.960 organizations um and the auditor general 0:23:04.960,0:23:07.559 will handle the audit for everything 0:23:07.559,0:23:09.039 else that's 0:23:09.039,0:23:11.880 Federal um so the auditor general audits 0:23:11.880,0:23:14.480 the Defense Force uh they're in charge 0:23:14.480,0:23:16.559 of the overall audit for 0:23:16.559,0:23:20.279 Telstra um center link um other big 0:23:20.279,0:23:21.919 government 0:23:21.919,0:23:24.559 departments we have Auditors for tax 0:23:24.559,0:23:27.039 that work specifically for the ATO um 0:23:27.039,0:23:29.440 but they're more likely to be lawyers 0:23:29.440,0:23:31.720 um and accountants uh not just 0:23:31.720,0:23:34.480 accountants and then internal Auditors 0:23:34.480,0:23:36.600 which focus on doing that compliance in 0:23:36.600,0:23:39.720 the performance audit so most big top 0:23:39.720,0:23:41.400 100 companies will have their own audit 0:23:41.400,0:23:45.080 internal audit team um so quantis the 0:23:45.080,0:23:47.840 Commonwealth Bank Coca-Cola will'll all 0:23:47.840,0:23:50.679 have teams who look at internal 0:23:50.679,0:23:52.080 improvements and making sure that 0:23:52.080,0:23:54.000 they're following the rules and 0:23:54.000,0:23:55.840 regulations and this is important 0:23:55.840,0:23:57.400 because they want to try and minimize 0:23:57.400,0:24:00.400 fines 0:24:01.320,0:24:02.840 all right because you could get a 0:24:02.840,0:24:04.799 government fine for not following a law 0:24:04.799,0:24:07.080 or a regulation appropriately you could 0:24:07.080,0:24:11.559 be sued it could create all sorts of 0:24:13.480,0:24:16.600 issues all right so let's look the big 0:24:16.600,0:24:19.880 firms um I worked for this one actually 0:24:19.880,0:24:21.679 well the predecessor for this one which 0:24:21.679,0:24:23.640 was Cooper and Li brand and then 0:24:23.640,0:24:27.960 PWC um so the big four audit probably I 0:24:27.960,0:24:30.919 think about 60% of the Australian stock 0:24:30.919,0:24:34.279 exchange and then these guys here pretty 0:24:34.279,0:24:38.120 much AIT the rest all right um so for 0:24:38.120,0:24:40.559 those people who are going to a later 0:24:40.559,0:24:43.000 afternoon toot and you'll have Kate or 0:24:43.000,0:24:45.159 you'll have Nicole um we actually have 0:24:45.159,0:24:47.159 an agreement with Grant thoron where 0:24:47.159,0:24:49.799 they actually send real life Auditors in 0:24:49.799,0:24:51.799 to teach tutorial so you'll get to hear 0:24:51.799,0:24:54.399 lots of stories from them uh the people 0:24:54.399,0:24:57.880 who are going to um who will have Ben 0:24:57.880,0:25:01.240 this after afternoon um in the 12:00 CH 0:25:01.240,0:25:04.039 and I think also the 1:31 uh Ben works 0:25:04.039,0:25:07.200 at a small local firm in terms of 0:25:07.200,0:25:09.840 auditing so he's got lots of experience 0:25:09.840,0:25:12.279 in doing much smaller audits which are 0:25:12.279,0:25:14.919 required under the corporations act um 0:25:14.919,0:25:17.480 so you've got a range of Staff with a 0:25:17.480,0:25:19.440 range of experience and this means that 0:25:19.440,0:25:21.520 Auditors exist at all sorts of different 0:25:21.520,0:25:24.279 levels so I recently did the audit for 0:25:24.279,0:25:26.320 ISC which is one of the University 0:25:26.320,0:25:29.120 student groups um AUD s happen for the 0:25:29.120,0:25:31.960 big ASX listed companies they happen for 0:25:31.960,0:25:35.080 large privately listed sorry for large 0:25:35.080,0:25:37.279 private companies and they also happen 0:25:37.279,0:25:39.360 for small companies that are required to 0:25:39.360,0:25:42.600 have audits under the corporations act 0:25:42.600,0:25:44.799 or maybe as part of Charity 0:25:44.799,0:25:48.240 regulations firms do audits um but just 0:25:48.240,0:25:49.720 of different sizes and of different 0:25:49.720,0:25:53.640 scales so the big four are so large and 0:25:53.640,0:25:56.200 so specialized that people specialize by 0:25:56.200,0:25:59.399 industry so you audit mining firms or 0:25:59.399,0:26:01.320 government firms or telecommunications 0:26:01.320,0:26:03.559 or financial services um my 0:26:03.559,0:26:05.960 specialization was financial services so 0:26:05.960,0:26:08.279 I didn't get to see much I always envied 0:26:08.279,0:26:09.440 the people that got to audit 0:26:09.440,0:26:11.240 manufacturing firms or mining firms 0:26:11.240,0:26:12.960 because you could go places and see real 0:26:12.960,0:26:15.399 things happening until one time I did 0:26:15.399,0:26:17.600 get put on the audit of Dairy Farmers 0:26:17.600,0:26:19.720 and that's not So Glamorous like milk 0:26:19.720,0:26:22.880 processing plants really don't smell 0:26:22.880,0:26:25.279 great um we did get to drink you know 0:26:25.279,0:26:26.799 you had access to the corporate fridge 0:26:26.799,0:26:28.320 so I could drink all the milk that I 0:26:28.320,0:26:30.320 could take though I'm Asian so I'm 0:26:30.320,0:26:31.919 partly lactose intolerance that doesn't 0:26:31.919,0:26:34.760 go down so well um but Dairy Farmers 0:26:34.760,0:26:36.279 made yogurt again it couldn't eat too 0:26:36.279,0:26:38.320 much of that uh but fruit juice I could 0:26:38.320,0:26:39.640 drink the fruit juice all day so that 0:26:39.640,0:26:42.000 was a good thing so the public 0:26:42.000,0:26:44.919 accounting firms big ones and small ones 0:26:44.919,0:26:47.600 provide audit services so that's a big 0:26:47.600,0:26:49.600 part of their bread and butter audit 0:26:49.600,0:26:50.760 Services 0:26:50.760,0:26:54.240 though are high 0:26:54.240,0:26:58.720 volume and low margin 0:26:59.320,0:27:01.080 that means you don't make a lot of money 0:27:01.080,0:27:02.240 off an 0:27:02.240,0:27:04.799 audit right it's it's not a really 0:27:04.799,0:27:07.440 profitable item to do but the reason 0:27:07.440,0:27:09.640 that you do an audit is so that you can 0:27:09.640,0:27:13.120 convince your client to hire you to do 0:27:13.120,0:27:15.799 other things like tax which can be a 0:27:15.799,0:27:18.039 little bit more lucrative and consulting 0:27:18.039,0:27:20.360 services that could be helping them 0:27:20.360,0:27:23.200 expand into a new market um choosing a 0:27:23.200,0:27:25.760 new information system um you get 0:27:25.760,0:27:28.679 different departments within your umm 0:27:28.679,0:27:30.919 within your audit firm to do that but 0:27:30.919,0:27:32.279 it's all about sort of growing the 0:27:32.279,0:27:35.520 bigger uh audit firm share so something 0:27:35.520,0:27:37.440 like management consulting services is 0:27:37.440,0:27:40.039 really high 0:27:40.360,0:27:42.640 margin and towards my the end of my 0:27:42.640,0:27:44.080 career I did a lot more management 0:27:44.080,0:27:47.679 consulting um and I remember back in 0:27:47.679,0:27:50.480 19 oh I think it was 0:27:50.480,0:27:54.760 99 we had a $20 million consulting job 0:27:54.760,0:27:56.039 with the Australian Broadcasting 0:27:56.039,0:27:58.279 Corporation just down the road 0:27:58.279,0:28:00.279 implementing new software and that was a 0:28:00.279,0:28:02.159 six-month project for $20 0:28:02.159,0:28:04.279 million so and you wouldn't earn 0:28:04.279,0:28:06.000 anywhere near that much on an audit 0:28:06.000,0:28:07.559 you'd probably earn a few million 0:28:07.559,0:28:09.159 dollars on an audit for about six to 8 0:28:09.159,0:28:12.360 weeks work um so there's definitely lots 0:28:12.360,0:28:14.000 of margin Aid 0:28:14.000,0:28:17.240 there now you find very few firms that 0:28:17.240,0:28:19.480 are in the sole proprietorship or the 0:28:19.480,0:28:22.240 partnership model that's because of the 0:28:22.240,0:28:24.720 idea of joint and several liability and 0:28:24.720,0:28:26.720 that would mean that if the partner of 0:28:26.720,0:28:28.000 the firm did something wrong and then 0:28:28.000,0:28:30.080 they they skipped out of town I would be 0:28:30.080,0:28:32.799 liable as one of the partners left over 0:28:32.799,0:28:36.200 the big four firms these days and most 0:28:36.200,0:28:37.760 of our second tier are almost all 0:28:37.760,0:28:39.519 Incorporated companies so while you have 0:28:39.519,0:28:41.679 Partners who are shareholders in The 0:28:41.679,0:28:43.960 Firm they're not Partners in the typical 0:28:43.960,0:28:46.360 sense of a a 0:28:46.360,0:28:48.279 partnership now in terms of the 0:28:48.279,0:28:50.399 hierarchy or the shape of an audit 0:28:50.399,0:28:53.880 firm previously they looked like 0:28:53.880,0:28:56.519 this all right so you had the partners 0:28:56.519,0:28:59.200 at the very top and then lots of junior 0:28:59.200,0:29:01.519 staff doing what we call grunt work 0:29:01.519,0:29:03.120 ticking and bashing or ticking and 0:29:03.120,0:29:06.559 flicking at the bottom what we're seeing 0:29:06.559,0:29:08.480 in terms of Trends and the data that's 0:29:08.480,0:29:09.880 coming out of 0:29:09.880,0:29:12.679 CA is that the audit firm is looking a 0:29:12.679,0:29:13.880 lot more 0:29:13.880,0:29:16.760 rectangular now um and that you're 0:29:16.760,0:29:19.600 having a lot less staff at the junior 0:29:19.600,0:29:21.120 levels and that comes from a number of 0:29:21.120,0:29:23.399 different reasons the first 0:29:23.399,0:29:26.600 one is 0:29:26.679,0:29:28.880 outsourcing or 0:29:28.880,0:29:32.760 offshoring um and that's especially you 0:29:32.760,0:29:34.480 scan a lot of audit documentation that 0:29:34.480,0:29:37.279 you would have had graduates um interns 0:29:37.279,0:29:39.519 doing a lot of ticking and checking all 0:29:39.519,0:29:41.399 of that gets scanned and then sent off 0:29:41.399,0:29:44.640 to India or you know Pakistan and they 0:29:44.640,0:29:46.440 do a whole lot of the audit checking 0:29:46.440,0:29:48.120 work for about a third the price 0:29:48.120,0:29:50.480 overnight so the amount of staff doing 0:29:50.480,0:29:53.480 that work is much less um and then we've 0:29:53.480,0:29:55.919 also seen a lot more automation so we're 0:29:55.919,0:29:58.159 using a lot more big data we're using a 0:29:58.159,0:30:00.399 lot more intelligent agents um and 0:30:00.399,0:30:03.480 artificial intelligence in audits so you 0:30:03.480,0:30:04.799 know the future is still looking bright 0:30:04.799,0:30:06.360 for auditing and auditing at this point 0:30:06.360,0:30:08.919 is not going to be replaced by machines 0:30:08.919,0:30:10.640 but there's a lot less at the bottom 0:30:10.640,0:30:12.760 level than there was 0:30:12.760,0:30:14.919 before what do the professional bodies 0:30:14.919,0:30:16.880 do they do a few different things they 0:30:16.880,0:30:18.440 help establish standards through the 0:30:18.440,0:30:20.720 auditing Standards Board they do a lot 0:30:20.720,0:30:22.760 of research and then they the biggest 0:30:22.760,0:30:24.600 one is education to make sure that once 0:30:24.600,0:30:27.480 you become a member you are continuously 0:30:27.480,0:30:31.279 up to date on latest auditing Trends and 0:30:31.279,0:30:33.480 changes within legislation especially at 0:30:33.480,0:30:34.960 the international 0:30:34.960,0:30:37.279 level now what about our auditing 0:30:37.279,0:30:38.919 standards our auditing standards are 0:30:38.919,0:30:40.679 called 0:30:40.679,0:30:43.080 ASAS all right and you can find those 0:30:43.080,0:30:48.919 free on the aub's website AAS 0:30:48.919,0:30:50.440 sb.gov 0:30:50.440,0:30:54.399 Au now remember our exam is open book so 0:30:54.399,0:30:56.320 you can bring in oh somebody has one of 0:30:56.320,0:30:58.880 these I'm just going to borrow this here 0:30:58.880,0:31:01.200 one of these handbooks if you want all 0:31:01.200,0:31:03.480 your standards in one book or you could 0:31:03.480,0:31:04.440 print them 0:31:04.440,0:31:06.880 out right and bring them into the exam 0:31:06.880,0:31:08.159 you can bring your textbook into the 0:31:08.159,0:31:11.399 exam you could bring anything you like 0:31:11.399,0:31:12.600 comic books if you think you're going to 0:31:12.600,0:31:14.440 have time at the end to you know have a 0:31:14.440,0:31:17.320 bit of a read um so you don't 0:31:17.320,0:31:19.320 necessarily need to buy the standards 0:31:19.320,0:31:21.200 book if you don't want to you can look 0:31:21.200,0:31:23.000 at them online and then print out the 0:31:23.000,0:31:24.880 sections that you think you'll need I 0:31:24.880,0:31:26.320 will actually tell you in the last week 0:31:26.320,0:31:27.480 of term which ones I think are going to 0:31:27.480,0:31:29.960 be key ones for the final exam so you 0:31:29.960,0:31:31.440 don't have to worry about 0:31:31.440,0:31:34.200 that so the 0:31:34.200,0:31:37.840 aasb issues the auditing standards and 0:31:37.840,0:31:39.679 uh we're internationally harmonized so 0:31:39.679,0:31:41.440 they come down from the international 0:31:41.440,0:31:44.960 auditing Standards Board and the key is 0:31:44.960,0:31:46.519 that they are 0:31:46.519,0:31:48.600 mandatory all right so while some 0:31:48.600,0:31:51.000 companies or some countries sorry the 0:31:51.000,0:31:54.000 auditing standards say the auditor 0:31:54.000,0:31:56.639 May our auditing standards say the 0:31:56.639,0:31:59.760 auditor must or the auditor shall 0:31:59.760,0:32:02.240 because our requirements are enshrined 0:32:02.240,0:32:05.440 within the corporations act we must do 0:32:05.440,0:32:08.679 them as the minimum set of Standards you 0:32:08.679,0:32:10.320 could do more than what the standard 0:32:10.320,0:32:13.519 says but the minimum is contained within 0:32:13.519,0:32:15.960 the ASAS and we'll be referring back and 0:32:15.960,0:32:17.480 I'll show you excerpts from the 0:32:17.480,0:32:20.240 standards on a regular basis of things 0:32:20.240,0:32:21.639 that are really critical and important 0:32:21.639,0:32:23.080 to 0:32:23.080,0:32:25.440 understand all right so how do we make 0:32:25.440,0:32:27.360 sure that everybody who's doing an audit 0:32:27.360,0:32:29.039 is doing the right right thing that 0:32:29.039,0:32:31.639 comes from quality control and so 0:32:31.639,0:32:37.039 quality control needs to exist across 0:32:38.639,0:32:41.880 firms and quality control also needs to 0:32:41.880,0:32:45.320 exist within 0:32:45.919,0:32:48.559 firms all right so I need to make sure 0:32:48.559,0:32:51.320 that PWC are doing the same minimum 0:32:51.320,0:32:55.679 standard as KPMG and then within pwc's 0:32:55.679,0:32:57.440 however many offices we need to make 0:32:57.440,0:32:59.760 sure that all staff are doing the same 0:32:59.760,0:33:03.039 thing and there are specific whoops 0:33:03.039,0:33:06.200 specific quality control standards um 0:33:06.200,0:33:09.000 that the uh auditing standards and the 0:33:09.000,0:33:11.440 corporations act actually set out so 0:33:11.440,0:33:13.960 things about having leadership um 0:33:13.960,0:33:15.679 meeting ethical and Independence 0:33:15.679,0:33:18.200 requirements rules about how to accept 0:33:18.200,0:33:21.080 clients selecting the right people doing 0:33:21.080,0:33:22.919 the Audits and then monitoring or 0:33:22.919,0:33:24.279 checking each 0:33:24.279,0:33:27.519 other and that's where the peer review 0:33:27.519,0:33:29.000 Pro 0:33:29.000,0:33:31.159 program comes in from Chartered 0:33:31.159,0:33:33.279 Accountants and zpa Australia where 0:33:33.279,0:33:36.559 firms check each other's work to make 0:33:36.559,0:33:38.519 sure that they're all following the 0:33:38.519,0:33:40.639 standards 0:33:40.639,0:33:44.159 appropriately so CA and CPA both have 0:33:44.159,0:33:45.919 sets of Auditors that actually audit 0:33:45.919,0:33:50.760 them also on top of that we have 0:33:50.760,0:33:53.880 the Australian Securities and investment 0:33:53.880,0:33:56.720 commission doing their own inspection 0:33:56.720,0:33:59.000 program 0:33:59.000,0:34:00.720 all right so they audit the big four 0:34:00.720,0:34:03.360 firms every single year smaller firms on 0:34:03.360,0:34:05.960 a rotating schedule and they can find 0:34:05.960,0:34:08.000 audit firms for not complying with the 0:34:08.000,0:34:10.480 auditing standards um I'll provide you 0:34:10.480,0:34:13.000 guys with a link to look at the latest 0:34:13.000,0:34:15.800 inspection report from Asic um it 0:34:15.800,0:34:18.679 doesn't actually show names of firms um 0:34:18.679,0:34:20.239 this also happens in the US that the US 0:34:20.239,0:34:22.000 has started naming firms who are not 0:34:22.000,0:34:24.280 doing the right thing so there's big 0:34:24.280,0:34:27.440 bucks um in making sure that everybody 0:34:27.440,0:34:30.119 Within in The Firm is doing the right 0:34:30.119,0:34:31.719 thing in terms of following the order 0:34:31.719,0:34:33.800 standards acting independently and 0:34:33.800,0:34:35.679 acting ethically how are we doing on 0:34:35.679,0:34:39.520 time oh okay all right operations act 0:34:39.520,0:34:42.760 besides governing company directors 0:34:42.760,0:34:46.679 setting up companies uh in Australian 0:34:46.679,0:34:47.918 you guys have all done Australian 0:34:47.918,0:34:50.839 company law you guys done company law 0:34:50.839,0:34:52.079 yep or for the people who haven't done 0:34:52.079,0:34:54.679 it yet one of the assignments many many 0:34:54.679,0:34:56.918 years ago used to be prepare all the 0:34:56.918,0:34:59.200 documents to start company right we'd 0:34:59.200,0:35:00.359 have to actually go back to the 0:35:00.359,0:35:01.920 corporations act and figure out what 0:35:01.920,0:35:04.280 that is so while the corporations act 0:35:04.280,0:35:06.800 specifies how companies get set up it 0:35:06.800,0:35:10.119 also specifies what Auditors need to do 0:35:10.119,0:35:12.280 you need to be qualified you need to be 0:35:12.280,0:35:14.720 registered management can't just choose 0:35:14.720,0:35:17.400 the auditor it has to be ratified by 0:35:17.400,0:35:18.880 shareholders at an annual general 0:35:18.880,0:35:21.280 meeting we can't just quit as an auditor 0:35:21.280,0:35:22.280 there's all sorts of rules about 0:35:22.280,0:35:24.599 quitting what our responsibilities are 0:35:24.599,0:35:25.760 and 0:35:25.760,0:35:27.800 Reporting um and you can go into those 0:35:27.800,0:35:29.320 in more detail in the 0:35:29.320,0:35:32.400 textbook all right so here is the output 0:35:32.400,0:35:33.599 and this is really important and you 0:35:33.599,0:35:35.119 might be thinking well why am I 0:35:35.119,0:35:38.560 interested in looking at the end point 0:35:38.560,0:35:39.920 when we're only at the beginning and 0:35:39.920,0:35:42.359 this is so that you have in your mind 0:35:42.359,0:35:45.480 the idea of what we're striving for or 0:35:45.480,0:35:47.720 what we're uh planning to 0:35:47.720,0:35:52.079 create so we're going to look at why do 0:35:52.079,0:35:54.960 we have the report um what goes into 0:35:54.960,0:35:56.720 something called an unmodified audit 0:35:56.720,0:35:58.640 report we're we're going to look at when 0:35:58.640,0:36:00.760 we might do different sorts of reports 0:36:00.760,0:36:05.760 and adding extra information okay now 0:36:05.760,0:36:07.800 before Oh I'm trying to remember what 0:36:07.800,0:36:09.599 case it was we'll go into the cases I 0:36:09.599,0:36:11.119 think uh next 0:36:11.119,0:36:13.680 week there was never a legal requirement 0:36:13.680,0:36:15.480 to produce a paper audit report you 0:36:15.480,0:36:17.800 could have done a verbal audit report at 0:36:17.800,0:36:20.520 one stage but now we must provide a 0:36:20.520,0:36:22.880 written audit report about the financial 0:36:22.880,0:36:24.760 statements in accordance with the 0:36:24.760,0:36:27.560 Australian accounting uh uh the 0:36:27.560,0:36:28.920 accounting standards and our auditing 0:36:28.920,0:36:31.000 standards and Reporting is pretty 0:36:31.000,0:36:33.000 similar to the point where if you go to 0:36:33.000,0:36:35.319 the auditing standard on audit reporting 0:36:35.319,0:36:37.480 there's actually templates in the back 0:36:37.480,0:36:39.640 and if you look at almost all of the 0:36:39.640,0:36:41.520 publicly listed companies their audit 0:36:41.520,0:36:43.880 reports almost say exactly the same 0:36:43.880,0:36:45.520 thing word for word except the company 0:36:45.520,0:36:47.640 name is different and the year might be 0:36:47.640,0:36:49.040 different and the name of the audit 0:36:49.040,0:36:50.960 partner might be 0:36:50.960,0:36:53.520 different so audit reporting is fairly 0:36:53.520,0:36:56.240 standardized and it has very specific 0:36:56.240,0:36:58.720 legal language because it is a legal 0:36:58.720,0:37:01.040 document that exposes the auditor to 0:37:01.040,0:37:04.160 liability if we've done something wrong 0:37:04.160,0:37:06.400 so what is the gold standard that 0:37:06.400,0:37:08.720 everybody is looking for so what most 0:37:08.720,0:37:11.200 firms 0:37:12.640,0:37:16.720 want firms want what we call an 0:37:16.720,0:37:20.520 unmodified audit report and is also 0:37:20.520,0:37:23.319 sometimes called an unqualified report 0:37:23.319,0:37:25.640 now this is where it's a bit funny and a 0:37:25.640,0:37:26.520 bit 0:37:26.520,0:37:29.119 counterintuitive so when you do your ca 0:37:29.119,0:37:31.520 or you do a medical degree or you finish 0:37:31.520,0:37:34.040 your engineering qualification you 0:37:34.040,0:37:35.400 become 0:37:35.400,0:37:38.359 qualified right and qualified is a good 0:37:38.359,0:37:41.560 thing okay when it comes to an audit it 0:37:41.560,0:37:44.280 is the exact opposite the one that 0:37:44.280,0:37:47.079 people want the one that 0:37:47.079,0:37:50.880 says big tick management are telling the 0:37:50.880,0:37:54.359 truth is something called an unqualified 0:37:54.359,0:37:55.520 or an 0:37:55.520,0:37:58.319 unmodified audit report 0:37:58.319,0:38:00.200 okay you might think why is it that way 0:38:00.200,0:38:02.480 I don't know it's probably something I 0:38:02.480,0:38:04.680 could historically uh dig into the 0:38:04.680,0:38:06.800 archives and look at sometimes I wonder 0:38:06.800,0:38:08.400 if we do things sort of a bit back to 0:38:08.400,0:38:10.960 front in auditing to make it seem really 0:38:10.960,0:38:13.400 mysterious and difficult because 0:38:13.400,0:38:15.160 auditing is a lot about logic and Common 0:38:15.160,0:38:16.599 Sense and we don't want too many people 0:38:16.599,0:38:18.359 getting into the awesome area that is 0:38:18.359,0:38:20.680 auditing so we want to make it seem 0:38:20.680,0:38:22.800 really complicated and Tricky by using 0:38:22.800,0:38:25.240 language that doesn't quite make sense 0:38:25.240,0:38:27.599 so most firms 0:38:27.599,0:38:29.480 probably 0:38:29.480,0:38:31.839 about I think the last time we checked 0:38:31.839,0:38:35.119 it was something like 98% of firms um on 0:38:35.119,0:38:38.240 the ASX get an unqualified unmodified 0:38:38.240,0:38:40.800 report management are telling the truth 0:38:40.800,0:38:43.240 now that sends a signal to shareholders 0:38:43.240,0:38:46.200 that says management telling the truth 0:38:46.200,0:38:47.720 you can rely on this information for 0:38:47.720,0:38:51.079 your decision- making all right what 0:38:51.079,0:38:53.760 happens do you think to company share 0:38:53.760,0:38:55.920 prices if I give them the opposite if I 0:38:55.920,0:38:57.920 say management are not being truthful 0:38:57.920,0:39:00.200 and here are the reasons why what do you 0:39:00.200,0:39:01.800 think is going to happen to share 0:39:01.800,0:39:04.560 price it's going to go down and it goes 0:39:04.560,0:39:07.119 down pretty quickly um in terms of what 0:39:07.119,0:39:08.680 we see from the research in terms of 0:39:08.680,0:39:11.280 share price reaction so firms want this 0:39:11.280,0:39:13.920 managers want to work with us as the 0:39:13.920,0:39:16.680 Auditors to come to an agreement on a 0:39:16.680,0:39:18.240 set of financial statements that we 0:39:18.240,0:39:21.839 think is unqualified is free from 0:39:21.839,0:39:25.480 statement so ASA this is our first ASA 0:39:25.480,0:39:27.880 700 and all the the ones on reporting 0:39:27.880,0:39:30.280 you're in the 700 area say that we want 0:39:30.280,0:39:33.440 to get M reasonable assurance that it's 0:39:33.440,0:39:36.040 free from misstatements due to fraud or 0:39:36.040,0:39:37.920 error so I'm not interest I don't care 0:39:37.920,0:39:40.720 whether it's a mistake type 5,000 0:39:40.720,0:39:43.640 instead of 500,000 or it's fraud I have 0:39:43.640,0:39:46.280 a responsibility to detect those I want 0:39:46.280,0:39:48.000 to make sure that it matches the 0:39:48.000,0:39:50.880 applicable financial reporting framework 0:39:50.880,0:39:54.160 which for us is at 0:39:54.319,0:39:57.440 aasbs all right and that it is a fair 0:39:57.440,0:39:58.599 fair 0:39:58.599,0:40:01.119 presentation that it fairly represents 0:40:01.119,0:40:03.040 what happened during the during the 0:40:03.040,0:40:05.839 company's Financial period so if the 0:40:05.839,0:40:07.480 company was exposed to a lot of 0:40:07.480,0:40:10.040 fluctuation changes and adverse 0:40:10.040,0:40:12.640 movements in foreign exchange and a 0:40:12.640,0:40:14.560 decline in sales then we'd expect to see 0:40:14.560,0:40:17.200 a loss from that company is what we're 0:40:17.200,0:40:19.880 seeing uh commensurate with what we know 0:40:19.880,0:40:22.359 about the firm um and then making sure 0:40:22.359,0:40:24.640 that the financial report is again in 0:40:24.640,0:40:28.560 accordance with our double asbs 0:40:28.560,0:40:30.560 there's all sorts of parts to the audit 0:40:30.560,0:40:34.000 report um and uh this has actually 0:40:34.000,0:40:37.599 changed a little bit so this bit here 0:40:37.599,0:40:40.000 used to be right at the end we have a 0:40:40.000,0:40:41.920 new standard change so in the textbook 0:40:41.920,0:40:42.760 this is going to be a little bit 0:40:42.760,0:40:43.960 different than what you're looking at 0:40:43.960,0:40:49.119 right here um new ASA 700 now says that 0:40:49.119,0:40:51.319 we tell the shareholders the very first 0:40:51.319,0:40:54.359 thing here's our opinion we used to give 0:40:54.359,0:40:56.760 them all this legal jargon first all 0:40:56.760,0:40:59.480 this other crap used to come first and 0:40:59.480,0:41:01.160 then we would do this sort of at the end 0:41:01.160,0:41:03.440 but now it's right at the front to make 0:41:03.440,0:41:05.520 sure that shareholders know what's going 0:41:05.520,0:41:10.119 on now on UTS online in this week's 0:41:10.119,0:41:12.640 folder I've also put a whole lot of 0:41:12.640,0:41:14.400 audited opinions in there for you to 0:41:14.400,0:41:18.359 look at um and I'll also copy in for you 0:41:18.359,0:41:21.040 um the link to the QBE 0:41:21.040,0:41:24.720 Insurance annual report because it is 0:41:24.720,0:41:27.440 one of the few early adopters of some 0:41:27.440,0:41:29.400 new regulations and so I'll make a 0:41:29.400,0:41:30.760 little video on that in a couple of 0:41:30.760,0:41:34.720 weeks as well all right now what happens 0:41:34.720,0:41:37.520 if management aren't being truthful how 0:41:37.520,0:41:39.480 do I know what sort of opinion to give 0:41:39.480,0:41:41.800 them then I'm going to use this table 0:41:41.800,0:41:44.920 and this table comes out of Asa 700 uh 0:41:44.920,0:41:48.160 705 sorry and so I'm just going to lean 0:41:48.160,0:41:49.560 over here because I want to write some 0:41:49.560,0:41:52.680 numbers here so Step One is this step 0:41:52.680,0:41:54.280 over 0:41:54.280,0:41:57.280 here all right the first thing I want to 0:41:57.280,0:41:59.400 do is find out why I'm not giving an 0:41:59.400,0:42:01.839 unqualified opinion number one the 0:42:01.839,0:42:04.359 financial report is materially misstated 0:42:04.359,0:42:06.880 that is essentially saying management 0:42:06.880,0:42:09.520 are not being 0:42:09.640,0:42:12.800 truthful about something all right so 0:42:12.800,0:42:14.880 they they're understating a number 0:42:14.880,0:42:16.720 they're failing to make a disclosure 0:42:16.720,0:42:19.000 they're just lying about something all 0:42:19.000,0:42:21.520 right the second one which is this one 0:42:21.520,0:42:24.079 here is that we cannot get enough 0:42:24.079,0:42:27.599 evidence all right so not 0:42:27.599,0:42:30.079 enough 0:42:30.480,0:42:32.760 evidence this is a bit like Donald Trump 0:42:32.760,0:42:35.359 refusing to uh release his tax returns 0:42:35.359,0:42:36.800 can't make an opinion if I don't have 0:42:36.800,0:42:40.319 any information so Step One is I look at 0:42:40.319,0:42:42.280 well what are the two reasons why I 0:42:42.280,0:42:44.640 might go away from the 0:42:44.640,0:42:48.040 unqualified step two is I need to look 0:42:48.040,0:42:50.480 at the severity and there's two terms 0:42:50.480,0:42:53.000 here material but not pervasive or 0:42:53.000,0:42:55.240 material and pervasive for material 0:42:55.240,0:42:56.559 means it's important enough that we 0:42:56.559,0:42:59.119 think shareholders should know about it 0:42:59.119,0:43:00.760 but not pervasive and I'm going to 0:43:00.760,0:43:02.200 introduce you to two different 0:43:02.200,0:43:03.760 characters here and I didn't name these 0:43:03.760,0:43:05.160 guys actually one of my other lectures 0:43:05.160,0:43:06.599 did 0:43:06.599,0:43:10.359 so here we have 0:43:10.440,0:43:13.559 Norman Norman the 0:43:13.559,0:43:15.440 non 0:43:15.440,0:43:17.640 pervasive 0:43:17.640,0:43:20.839 slug all right and so Norman's there 0:43:20.839,0:43:22.400 because if you imagine your financial 0:43:22.400,0:43:24.720 statements let me pick a different color 0:43:24.720,0:43:26.720 here so imagine you've got your 0:43:26.720,0:43:29.200 financial Cal statements and all of your 0:43:29.200,0:43:30.240 different 0:43:30.240,0:43:33.640 accounts here if you plong to Norman on 0:43:33.640,0:43:35.079 one of 0:43:35.079,0:43:39.760 those all right and you said okay Norman 0:43:39.760,0:43:43.359 is right here Norman's only can self 0:43:43.359,0:43:45.599 contained right he's only in a small 0:43:45.599,0:43:47.920 part of the financial statements so 0:43:47.920,0:43:50.240 Norman is the situation where we have 0:43:50.240,0:43:52.480 either something not truthful or not 0:43:52.480,0:43:56.040 enough evidence in just one spot and in 0:43:56.040,0:43:58.839 that case we give an opinion called a 0:43:58.839,0:44:00.280 qualified 0:44:00.280,0:44:04.599 opinion okay now the second person I'm 0:44:04.599,0:44:07.400 going to introduce you 0:44:07.400,0:44:09.920 to let me make sure my pen is a bit 0:44:09.920,0:44:14.520 smaller maybe I'll type here we go 0:44:14.520,0:44:16.440 is 0:44:16.440,0:44:20.240 Perry the pervasive 0:44:20.240,0:44:22.480 octopus and I'd always use the octopus 0:44:22.480,0:44:24.559 but i' never named him and then Nelson 0:44:24.559,0:44:26.839 who who does our night classes said we 0:44:26.839,0:44:29.559 need to give the octopus a name so his 0:44:29.559,0:44:30.800 name is 0:44:30.800,0:44:34.160 Perry so if I took Perry and I put Perry 0:44:34.160,0:44:35.599 on the financial 0:44:35.599,0:44:38.119 statements as my 0:44:38.119,0:44:41.119 octopus all 0:44:41.119,0:44:44.319 right there's his body there's his 0:44:44.319,0:44:46.480 little 0:44:46.480,0:44:48.680 legs everywhere oh that's not that's a 0:44:48.680,0:44:50.800 really you obviously I'm not you're not 0:44:50.800,0:44:53.359 coming for the art but the idea with 0:44:53.359,0:44:56.640 Perry is that his little tentacles reach 0:44:56.640,0:44:59.000 far and wide across the financial 0:44:59.000,0:45:01.040 statements so that is what we call 0:45:01.040,0:45:03.319 pervasive all right there's lots of 0:45:03.319,0:45:06.559 tentacles of Errors so if I have errors 0:45:06.559,0:45:08.119 in the financial statements and I have 0:45:08.119,0:45:09.559 lots of them across lots of different 0:45:09.559,0:45:11.280 areas I say I'm going to give an adverse 0:45:11.280,0:45:13.440 opinion like this is bad this is the 0:45:13.440,0:45:14.920 signal to shareholders that management 0:45:14.920,0:45:17.040 aren't being truthful on a range of 0:45:17.040,0:45:19.960 things if I can't get enough information 0:45:19.960,0:45:22.760 over a lot of different areas then 0:45:22.760,0:45:24.200 Perry's going to say give me a 0:45:24.200,0:45:26.520 disclaimer of an opinion and disclaimer 0:45:26.520,0:45:28.520 means that I'm not actually giving an 0:45:28.520,0:45:30.800 opinion at all it's no 0:45:30.800,0:45:35.040 opinion all right so you've got Norman 0:45:35.040,0:45:36.480 and you've got 0:45:36.480,0:45:39.160 Perry okay and a lot of students even 0:45:39.160,0:45:41.440 draw the little animals that's cool um 0:45:41.440,0:45:42.960 but that's a way to figure out the 0:45:42.960,0:45:45.760 different sorts of modified audit 0:45:45.760,0:45:47.559 reports when I say I'm not going to give 0:45:47.559,0:45:49.839 a an unqualified I think something's 0:45:49.839,0:45:52.599 wrong then there's my options right 0:45:52.599,0:45:55.359 there 0:45:55.359,0:45:58.640 now okay 0:45:58.640,0:46:01.880 sometimes everything is truthful I have 0:46:01.880,0:46:04.839 an unmodified or unqualified report but 0:46:04.839,0:46:06.920 I want to say shareholders I want to 0:46:06.920,0:46:08.880 draw your attention to some extra 0:46:08.880,0:46:13.400 information and I do that using an 0:46:13.400,0:46:15.680 emphasis of matter paragraph what color 0:46:15.680,0:46:19.119 pen am I using oh let's change that to 0:46:19.119,0:46:22.520 Blue all right I use an emphasis of 0:46:22.520,0:46:25.200 matter paragraph sometimes shortened to 0:46:25.200,0:46:27.920 an eoom 0:46:27.920,0:46:29.760 okay now the emphasis of matter 0:46:29.760,0:46:33.440 paragraph says everything is fine but I 0:46:33.440,0:46:36.119 just want to draw your attention to a 0:46:36.119,0:46:37.880 new joint venture the company might be 0:46:37.880,0:46:40.880 involved in some unusual accounting 0:46:40.880,0:46:42.520 about something that is a little bit 0:46:42.520,0:46:46.040 different um that we've found a mistake 0:46:46.040,0:46:47.599 in the previous report and we're now 0:46:47.599,0:46:50.079 revising it and reissuing it so this is 0:46:50.079,0:46:51.760 still saying that management is still 0:46:51.760,0:46:54.240 being truthful but my emphasis of matter 0:46:54.240,0:46:57.000 is just highlighting extra information 0:46:57.000,0:46:59.480 to shareholders all right and in the 0:46:59.480,0:47:01.839 bundle on UTS online you'll actually see 0:47:01.839,0:47:04.480 some examples of the sorts of things 0:47:04.480,0:47:07.000 that could go in emphasis of matter 0:47:07.000,0:47:10.160 probably the biggest one is uh emphasis 0:47:10.160,0:47:12.559 of matter about going concerned do we 0:47:12.559,0:47:15.040 understand the concept of going concern 0:47:15.040,0:47:17.839 yes hopefully that we expect companies 0:47:17.839,0:47:20.359 to continue in the future if the company 0:47:20.359,0:47:22.359 is experiencing financial 0:47:22.359,0:47:24.960 distress but they are being truthful 0:47:24.960,0:47:27.040 about their financial distress so they 0:47:27.040,0:47:29.880 showing a loss they're showing lots of 0:47:29.880,0:47:32.480 uh debts and not many assets then we can 0:47:32.480,0:47:34.359 still give them the big tick in the 0:47:34.359,0:47:36.400 financial report because they're being 0:47:36.400,0:47:38.520 truthful but we might want to say hey 0:47:38.520,0:47:40.400 shareholders there are some financial 0:47:40.400,0:47:42.559 difficulties at this firm we do need to 0:47:42.559,0:47:46.160 warn you about those so that's important 0:47:46.160,0:47:49.920 now this is new this is not going to be 0:47:49.920,0:47:52.839 in any textbook um that you're looking 0:47:52.839,0:47:54.720 at oh I think there's a new textbook 0:47:54.720,0:47:55.800 coming out at the end of this year that 0:47:55.800,0:47:58.280 will'll have it in it new standard is 0:47:58.280,0:48:02.119 Asa 701 about communicating key audit 0:48:02.119,0:48:04.960 matters in the auditor's report and up 0:48:04.960,0:48:07.640 until this point in 0:48:07.640,0:48:10.640 time what the Auditors did was a black 0:48:10.640,0:48:12.480 box the audit report simply said he's 0:48:12.480,0:48:15.400 our opinion unmodified unqualified or 0:48:15.400,0:48:18.599 one of the other options um and that was 0:48:18.599,0:48:21.920 it now the Auditors must 0:48:21.920,0:48:25.079 disclose parts of the processes that 0:48:25.079,0:48:27.160 they go through to make their opinion 0:48:27.160,0:48:29.000 all right now not for everything oh this 0:48:29.000,0:48:30.480 is how we audited sales this is how we 0:48:30.480,0:48:32.000 audited cash this is how we audited a 0:48:32.000,0:48:34.920 property of plant and Equipment instead 0:48:34.920,0:48:38.400 it's only for areas that they think 0:48:38.400,0:48:41.240 there was significant judgment or that 0:48:41.240,0:48:43.119 they found particularly difficult which 0:48:43.119,0:48:47.559 they call Key audit matters or 0:48:48.480,0:48:51.480 k all right 0:48:51.480,0:48:54.520 now the idea is to have increased 0:48:54.520,0:48:57.359 transparency over decision- making if I 0:48:57.359,0:49:00.520 know how Auditors made a difficult 0:49:00.520,0:49:02.880 decision about writing down an 0:49:02.880,0:49:06.680 intangible asset then that allows me to 0:49:06.680,0:49:08.000 interpret the information in the 0:49:08.000,0:49:10.040 financial report with a little bit more 0:49:10.040,0:49:12.079 clarity so this is about trying to make 0:49:12.079,0:49:14.920 Auditors accountable and giving expert 0:49:14.920,0:49:16.640 uses of financial statements more 0:49:16.640,0:49:18.400 information now I'm pretty sure the key 0:49:18.400,0:49:20.400 audit matters my mom and dad are still 0:49:20.400,0:49:22.319 going to gloss over and be like oh 0:49:22.319,0:49:24.400 whatever right they look at the glossy 0:49:24.400,0:49:25.960 front part of the annual report with 0:49:25.960,0:49:28.960 smiling employees and graphs that go up 0:49:28.960,0:49:30.240 they're not really looking at the the 0:49:30.240,0:49:33.200 tricky bit at the back but your share 0:49:33.200,0:49:35.920 analysts your fun 0:49:35.920,0:49:38.119 managers um those people are going to be 0:49:38.119,0:49:39.359 looking at the key audit matters and 0:49:39.359,0:49:41.880 saying okay well this is an account like 0:49:41.880,0:49:44.319 intangibles that has a lot of discretion 0:49:44.319,0:49:46.599 by managers and the Auditors how did 0:49:46.599,0:49:49.839 they handle different opinions how did 0:49:49.839,0:49:52.160 they handle a standard that was really 0:49:52.160,0:49:53.680 you could do a couple of different 0:49:53.680,0:49:57.160 things now this must come in for all 0:49:57.160,0:50:00.240 Financial years uh after the 31st of 0:50:00.240,0:50:02.640 December at the end of this year however 0:50:02.640,0:50:05.240 we have three firms who are early 0:50:05.240,0:50:08.760 adopters QBE Insurance ccka which are 0:50:08.760,0:50:11.359 the medical implants and the Australian 0:50:11.359,0:50:12.960 stock exchange limited because the stock 0:50:12.960,0:50:14.839 exchange is a public entity they've 0:50:14.839,0:50:17.119 actually gone ahead um I'll include some 0:50:17.119,0:50:18.640 links so that you can look at the actual 0:50:18.640,0:50:21.280 key audit matters um and over the next 0:50:21.280,0:50:22.799 coming weeks I'm going to make a video 0:50:22.799,0:50:24.760 where I actually walk through their 0:50:24.760,0:50:26.440 financial statements and talk a little 0:50:26.440,0:50:29.520 bit about what goes into these 0:50:29.520,0:50:32.240 Kam at the moment firms can write a lot 0:50:32.240,0:50:34.880 or they can write a little um kamam 0:50:34.880,0:50:38.000 first came in in the UK or here's the 0:50:38.000,0:50:39.400 requirements that says what they need to 0:50:39.400,0:50:42.880 do it's not very exciting um but there 0:50:42.880,0:50:45.319 is a risk there's nothing to say how 0:50:45.319,0:50:47.040 many key audit matters the auditor needs 0:50:47.040,0:50:49.520 to describe and when this was first 0:50:49.520,0:50:51.599 introduced and the first place it came 0:50:51.599,0:50:53.640 up was in the UK 0:50:53.640,0:50:58.480 about 2012 I think it it's started 0:50:58.480,0:51:01.000 rollsroyce and I think it was KPMG at 0:51:01.000,0:51:05.240 the time wrote something like 12 pages 0:51:05.240,0:51:08.240 on key audit matters in tiny tiny tiny 0:51:08.240,0:51:09.640 font it was a lot of 0:51:09.640,0:51:12.680 information the very same year Vodaphone 0:51:12.680,0:51:15.640 wrote about two pages uh the audit of a 0:51:15.640,0:51:18.200 vone in the UK wrote about two pages on 0:51:18.200,0:51:20.920 key audit matters both were deemed to be 0:51:20.920,0:51:23.359 compliant with the standard so what we 0:51:23.359,0:51:25.119 worry about is something that we call 0:51:25.119,0:51:28.000 boiler plating so the audit partner is 0:51:28.000,0:51:30.640 meant to really describe the tricky 0:51:30.640,0:51:33.160 decision-making per processes they went 0:51:33.160,0:51:36.440 through to look at auditing this really 0:51:36.440,0:51:38.799 difficult part of the firm but what we 0:51:38.799,0:51:41.240 worry about is that firms will have 0:51:41.240,0:51:44.280 standard lines that they will use for 0:51:44.280,0:51:46.319 different things and that won't provide 0:51:46.319,0:51:48.960 too much information it'll just be a 0:51:48.960,0:51:51.799 standardized line that might not say 0:51:51.799,0:51:53.200 anything at all and sometimes the 0:51:53.200,0:51:55.960 wording has been really really bizarre 0:51:55.960,0:51:57.520 in one of the early ones I read from 0:51:57.520,0:52:00.799 Rolls-Royce it said something about um 0:52:00.799,0:52:04.359 the auditor is reasonably optimistic 0:52:04.359,0:52:08.040 that Management's forecasts are based on 0:52:08.040,0:52:10.400 reasonable assumptions of blah blah blah 0:52:10.400,0:52:11.839 blah blah I'm like what does reasonably 0:52:11.839,0:52:12.920 optimistic 0:52:12.920,0:52:15.520 mean so there is going to be some issue 0:52:15.520,0:52:18.920 about what we see um and I tell you that 0:52:18.920,0:52:20.640 the auditing researchers and the 0:52:20.640,0:52:22.799 linguists are all going to be looking at 0:52:22.799,0:52:25.520 this information of this topic very uh 0:52:25.520,0:52:27.960 closely all right oh and we're doing I'm 0:52:27.960,0:52:30.160 ahead of time this is awesome so if you 0:52:30.160,0:52:31.400 didn't get a subject outline they're 0:52:31.400,0:52:33.040 down here at the front come grab one 0:52:33.040,0:52:36.119 next week we start the weekly accessible 0:52:36.119,0:52:39.400 quizzes your quizzes will start 5 0:52:39.400,0:52:41.680 minutes past the start of your class 0:52:41.680,0:52:44.319 time so my 9800 class in the morning 0:52:44.319,0:52:47.040 quiz starts at 9:05 a.m. and if you're 0:52:47.040,0:52:48.280 late that doesn't matter you don't get 0:52:48.280,0:52:51.319 any extra time how do you prep you can 0:52:51.319,0:52:52.799 look at the textbook there'll be some 0:52:52.799,0:52:55.920 videos this lecture video will go up um 0:52:55.920,0:52:58.200 and remember it's open 0:52:58.200,0:53:01.160 book okay so bring as much stuff as you 0:53:01.160,0:53:03.920 want you can use the internet and one 0:53:03.920,0:53:08.160 other thing sh just one last thing make 0:53:08.160,0:53:11.240 sure that the night before or the day 0:53:11.240,0:53:12.559 before and I'm going to send you a 0:53:12.559,0:53:14.839 reminder email about this that you can 0:53:14.839,0:53:16.920 log into learning catalytics if you 0:53:16.920,0:53:18.319 haven't written down your password 0:53:18.319,0:53:20.200 somewhere make sure you write it down 0:53:20.200,0:53:22.119 because the retrieve password function 0:53:22.119,0:53:26.640 in LC takes 6 hours so if you need to 0:53:26.640,0:53:28.359 reset your password you need to do it 0:53:28.359,0:53:30.680 well ahead of time uh cuz there's no 0:53:30.680,0:53:32.720 paper quizzes if you don't bring your 0:53:32.720,0:53:35.319 device if you need a device or you don't 0:53:35.319,0:53:37.079 have one come talk to me we do have 0:53:37.079,0:53:40.160 spares you can borrow otherwise thank 0:53:40.160,0:53:41.599 you for coming along to our first week 0:53:41.599,0:53:45.520 and I will see you next week