1 00:00:01,120 --> 00:00:03,439 Awesome. Alright. So welcome, everybody, 2 00:00:03,439 --> 00:00:05,400 to Lecture 1. Who's excited to be here 3 00:00:05,400 --> 00:00:06,919 for auditing? 4 00:00:06,919 --> 00:00:09,440 Hey, those people down the front. 5 00:00:09,440 --> 00:00:11,480 Woo hoo. And everyone else is like, "I'm 6 00:00:11,480 --> 00:00:13,120 here because I have to be. It's in the 7 00:00:13,120 --> 00:00:17,439 major." So hopefully, over the semester, 8 00:00:17,439 --> 00:00:18,880 you'll get to learn a little bit about 9 00:00:18,880 --> 00:00:21,279 what auditing is all about. Even if you 10 00:00:21,279 --> 00:00:23,000 don't want to be an auditor, if you want 11 00:00:23,000 --> 00:00:24,560 to work in business or you want to work 12 00:00:24,560 --> 00:00:27,160 in marketing or human resources, then 13 00:00:27,160 --> 00:00:28,720 we're going to look at some key concepts 14 00:00:28,720 --> 00:00:30,400 that going to help you no matter what 15 00:00:30,400 --> 00:00:32,159 sort of business career you're 16 00:00:32,159 --> 00:00:34,200 after. And the other thing that we do 17 00:00:34,200 --> 00:00:35,840 here as well is that we also have our 18 00:00:35,840 --> 00:00:38,120 annotated lecture slides. So you'll also 19 00:00:38,120 --> 00:00:39,960 see me writing and that sort of thing on 20 00:00:39,960 --> 00:00:42,640 them. This is all captured on the video. 21 00:00:42,640 --> 00:00:45,399 The video will go on to UTS online and 22 00:00:45,399 --> 00:00:48,559 also gets uploaded to YouTube. Okay. So, 23 00:00:48,559 --> 00:00:53,520 you'll get files and access both ways. 24 00:00:53,520 --> 00:00:55,239 So we're going to cover a lot in 25 00:00:55,239 --> 00:00:56,280 the first week. You already know about 26 00:00:56,280 --> 00:01:00,079 the subject from the prep week stuff. You 27 00:01:00,079 --> 00:01:01,640 know about learning analytics from 28 00:01:01,640 --> 00:01:03,399 looking online and our assessment, so I'm 29 00:01:03,399 --> 00:01:07,320 not going to go through those. Alright. 30 00:01:07,320 --> 00:01:09,240 So we're going to cover two chapters out 31 00:01:09,240 --> 00:01:10,880 of the textbook today. We're going to 32 00:01:10,880 --> 00:01:12,720 cover, well, why the hell do we have an audit 33 00:01:12,720 --> 00:01:14,640 in the first place? And then we're also 34 00:01:14,640 --> 00:01:17,680 going to cover the idea of what is 35 00:01:17,680 --> 00:01:22,240 the output or the final product of 36 00:01:22,240 --> 00:01:24,119 our audit. So we're going to look at a 37 00:01:24,119 --> 00:01:26,720 whole range of 38 00:01:26,720 --> 00:01:29,159 different objectives. Let me just put my 39 00:01:29,159 --> 00:01:32,360 highlighter on here. Okay. Is my 40 00:01:32,360 --> 00:01:34,119 highlighter the right size? No, I want 41 00:01:34,119 --> 00:01:35,560 this 42 00:01:35,560 --> 00:01:37,600 one. Alright. So we're going to look at 43 00:01:37,600 --> 00:01:40,600 some basic stuff about describing what 44 00:01:40,600 --> 00:01:43,280 assurance is all about. Why audit is 45 00:01:43,280 --> 00:01:45,880 important in regards to reducing the 46 00:01:45,880 --> 00:01:47,680 risk of shareholders, the idea of 47 00:01:47,680 --> 00:01:49,640 information risk. We're going to look 48 00:01:49,640 --> 00:01:51,479 at describing auditing, which is one 49 00:01:51,479 --> 00:01:53,640 small subset of assurance. We're going to 50 00:01:53,640 --> 00:01:55,600 look at the difference between auditing 51 00:01:55,600 --> 00:01:57,719 and accounting. We're going to look at 52 00:01:57,719 --> 00:01:59,439 some types of audits and some different 53 00:01:59,439 --> 00:02:01,520 types of audit firms that provide them, 54 00:02:01,520 --> 00:02:03,000 and the big four 55 00:02:03,000 --> 00:02:05,079 firms. We're going to look at what the 56 00:02:05,079 --> 00:02:08,038 professional bodies do, so CA and CPA. 57 00:02:08,038 --> 00:02:09,520 We're going to look at the auditing 58 00:02:09,520 --> 00:02:11,080 standards and why they're important to 59 00:02:11,080 --> 00:02:12,920 us. We're going to look a little bit 60 00:02:12,920 --> 00:02:15,000 at quality control, not too much, and then 61 00:02:15,000 --> 00:02:16,840 also the basics of the Corporations Act. 62 00:02:16,840 --> 00:02:18,160 So it sounds like a lot, but there's 63 00:02:18,160 --> 00:02:21,360 actually just a few basic key concepts. 64 00:02:21,360 --> 00:02:24,360 Now, in the lectures and in the lecture 65 00:02:24,360 --> 00:02:26,920 notes, I pull out the most important 66 00:02:26,920 --> 00:02:28,200 things that I want you to learn from the 67 00:02:28,200 --> 00:02:30,120 textbook. Now, there are still going to be 68 00:02:30,120 --> 00:02:31,440 some things in the textbook that I would 69 00:02:31,440 --> 00:02:33,400 like you to read, but the things I think 70 00:02:33,400 --> 00:02:35,040 are most important are the things that 71 00:02:35,040 --> 00:02:36,440 are going to be in the lecture notes and 72 00:02:36,440 --> 00:02:39,159 the things I'm going to discuss. And then 73 00:02:39,159 --> 00:02:41,400 out of those, the things that I think are 74 00:02:41,400 --> 00:02:43,280 key or most important are going to be 75 00:02:43,280 --> 00:02:46,239 the things that will come up in the 76 00:02:46,239 --> 00:02:49,760 quizzes each week. Alright? So that'll 77 00:02:49,760 --> 00:02:51,720 give you a guide as to what I think is 78 00:02:51,720 --> 00:02:54,920 most important when it comes to exam 79 00:02:54,920 --> 00:02:58,080 prep. So if there's you know a whole 80 00:02:58,080 --> 00:03:00,239 section in the textbook that I don't 81 00:03:00,239 --> 00:03:01,760 really touch on, you might want to have a 82 00:03:01,760 --> 00:03:04,000 read of it just for background but not 83 00:03:04,000 --> 00:03:05,640 go too in-depth. 84 00:03:05,640 --> 00:03:07,560 Alright. So what's our first 85 00:03:07,560 --> 00:03:11,000 objective? What the hell is assurance? So 86 00:03:11,000 --> 00:03:13,760 assurance is about having someone 87 00:03:13,760 --> 00:03:17,000 independent, and that's us, the auditor, being 88 00:03:17,000 --> 00:03:20,480 objective, trying to improve the quality 89 00:03:20,480 --> 00:03:22,360 of information for decision 90 00:03:22,360 --> 00:03:25,440 makers. Alright? We want decision makers 91 00:03:25,440 --> 00:03:28,959 to have accurate, reliable information so 92 00:03:28,959 --> 00:03:31,760 that they can make the best decisions 93 00:03:31,760 --> 00:03:33,640 for themselves. And they could be 94 00:03:33,640 --> 00:03:36,480 shareholders. They could be regulators. It 95 00:03:36,480 --> 00:03:38,360 could be managers within the company. So 96 00:03:38,360 --> 00:03:41,040 no matter who you are, you make decisions 97 00:03:41,040 --> 00:03:43,120 based on information. Very rarely in 98 00:03:43,120 --> 00:03:45,000 business do we make decisions just based 99 00:03:45,000 --> 00:03:47,840 on flipping a coin or our gut. We're 100 00:03:47,840 --> 00:03:50,159 going to need to use information. And so 101 00:03:50,159 --> 00:03:51,840 the process of assurance is about 102 00:03:51,840 --> 00:03:56,400 providing quality and then also the idea 103 00:03:56,400 --> 00:04:00,400 of reliability 104 00:04:00,959 --> 00:04:02,609 to that information. 105 00:04:03,330 --> 00:04:05,877 Oops, -ilty. 106 00:04:06,557 --> 00:04:07,766 Alright. So right down 107 00:04:07,766 --> 00:04:08,753 here. 108 00:04:10,093 --> 00:04:11,599 Oh, that's really bright. Can we 109 00:04:11,599 --> 00:04:14,280 still see the slides if I leave the 110 00:04:14,280 --> 00:04:16,639 curtains open? Yep. We've been in a 111 00:04:16,639 --> 00:04:18,238 basement room this morning. I think just 112 00:04:18,238 --> 00:04:20,160 having some natural light will help me 113 00:04:20,160 --> 00:04:21,720 realize it's 114 00:04:21,720 --> 00:04:24,360 daytime. So who can perform an audit? Our 115 00:04:24,360 --> 00:04:25,960 public accounting firms, plus we're going 116 00:04:25,960 --> 00:04:27,440 to look at some government auditors as 117 00:04:27,440 --> 00:04:29,160 well. There's different levels of 118 00:04:29,160 --> 00:04:30,360 assurance, which we'll talk about 119 00:04:30,360 --> 00:04:33,800 in a future weeks. 120 00:04:33,800 --> 00:04:36,759 Mostly, our assurance is provided on 121 00:04:36,759 --> 00:04:39,919 historic information. So historic things 122 00:04:39,919 --> 00:04:42,520 like the financial statements. We do see 123 00:04:42,520 --> 00:04:45,960 some growth towards looking at forward- 124 00:04:45,960 --> 00:04:47,680 looking information, but it's hard to 125 00:04:47,680 --> 00:04:50,199 provide reliability on information about 126 00:04:50,199 --> 00:04:52,440 the future. It's easy to prove that 127 00:04:52,440 --> 00:04:54,120 information about the past, about 128 00:04:54,120 --> 00:04:56,560 transactions that have already happened, 129 00:04:56,560 --> 00:04:59,160 is reliable. It's a lot easier for us to 130 00:04:59,160 --> 00:05:00,029 do. 131 00:05:01,639 --> 00:05:03,039 So in terms of what we're going to be 132 00:05:03,039 --> 00:05:06,720 studying this semester, our audit issues 133 00:05:06,720 --> 00:05:08,600 are written communication. So we're going 134 00:05:08,600 --> 00:05:10,759 to look at the audit report that 135 00:05:10,759 --> 00:05:13,880 provides a conclusion about the 136 00:05:13,880 --> 00:05:16,759 reliability of written assertions or 137 00:05:16,759 --> 00:05:18,919 statements of another party. So let's 138 00:05:18,919 --> 00:05:20,400 break that 139 00:05:20,400 --> 00:05:22,479 down. We've got our audit of our 140 00:05:22,479 --> 00:05:25,400 financial statements. Now, this one--oh, I almost 141 00:05:25,400 --> 00:05:27,360 dropped my pen. This is what we're going 142 00:05:27,360 --> 00:05:30,039 to spend our entire semester looking at. 143 00:05:30,039 --> 00:05:31,680 Alright. Audits must be done under the 144 00:05:31,680 --> 00:05:34,199 Corporations Act for every company 145 00:05:34,199 --> 00:05:36,360 that's listed, and that requires an 146 00:05:36,360 --> 00:05:38,520 audit where we give an opinion about 147 00:05:38,520 --> 00:05:40,039 whether the financial statements are 148 00:05:40,039 --> 00:05:43,319 true and fair, are a true representation 149 00:05:43,319 --> 00:05:45,720 of the underlying economic transactions 150 00:05:45,720 --> 00:05:47,120 and events that have occurred within 151 00:05:47,120 --> 00:05:47,840 that 152 00:05:47,840 --> 00:05:51,919 firm. The review is a slightly 153 00:05:51,919 --> 00:05:54,479 lesser amount of assurance. So we're 154 00:05:54,479 --> 00:05:56,960 giving very high levels of assurance in 155 00:05:56,960 --> 00:05:59,680 the audit. We're giving less levels in 156 00:05:59,680 --> 00:06:01,680 the review. And then there are other 157 00:06:01,680 --> 00:06:02,960 services which we're not really going to 158 00:06:02,960 --> 00:06:05,599 get into too much detail 159 00:06:05,599 --> 00:06:07,560 on. 160 00:06:07,560 --> 00:06:10,960 So, we can also have assurance over IT. 161 00:06:10,960 --> 00:06:13,599 So if you go onto PayPal or eBay, they 162 00:06:13,599 --> 00:06:15,840 have assurance that the information you 163 00:06:15,840 --> 00:06:18,720 send to them or you store with them is 164 00:06:18,720 --> 00:06:21,880 securely kept, isn't passed on to 165 00:06:21,880 --> 00:06:23,759 other people. So we can provide assurance 166 00:06:23,759 --> 00:06:27,039 on anything. Alright. There's actually an 167 00:06:27,039 --> 00:06:30,400 assurance service that exists over lotto. 168 00:06:30,400 --> 00:06:33,000 So we have the lotto balls that go into 169 00:06:33,000 --> 00:06:35,240 Powerball, etc. There are actually 170 00:06:35,240 --> 00:06:37,360 auditors whose job it is to make sure 171 00:06:37,360 --> 00:06:39,680 that every single Powerball or lotto 172 00:06:39,680 --> 00:06:43,400 ball is exactly the same size, is exactly 173 00:06:43,400 --> 00:06:46,440 the same weight, and is exactly round. And 174 00:06:46,440 --> 00:06:48,400 that security processes over those mean 175 00:06:48,400 --> 00:06:50,120 that you can't manipulate the lotto 176 00:06:50,120 --> 00:06:51,720 balls in any way to get a particular 177 00:06:51,720 --> 00:06:54,280 outcome. So we could provide assurance 178 00:06:54,280 --> 00:06:56,080 over anything. And it's the New South Wales 179 00:06:56,080 --> 00:06:58,080 state government that provides assurance 180 00:06:58,080 --> 00:07:00,280 over the lotteries, 181 00:07:00,280 --> 00:07:02,240 but you could have assurance over a 182 00:07:02,240 --> 00:07:04,759 range of different processes and 183 00:07:04,759 --> 00:07:07,319 information as well. So if you jump onto 184 00:07:07,319 --> 00:07:09,560 PolitiFact, which is a political 185 00:07:09,560 --> 00:07:12,000 fact-checking website, you'll discover 186 00:07:12,000 --> 00:07:15,560 that I think less than 3% of all Donald 187 00:07:15,560 --> 00:07:19,160 Trump's statements can actually be assured 188 00:07:19,160 --> 00:07:22,360 or be reliable. So he says 97% of stuff 189 00:07:22,360 --> 00:07:24,599 that's not reliable. But you can 190 00:07:24,599 --> 00:07:26,039 provide assurance on 191 00:07:26,039 --> 00:07:29,319 anything. So what we're looking at is 192 00:07:29,319 --> 00:07:32,520 this very small bit here. Alright? 193 00:07:32,520 --> 00:07:34,160 So there's assurance of all sorts of 194 00:07:34,160 --> 00:07:36,000 different areas. We've got consulting and 195 00:07:36,000 --> 00:07:38,400 non-assurance services. I can provide 196 00:07:38,400 --> 00:07:41,680 assurance over all sorts of IT 197 00:07:41,680 --> 00:07:43,919 systems, but we're going to be looking 198 00:07:43,919 --> 00:07:46,280 at just this little bit here, the audit 199 00:07:46,280 --> 00:07:49,120 of the financial statements. And that is 200 00:07:49,120 --> 00:07:51,560 what drives most of our big four firms. 201 00:07:51,560 --> 00:07:55,080 Big revenues, and large proportions of 202 00:07:55,080 --> 00:07:58,120 staff just involved in this little 203 00:07:58,120 --> 00:08:01,039 component. So what is the idea about 204 00:08:01,039 --> 00:08:04,199 information risk? Right? The risk that the 205 00:08:04,199 --> 00:08:06,840 information I have might not be suitable 206 00:08:06,840 --> 00:08:09,560 for my decision-making purposes. And that 207 00:08:09,560 --> 00:08:12,560 risk comes about, well, the possibility 208 00:08:12,560 --> 00:08:15,639 that information was made on a 209 00:08:15,639 --> 00:08:17,199 decision that was made on information that 210 00:08:17,199 --> 00:08:19,800 was inaccurate. I'll give you an example 211 00:08:19,800 --> 00:08:21,360 of information 212 00:08:21,360 --> 00:08:25,039 risk. You'll meet my son on some of 213 00:08:25,039 --> 00:08:27,560 our audit slides. We affectionately 214 00:08:27,560 --> 00:08:30,440 call him Audit Junior. And he's 215 00:08:30,440 --> 00:08:32,080 come to every single open day since he 216 00:08:32,080 --> 00:08:34,360 was born. And I'm starting to get 217 00:08:34,360 --> 00:08:35,919 him to the point where we're going to 218 00:08:35,919 --> 00:08:37,279 start training him up to talk in our 219 00:08:37,279 --> 00:08:40,719 audit videos. But when he was one, I sent 220 00:08:40,719 --> 00:08:43,279 out invitations for his first birthday, 221 00:08:43,279 --> 00:08:45,080 and I put two numbers on there for 222 00:08:45,080 --> 00:08:47,600 people to RSVP. I left my mobile number, 223 00:08:47,600 --> 00:08:49,680 and I left my husband's mobile 224 00:08:49,680 --> 00:08:51,959 number. And I 225 00:08:51,959 --> 00:08:54,640 assumed that if my people had called my 226 00:08:54,640 --> 00:08:57,320 husband and said we're coming, I assumed 227 00:08:57,320 --> 00:08:58,600 that he was going to pass that 228 00:08:58,600 --> 00:09:00,320 information on to me. 229 00:09:00,320 --> 00:09:02,320 So I made all these plans for how many 230 00:09:02,320 --> 00:09:04,279 people and how much catering and how 231 00:09:04,279 --> 00:09:06,640 many party bags and all the rest of it 232 00:09:06,640 --> 00:09:09,920 based on the people that had RSVP'd to me 233 00:09:09,920 --> 00:09:12,760 and the assumption that he was going to 234 00:09:12,760 --> 00:09:15,160 tell me if anyone had contacted him and 235 00:09:15,160 --> 00:09:16,560 said that they were going to 236 00:09:16,560 --> 00:09:19,920 go. Bad assumption. So I made all these 237 00:09:19,920 --> 00:09:22,120 decisions. And then two days before the 238 00:09:22,120 --> 00:09:23,880 party, I said to him, "Oh, look, I'm really 239 00:09:23,880 --> 00:09:26,360 surprised that so and so is not coming." 240 00:09:26,360 --> 00:09:28,200 And he said, "Oh, no. They sent me a text 241 00:09:28,200 --> 00:09:30,920 message. They're coming." And I said, "Well, why 242 00:09:30,920 --> 00:09:33,399 didn't you tell me?" He goes, "I thought you 243 00:09:33,399 --> 00:09:35,079 would have 244 00:09:35,079 --> 00:09:38,040 asked." So two days before, suddenly I have 245 00:09:38,040 --> 00:09:40,440 like 20 more people coming to this party, 246 00:09:40,440 --> 00:09:42,800 but I'd made a decision based on 247 00:09:42,800 --> 00:09:45,040 information that was inaccurate. Now all 248 00:09:45,040 --> 00:09:46,320 it meant was that I had to go out and 249 00:09:46,320 --> 00:09:48,320 buy more food, and I was severely 250 00:09:48,320 --> 00:09:49,760 stressed out, and I made him decorate 251 00:09:49,760 --> 00:09:53,320 like hundreds of cupcakes for the extra 252 00:09:53,320 --> 00:09:55,680 people. And that wasn't life-threatening 253 00:09:55,680 --> 00:09:57,640 or it wasn't going to bankrupt a 254 00:09:57,640 --> 00:10:00,480 business, but I made a decision based on 255 00:10:00,480 --> 00:10:02,640 bad information. It wasn't complete. It 256 00:10:02,640 --> 00:10:04,399 didn't have everything that I was 257 00:10:04,399 --> 00:10:06,959 looking for. So if I'm doing this in a 258 00:10:06,959 --> 00:10:09,680 business, I might make decisions 259 00:10:09,680 --> 00:10:12,279 about a whole range of different things. 260 00:10:12,279 --> 00:10:16,839 What raw materials to buy? What prices 261 00:10:16,839 --> 00:10:18,959 I'm going to set for my products? 262 00:10:18,959 --> 00:10:22,160 Alright. Am I going to offer any 263 00:10:22,160 --> 00:10:25,839 discounts? I might make changes based 264 00:10:25,839 --> 00:10:30,720 on manufacturing or marketing. 265 00:10:30,720 --> 00:10:32,959 And if I make those decisions based on 266 00:10:32,959 --> 00:10:34,959 the wrong information, that could have 267 00:10:34,959 --> 00:10:38,000 serious consequences for my company. Now, 268 00:10:38,000 --> 00:10:39,800 if I'm a 269 00:10:39,800 --> 00:10:42,279 shareholder, then what are my decisions 270 00:10:42,279 --> 00:10:44,519 about? My decisions are about whether to-- 271 00:10:44,519 --> 00:10:46,120 whoops. 272 00:10:46,120 --> 00:10:47,720 Undo. 273 00:10:47,720 --> 00:10:49,140 Buy, 274 00:10:49,140 --> 00:10:53,080 sell, or hold my 275 00:10:53,080 --> 00:10:55,760 investment. Right? and if I don't have 276 00:10:55,760 --> 00:10:58,800 accurate information as a shareholder, 277 00:10:58,800 --> 00:11:02,440 then I might make the wrong choice when 278 00:11:02,440 --> 00:11:04,360 it comes to doing that decision. So 279 00:11:04,360 --> 00:11:06,720 there's risk that our information might 280 00:11:06,720 --> 00:11:09,839 not be appropriate. So the reasons that we have 281 00:11:09,839 --> 00:11:12,639 risk of information: remoteness 282 00:11:12,639 --> 00:11:15,519 between the 283 00:11:16,000 --> 00:11:19,639 user and management. I own shares in Woolworths. 284 00:11:19,639 --> 00:11:21,240 I can't really go up to Woolworths 285 00:11:21,240 --> 00:11:23,720 and say, "Hey, tell me how to cash flow is 286 00:11:23,720 --> 00:11:26,240 going. How many issues of a going concern? 287 00:11:26,240 --> 00:11:27,880 Which of the stores are not performing 288 00:11:27,880 --> 00:11:30,240 well?" So I don't really know what's going 289 00:11:30,240 --> 00:11:33,000 on inside the business. The provider of 290 00:11:33,000 --> 00:11:34,760 the information is usually 291 00:11:34,760 --> 00:11:37,079 management. And agency theory tells us 292 00:11:37,079 --> 00:11:39,000 that they're biased. No manager wants to 293 00:11:39,000 --> 00:11:41,519 say, "Hey, I did a sucky job this year, but 294 00:11:41,519 --> 00:11:43,560 you should still pay me a bonus." They 295 00:11:43,560 --> 00:11:45,200 want to make themselves look fantastic. 296 00:11:45,200 --> 00:11:46,839 So there's always the bias that they're 297 00:11:46,839 --> 00:11:49,000 going to present information in a way 298 00:11:49,000 --> 00:11:52,320 that maximizes their own wealth under 299 00:11:52,320 --> 00:11:54,839 agency 300 00:11:57,320 --> 00:11:59,720 theory. Alright. There's lots 301 00:11:59,720 --> 00:12:02,480 and lots and lots of data. Hundreds or 302 00:12:02,480 --> 00:12:05,120 thousands or millions of transactions. 303 00:12:05,120 --> 00:12:06,399 How do we know which ones are correct and 304 00:12:06,399 --> 00:12:08,680 which ones are not correct? And then 305 00:12:08,680 --> 00:12:12,160 there's complex transactions between 306 00:12:12,160 --> 00:12:14,160 different companies within the same 307 00:12:14,160 --> 00:12:16,600 company, across different borders, in 308 00:12:16,600 --> 00:12:19,760 different jurisdictions, joint ventures, 309 00:12:19,760 --> 00:12:22,360 partial subsidiaries. It can get really 310 00:12:22,360 --> 00:12:26,079 complicated. Right? My parents have a 311 00:12:26,079 --> 00:12:28,480 whole lot of shares. They're retired. And 312 00:12:28,480 --> 00:12:29,959 my mom's a science 313 00:12:29,959 --> 00:12:31,720 teacher. And I said, "Well, you know, what 314 00:12:31,720 --> 00:12:33,040 are you looking for in the financial 315 00:12:33,040 --> 00:12:34,600 statements? You know, what do you look at 316 00:12:34,600 --> 00:12:35,720 when you look at the numbers?" And she 317 00:12:35,720 --> 00:12:38,160 said, "I don't know." Right? I'm looking for 318 00:12:38,160 --> 00:12:40,160 positive numbers, not negative numbers, in 319 00:12:40,160 --> 00:12:42,279 the profit. I'm looking for numbers that 320 00:12:42,279 --> 00:12:44,560 go up. But she doesn't understand 321 00:12:44,560 --> 00:12:46,560 anywhere near the complexity of 322 00:12:46,560 --> 00:12:49,800 accounting that I do as a CA to be able 323 00:12:49,800 --> 00:12:51,480 to interpret that information and know 324 00:12:51,480 --> 00:12:53,639 whether it seems appropriate or not. So 325 00:12:53,639 --> 00:12:56,079 the audit is there to minimize this 326 00:12:56,079 --> 00:13:00,079 information risk, to act as the 327 00:13:00,079 --> 00:13:01,639 advocate of shareholders to say, "Well, 328 00:13:01,639 --> 00:13:03,320 really, we want information that is absolutely 329 00:13:03,320 --> 00:13:05,330 true for decision-making. 330 00:13:05,330 --> 00:13:07,079 So how could we reduce 331 00:13:07,079 --> 00:13:09,399 information risk? We could get users to 332 00:13:09,399 --> 00:13:11,399 try and verify information. That would be 333 00:13:11,399 --> 00:13:13,079 really tough, especially at Woolies with 334 00:13:13,079 --> 00:13:15,360 all of their shareholders. Not really 335 00:13:15,360 --> 00:13:18,199 reliable. The user does share some risk 336 00:13:18,199 --> 00:13:20,360 with management because they make a risk 337 00:13:20,360 --> 00:13:23,839 when it comes to investing, but the 338 00:13:23,839 --> 00:13:28,519 audit is the thing that we use to reduce 339 00:13:28,519 --> 00:13:33,000 agency cost. Alright. So to 340 00:13:33,000 --> 00:13:36,279 reduce the risk of 341 00:13:36,279 --> 00:13:39,040 agency, we have an audit. We have the 342 00:13:39,040 --> 00:13:41,480 auditors independently check 343 00:13:41,480 --> 00:13:43,720 management's work to make sure that they 344 00:13:43,720 --> 00:13:45,880 are telling the truth when it comes to 345 00:13:45,880 --> 00:13:47,720 what they present to 346 00:13:47,720 --> 00:13:50,040 shareholders. So here's my son. You can 347 00:13:50,040 --> 00:13:52,000 see him there. He's pretty 348 00:13:52,000 --> 00:13:55,279 cute. And for those people who are 349 00:13:55,279 --> 00:13:57,000 wondering, I'm not just getting fat. I 350 00:13:57,000 --> 00:13:59,360 am going to having a baby at the 351 00:13:59,360 --> 00:14:01,040 beginning of next year. So we call him 352 00:14:01,040 --> 00:14:04,560 Audit Junior, and we just recently 353 00:14:04,560 --> 00:14:05,959 announced--well, I announced on my 354 00:14:05,959 --> 00:14:08,000 Facebook page, for all the students 355 00:14:08,000 --> 00:14:09,600 who are friends with me--that he's 356 00:14:09,600 --> 00:14:12,040 getting a promotion to Audit Senior. So 357 00:14:12,040 --> 00:14:13,600 we'll have a new Audit Junior coming 358 00:14:13,600 --> 00:14:15,839 along. But when it comes to describing 359 00:14:15,839 --> 00:14:18,440 auditing, I always use this picture. This 360 00:14:18,440 --> 00:14:21,240 was only taken a few months ago. And I 361 00:14:21,240 --> 00:14:25,360 say, "Is this the world's cutest kid?" Right? 362 00:14:25,360 --> 00:14:27,880 Because every parent thinks that their 363 00:14:27,880 --> 00:14:30,639 child is the cutest kid ever. Nobody-- 364 00:14:30,639 --> 00:14:32,040 I haven't met a new parent that says, 365 00:14:32,040 --> 00:14:33,360 "Well, look, actually my son or daughter 366 00:14:33,360 --> 00:14:34,199 is a bit 367 00:14:34,199 --> 00:14:37,079 ugly." Right? Oh, everybody's like, "Oh, how 368 00:14:37,079 --> 00:14:39,040 adorable. How 369 00:14:39,040 --> 00:14:41,360 cute." And the same with managers. Right? 370 00:14:41,360 --> 00:14:42,839 Managers are going to say, "We are the 371 00:14:42,839 --> 00:14:45,360 best ever." And when I meet your parents 372 00:14:45,360 --> 00:14:47,600 at graduation, your parents are going to 373 00:14:47,600 --> 00:14:51,959 say, "Look, wasn't my son just the best 374 00:14:51,959 --> 00:14:54,240 student?" Sometimes, Iook. And to be 375 00:14:54,240 --> 00:14:57,040 honest with you, I lie sometimes. So, you 376 00:14:57,040 --> 00:14:58,759 know, students who were really great--I 377 00:14:58,759 --> 00:14:59,560 say, "Yeah, 378 00:14:59,560 --> 00:15:02,440 absolutely." And sometimes if, you know, 379 00:15:02,440 --> 00:15:05,399 perhaps you weren't the most diligent, 380 00:15:05,399 --> 00:15:08,079 dedicated student, I will say something 381 00:15:08,079 --> 00:15:10,720 like, "Oh, you know, they really put in some 382 00:15:10,720 --> 00:15:13,600 good effort." That's my sort of, you know, 383 00:15:13,600 --> 00:15:15,839 safety statement 384 00:15:15,839 --> 00:15:19,440 there. But how would we determine who is 385 00:15:19,440 --> 00:15:21,240 the world's cutest 386 00:15:21,240 --> 00:15:24,160 kid? How would we figure that out? That's 387 00:15:24,160 --> 00:15:27,399 a claim I'm making. We would need to have 388 00:15:27,399 --> 00:15:29,800 somebody independent come up with some set 389 00:15:29,800 --> 00:15:32,759 of standards on child 390 00:15:32,759 --> 00:15:35,199 cuteness to figure out whether he really 391 00:15:35,199 --> 00:15:37,759 is the cutest kid or not. Now, when it 392 00:15:37,759 --> 00:15:40,360 comes to financial statements, that's 393 00:15:40,360 --> 00:15:42,120 really easy because we have our 394 00:15:42,120 --> 00:15:44,839 accounting standards that tell us this 395 00:15:44,839 --> 00:15:48,120 is what accounting should look like. And 396 00:15:48,120 --> 00:15:49,560 so when we're trying to figure out, "Well, 397 00:15:49,560 --> 00:15:51,319 are management telling the truth? Is this 398 00:15:51,319 --> 00:15:53,800 the right set of financial statements? Is 399 00:15:53,800 --> 00:15:55,040 this what we should be presenting to 400 00:15:55,040 --> 00:15:57,519 shareholders?" then we use our double AASBs 401 00:15:57,519 --> 00:16:00,440 to do that. Rodri will be back to tell 402 00:16:00,440 --> 00:16:02,160 you all sorts of other hints and tips as 403 00:16:02,160 --> 00:16:03,519 well about 404 00:16:03,519 --> 00:16:05,360 auditing. So 405 00:16:05,360 --> 00:16:09,639 auditing is the accumulation of evidence. 406 00:16:09,639 --> 00:16:11,360 Alright? So evidence is really critical 407 00:16:11,360 --> 00:16:14,040 because I shouldn't make a decision 408 00:16:14,040 --> 00:16:16,000 without having some 409 00:16:16,000 --> 00:16:20,079 evidence. If you're sick or something 410 00:16:20,079 --> 00:16:22,519 happens to you on the way to uni, then I 411 00:16:22,519 --> 00:16:24,360 want evidence if you say, "Okay. I missed the 412 00:16:24,360 --> 00:16:26,120 quiz because I fell down a flight of 413 00:16:26,120 --> 00:16:28,639 stairs and broke my leg." I'm going to 414 00:16:28,639 --> 00:16:31,079 have to see your broken leg. And I'd want 415 00:16:31,079 --> 00:16:33,120 some evidence that was really the 416 00:16:33,120 --> 00:16:36,880 case. Right? So I'm technically a doctor, 417 00:16:36,880 --> 00:16:38,399 and friends always ask me, "Look, could 418 00:16:38,399 --> 00:16:40,319 you write me a doctor's note?" Which I 419 00:16:40,319 --> 00:16:43,920 can't do as a PhD sort of doctor. But if 420 00:16:43,920 --> 00:16:46,040 you apply for something and you say, "Oh, okay. You 421 00:16:46,040 --> 00:16:47,839 know, this is what's been going on." I want 422 00:16:47,839 --> 00:16:49,440 to see actual evidence to know that 423 00:16:49,440 --> 00:16:51,399 that's the truth. So just like on cop 424 00:16:51,399 --> 00:16:53,120 shows, before they charge somebody with 425 00:16:53,120 --> 00:16:55,920 the crime, they need evidence. Well, we 426 00:16:55,920 --> 00:16:58,199 need evidence as well to be able to make 427 00:16:58,199 --> 00:16:59,839 our opinion 428 00:16:59,839 --> 00:17:02,880 and determine the degree of 429 00:17:02,880 --> 00:17:05,720 correspondence between information--which 430 00:17:05,720 --> 00:17:07,880 for us is going to be our financial 431 00:17:07,880 --> 00:17:09,599 statements--let me put that in 432 00:17:09,599 --> 00:17:12,039 red: Financial 433 00:17:12,039 --> 00:17:15,679 statements and our established 434 00:17:15,679 --> 00:17:18,280 criteria. And our established 435 00:17:18,280 --> 00:17:21,319 criteria are our double 436 00:17:21,319 --> 00:17:24,240 AASBs. Alright. So we're looking at 437 00:17:24,240 --> 00:17:26,119 management's information and what the 438 00:17:26,119 --> 00:17:29,679 double AASBs say it should be. And I 439 00:17:29,679 --> 00:17:31,440 know--would you guys have had Helen, I 440 00:17:31,440 --> 00:17:33,080 think, last semester for accounting 441 00:17:33,080 --> 00:17:35,120 standards? So Helen would have taught you 442 00:17:35,120 --> 00:17:37,640 how everything needs to be laid out, how 443 00:17:37,640 --> 00:17:40,000 all the calculations need to work. So we 444 00:17:40,000 --> 00:17:41,480 need to check that. That's part of the 445 00:17:41,480 --> 00:17:45,080 auditor's role. So key things about the 446 00:17:45,080 --> 00:17:47,760 audit: we need to be competent. We need to 447 00:17:47,760 --> 00:17:49,559 have the right skills, which is part of 448 00:17:49,559 --> 00:17:52,039 what we're doing here at uni, and we need 449 00:17:52,039 --> 00:17:56,039 to be independent as well. Alright? So 450 00:17:56,039 --> 00:17:57,840 competency is about having the right 451 00:17:57,840 --> 00:18:00,400 skills, and and then being independent is 452 00:18:00,400 --> 00:18:03,159 about being 453 00:18:03,159 --> 00:18:05,000 objective. And I'll give you an 454 00:18:05,000 --> 00:18:08,679 example. So many, many, many years ago, 455 00:18:08,679 --> 00:18:10,440 my husband and I both met at an audit 456 00:18:10,440 --> 00:18:12,520 firm. So it was an audit firm 457 00:18:12,520 --> 00:18:14,320 romance. 458 00:18:14,320 --> 00:18:16,679 And we were both working on different 459 00:18:16,679 --> 00:18:18,960 audit clients. And one of my big 460 00:18:18,960 --> 00:18:21,120 clients was QBE Insurance, which we've 461 00:18:21,120 --> 00:18:23,200 all would have seen on TV and they 462 00:18:23,200 --> 00:18:27,080 sponsor some sporting teams, etc. But he 463 00:18:27,080 --> 00:18:31,480 left PwC and took a job at 464 00:18:31,480 --> 00:18:34,520 QBE. At that point, I could no longer do 465 00:18:34,520 --> 00:18:36,880 the audit because I was no longer 466 00:18:36,880 --> 00:18:38,520 independent, because I knew somebody that 467 00:18:38,520 --> 00:18:41,440 worked there, and part of his job was 468 00:18:41,440 --> 00:18:43,320 consolidation of all of their 469 00:18:43,320 --> 00:18:47,200 subsidiaries. So if I discovered that he 470 00:18:47,200 --> 00:18:49,360 had, you know, somehow stolen $10,000,000 471 00:18:49,360 --> 00:18:51,520 from the company, I probably wouldn't 472 00:18:51,520 --> 00:18:54,120 have told anybody. We would have, you know, 473 00:18:54,120 --> 00:18:56,799 very quietly resigned from our jobs, sold 474 00:18:56,799 --> 00:18:58,919 our house, and skipped out a 475 00:18:58,919 --> 00:19:02,679 non-extradition country. So we need to 476 00:19:02,679 --> 00:19:05,480 have auditors who are objective and 477 00:19:05,480 --> 00:19:09,080 independent. Right? To say that when 478 00:19:09,080 --> 00:19:11,360 we see something that's not quite right, 479 00:19:11,360 --> 00:19:13,640 we feel independent enough to put our 480 00:19:13,640 --> 00:19:15,799 hands up and say, "Oh, I don't think this 481 00:19:15,799 --> 00:19:17,840 should be happening." Or, "You know, 482 00:19:17,840 --> 00:19:19,600 management are not doing the right thing." 483 00:19:19,600 --> 00:19:20,559 So 484 00:19:20,559 --> 00:19:22,559 independence is the cornerstone of 485 00:19:22,559 --> 00:19:25,320 auditing. You open any audit textbook, and 486 00:19:25,320 --> 00:19:27,360 I'm a bit of an audit nerd, so I have 487 00:19:27,360 --> 00:19:29,640 audit textbooks from the 488 00:19:29,640 --> 00:19:31,400 1940s and 489 00:19:31,400 --> 00:19:33,600 earlier. And there's no pictures. No 490 00:19:33,600 --> 00:19:35,080 diagrams. It's all in color. It's all 491 00:19:35,080 --> 00:19:37,159 black and white, just typed text. But they 492 00:19:37,159 --> 00:19:39,320 all start with this idea that audit is 493 00:19:39,320 --> 00:19:41,600 the cornerstone--sorry. Independence is 494 00:19:41,600 --> 00:19:43,919 the cornerstone of being able to do that 495 00:19:43,919 --> 00:19:46,559 audit, to be independent. Just like when I 496 00:19:46,559 --> 00:19:49,760 say my kid has got to be the cutest kid, 497 00:19:49,760 --> 00:19:52,320 I'm not independent. So we would have to 498 00:19:52,320 --> 00:19:55,880 find somebody who is an independent 499 00:19:55,880 --> 00:19:58,799 expert in the judgment of kid cuteness 500 00:19:58,799 --> 00:20:01,064 to be able to make that opinion. 501 00:20:01,559 --> 00:20:03,720 Alright. So, what do we need to 502 00:20:03,720 --> 00:20:05,679 be able to do our audit? We need to have 503 00:20:05,679 --> 00:20:07,600 the information: the financial statements 504 00:20:07,600 --> 00:20:09,320 and our criteria, which is our double 505 00:20:09,320 --> 00:20:12,120 AASBs that we talked about. Alright. So 506 00:20:12,120 --> 00:20:15,760 our financial statements and our double 507 00:20:15,760 --> 00:20:18,720 AASBs. We need to be able to accumulate 508 00:20:18,720 --> 00:20:19,960 evidence, and we're actually going to 509 00:20:19,960 --> 00:20:22,679 practice doing that, designing ways to 510 00:20:22,679 --> 00:20:25,240 collect evidence. So just like on CSI, 511 00:20:25,240 --> 00:20:26,360 there's all these techniques for 512 00:20:26,360 --> 00:20:29,280 collecting fingerprints and running DNA 513 00:20:29,280 --> 00:20:31,559 and taking a tire track and running it 514 00:20:31,559 --> 00:20:34,880 through a database. We also have 515 00:20:34,880 --> 00:20:37,840 less cool procedures to collect 516 00:20:37,840 --> 00:20:39,760 evidence. So there's no like, you know, 517 00:20:39,760 --> 00:20:41,960 dark rooms with spotlights and 518 00:20:41,960 --> 00:20:44,039 microscopes. Unfortunately, auditors 519 00:20:44,039 --> 00:20:46,559 mostly just use our brains, might use a 520 00:20:46,559 --> 00:20:49,880 computer, pen and some paper. But we're 521 00:20:49,880 --> 00:20:51,840 going to look at specific methods that 522 00:20:51,840 --> 00:20:54,280 we've developed over time to collect 523 00:20:54,280 --> 00:20:56,240 evidence. We've talked about being 524 00:20:56,240 --> 00:20:57,880 competent, having the right skills and 525 00:20:57,880 --> 00:20:59,360 being independent 526 00:20:59,360 --> 00:21:02,559 and then providing a report. So under the 527 00:21:02,559 --> 00:21:03,880 Corporations Act-- 528 00:21:06,919 --> 00:21:09,120 oops--I actually have to provide a 529 00:21:09,120 --> 00:21:10,120 written 530 00:21:10,120 --> 00:21:12,039 report that 531 00:21:12,039 --> 00:21:15,440 says, "Here is the outcome of the audit. 532 00:21:15,440 --> 00:21:18,440 Yes, management are telling the truth. Or, 533 00:21:18,440 --> 00:21:20,880 no, they're not quite being truthful 534 00:21:20,880 --> 00:21:22,279 about everything, and here are the things 535 00:21:22,279 --> 00:21:25,000 that they not being honest about." 536 00:21:25,000 --> 00:21:27,080 So, what's the difference between 537 00:21:27,080 --> 00:21:29,360 auditing and accounting? The accounting 538 00:21:29,360 --> 00:21:33,080 is the recording part of the business 539 00:21:33,080 --> 00:21:35,960 process. So they record, summarize all the 540 00:21:35,960 --> 00:21:38,240 debits and credits within the system, and 541 00:21:38,240 --> 00:21:40,480 then the auditors are actually the ones 542 00:21:40,480 --> 00:21:42,640 checking the accounting work. So we're 543 00:21:42,640 --> 00:21:43,760 going to go back, and we're going to look 544 00:21:43,760 --> 00:21:45,960 at the work of the accounts and say, "Are 545 00:21:45,960 --> 00:21:48,240 they doing the right thing?" 546 00:21:49,310 --> 00:21:50,400 I'm just going to move this over here 547 00:21:50,400 --> 00:21:52,919 for a second. Alright. So we have three 548 00:21:52,919 --> 00:21:55,360 main types of audits: the financial 549 00:21:55,360 --> 00:21:56,679 statement, the performance, and the 550 00:21:56,679 --> 00:21:58,600 compliance. As I mentioned before, 551 00:21:58,600 --> 00:21:59,679 financial statement is the one that 552 00:21:59,679 --> 00:22:01,440 we're going to be spending the most of 553 00:22:01,440 --> 00:22:04,080 our time on. The performance is about: Are 554 00:22:04,080 --> 00:22:05,720 we doing things efficiently, and 555 00:22:05,720 --> 00:22:09,000 effectively within our business? So we 556 00:22:09,000 --> 00:22:11,880 might have a sales process or a complex 557 00:22:11,880 --> 00:22:13,520 consolidation process, and we can get an 558 00:22:13,520 --> 00:22:15,559 auditor in to say, "Is this the best way 559 00:22:15,559 --> 00:22:17,559 to do this? Do we need to re-engineer our 560 00:22:17,559 --> 00:22:20,039 business process?" And then the compliance 561 00:22:20,039 --> 00:22:22,360 audit, which is about following laws and 562 00:22:22,360 --> 00:22:24,840 regulations. So, is a company reporting 563 00:22:24,840 --> 00:22:27,440 GST appropriately? Are they following 564 00:22:27,440 --> 00:22:30,320 occupational health and safety? Are 565 00:22:30,320 --> 00:22:32,360 they doing anything else that requires a 566 00:22:32,360 --> 00:22:34,480 specific law or regulation? But we're 567 00:22:34,480 --> 00:22:37,000 going to focus on that one up 568 00:22:37,000 --> 00:22:40,080 there. So there's some examples. Okay. 569 00:22:40,080 --> 00:22:41,799 Different types of auditors: The public 570 00:22:41,799 --> 00:22:43,360 accounting firms are the big four and 571 00:22:43,360 --> 00:22:45,880 the second tier. They do most of the 572 00:22:45,880 --> 00:22:49,260 publicly listed companies. The auditor-general 573 00:22:49,260 --> 00:22:50,880 are the government 574 00:22:50,880 --> 00:22:52,960 auditors. Alright. So the New South 575 00:22:52,960 --> 00:22:55,159 Wales audit office and the auditor 576 00:22:55,159 --> 00:22:57,760 general of Australia based in Canberra. 577 00:22:57,760 --> 00:22:59,360 New South Wales auditor general will 578 00:22:59,360 --> 00:23:02,320 audit state government 579 00:23:02,320 --> 00:23:04,960 organizations, and the auditor general 580 00:23:04,960 --> 00:23:07,559 will handle the audit for everything 581 00:23:07,559 --> 00:23:09,039 else that's federal. 582 00:23:09,039 --> 00:23:11,880 So the auditor general audits 583 00:23:11,880 --> 00:23:14,480 the defense force. They're in charge 584 00:23:14,480 --> 00:23:16,559 of the overall audit for 585 00:23:16,559 --> 00:23:20,279 Telstra, Centrelink, and other big 586 00:23:20,279 --> 00:23:21,919 government departments. 587 00:23:21,919 --> 00:23:24,559 We have Auditors for tax 588 00:23:24,559 --> 00:23:27,039 that work specifically for the ATO. 589 00:23:27,039 --> 00:23:29,440 But they're more likely to be lawyers 590 00:23:29,440 --> 00:23:31,720 and accountants, not just 591 00:23:31,720 --> 00:23:34,480 accountants. And then internal auditors, 592 00:23:34,480 --> 00:23:36,600 which focus on doing that compliance in 593 00:23:36,600 --> 00:23:39,720 the performance audit. So most big top 594 00:23:39,720 --> 00:23:41,400 100 companies will have their own audit, 595 00:23:41,400 --> 00:23:45,080 internal audit team. So Quantis, the 596 00:23:45,080 --> 00:23:47,840 Commonwealth Bank, Coca-Cola will all 597 00:23:47,840 --> 00:23:50,679 have teams who look at internal 598 00:23:50,679 --> 00:23:52,080 improvements and making sure that 599 00:23:52,080 --> 00:23:54,000 they're following the rules and 600 00:23:54,000 --> 00:23:55,840 regulations. And this is important 601 00:23:55,840 --> 00:23:57,400 because they want to try and minimize 602 00:23:57,400 --> 00:23:58,464 fines. 603 00:24:01,320 --> 00:24:02,840 Alright. Because you could get a 604 00:24:02,840 --> 00:24:04,799 government fine for not following a law 605 00:24:04,799 --> 00:24:07,080 or a regulation appropriately. You could 606 00:24:07,080 --> 00:24:10,809 be sued. It could create all sorts of issues. 607 00:24:14,620 --> 00:24:16,600 Alright. So, let's look the big 608 00:24:16,600 --> 00:24:19,880 firms. I worked for this one actually, 609 00:24:19,880 --> 00:24:21,679 well, the predecessor for this one, which 610 00:24:21,679 --> 00:24:23,640 was C&L brand, and then 611 00:24:23,640 --> 00:24:27,960 PwC. So the big four audit--probably--I 612 00:24:27,960 --> 00:24:30,919 think about 60% of the Australian stock 613 00:24:30,919 --> 00:24:34,279 exchange, and then these guys here pretty 614 00:24:34,279 --> 00:24:38,120 much audit the rest. Alright. So for 615 00:24:38,120 --> 00:24:40,559 those people who are going to a later 616 00:24:40,559 --> 00:24:43,000 afternoon to, and you'll have Kate, or 617 00:24:43,000 --> 00:24:45,159 you'll have Nicole, we actually have 618 00:24:45,159 --> 00:24:47,159 an agreement with Grant Thornton, where 619 00:24:47,159 --> 00:24:49,799 they actually send real life auditors in 620 00:24:49,799 --> 00:24:51,799 to teach tutorial. So you'll get to hear 621 00:24:51,799 --> 00:24:54,399 lots of stories from them. The people 622 00:24:54,399 --> 00:24:57,880 who are going to... who will have Ben 623 00:24:57,880 --> 00:25:01,240 this afternoon in the 12:00 to 624 00:25:01,240 --> 00:25:04,039 and I think also the 1:30 one. Ben works 625 00:25:04,039 --> 00:25:07,200 at a small local firm in terms of 626 00:25:07,200 --> 00:25:09,840 auditing. So he's got lots of experience 627 00:25:09,840 --> 00:25:12,279 in doing much smaller audits, which are 628 00:25:12,279 --> 00:25:14,919 required under the Corporations Act. 629 00:25:14,919 --> 00:25:17,480 So you've got a range of staff with a 630 00:25:17,480 --> 00:25:19,440 range of experience, and this means that 631 00:25:19,440 --> 00:25:21,520 auditors exist at all sorts of different 632 00:25:21,520 --> 00:25:24,279 levels. So I recently did the audit for 633 00:25:24,279 --> 00:25:26,320 ISAC, which is one of the university 634 00:25:26,320 --> 00:25:29,120 student groups. Audits happen for the 635 00:25:29,120 --> 00:25:31,960 big ASX listed companies. They happen for 636 00:25:31,960 --> 00:25:35,080 large privately listed--sorry--for large 637 00:25:35,080 --> 00:25:37,279 private companies. And they also happen 638 00:25:37,279 --> 00:25:39,360 for small companies that are required to 639 00:25:39,360 --> 00:25:42,600 have audits under the Corporations Act 640 00:25:42,600 --> 00:25:44,799 or maybe as part of charity 641 00:25:44,799 --> 00:25:48,240 regulations. Firms do audits but just 642 00:25:48,240 --> 00:25:49,720 of different sizes and of different 643 00:25:49,720 --> 00:25:53,640 scales. So the big four are so large and 644 00:25:53,640 --> 00:25:56,200 so specialized that people specialize by 645 00:25:56,200 --> 00:25:59,399 industry. So you audit mining firms or 646 00:25:59,399 --> 00:26:01,320 government firms or telecommunications 647 00:26:01,320 --> 00:26:03,559 or financial services. My 648 00:26:03,559 --> 00:26:05,960 specialization was financial services so 649 00:26:05,960 --> 00:26:08,279 I didn't get to see much. I always envied 650 00:26:08,279 --> 00:26:09,440 the people that got to audit 651 00:26:09,440 --> 00:26:11,240 manufacturing firms or mining firms 652 00:26:11,240 --> 00:26:12,960 because you could go places and see real 653 00:26:12,960 --> 00:26:15,399 things happening until one time I did 654 00:26:15,399 --> 00:26:17,600 get put on the audit of dairy farmers. 655 00:26:17,600 --> 00:26:19,720 And that's not so Glamorous, like milk 656 00:26:19,720 --> 00:26:22,880 processing plants really don't smell 657 00:26:22,880 --> 00:26:25,279 great. We did get to drink, you know, 658 00:26:25,279 --> 00:26:26,799 you had access to the corporate fridge, 659 00:26:26,799 --> 00:26:28,320 so I could drink all the milk that I 660 00:26:28,320 --> 00:26:30,320 could take. Though, I'm Asian, so I'm 661 00:26:30,320 --> 00:26:31,919 partly lactose intolerance that doesn't 662 00:26:31,919 --> 00:26:34,760 go down so well. But dairy farmers 663 00:26:34,760 --> 00:26:36,279 made yogurt, again, I couldn't eat too 664 00:26:36,279 --> 00:26:38,320 much of that. But fruit juice, I could 665 00:26:38,320 --> 00:26:39,640 drink the fruit juice all day so that 666 00:26:39,640 --> 00:26:42,000 was a good thing. So the public 667 00:26:42,000 --> 00:26:44,919 accounting firms, big ones and small ones 668 00:26:44,919 --> 00:26:47,600 provide audit services, so that's a big 669 00:26:47,600 --> 00:26:49,600 part of their bread and butter. Audit 670 00:26:49,600 --> 00:26:50,760 services though 671 00:26:50,760 --> 00:26:54,240 are high volume 672 00:26:54,240 --> 00:26:56,423 and low margin. 673 00:26:59,320 --> 00:27:01,080 That means you don't make a lot of money 674 00:27:01,080 --> 00:27:02,240 off an audit. 675 00:27:02,240 --> 00:27:04,799 Right? It's not a really 676 00:27:04,799 --> 00:27:07,440 profitable item to do. But the reason 677 00:27:07,440 --> 00:27:09,640 that you do an audit is so that you can 678 00:27:09,640 --> 00:27:13,120 convince your client to hire you to do 679 00:27:13,120 --> 00:27:15,799 other things, like tax which can be a 680 00:27:15,799 --> 00:27:18,039 little bit more lucrative and consulting 681 00:27:18,039 --> 00:27:20,360 services, that could be helping them 682 00:27:20,360 --> 00:27:23,200 expand into a new market, choosing a 683 00:27:23,200 --> 00:27:25,760 new information system, you get 684 00:27:25,760 --> 00:27:28,679 different departments within your 685 00:27:28,679 --> 00:27:30,919 audit firm to do that. But 686 00:27:30,919 --> 00:27:32,279 it's all about sort of growing the 687 00:27:32,279 --> 00:27:35,520 bigger audit firm share. So, something 688 00:27:35,520 --> 00:27:37,440 like management consulting services is 689 00:27:37,440 --> 00:27:40,039 really high margin. 690 00:27:40,360 --> 00:27:42,640 And towards my--at the end of my 691 00:27:42,640 --> 00:27:44,080 career, I did a lot more management 692 00:27:44,080 --> 00:27:47,679 consulting, and I remember back in 693 00:27:47,679 --> 00:27:50,480 19, oh, I think it was 1999, 694 00:27:50,480 --> 00:27:54,760 we had a $20,000,000 consulting job 695 00:27:54,760 --> 00:27:56,039 with the Australian Broadcasting 696 00:27:56,039 --> 00:27:58,279 Corporation just down the road for 697 00:27:58,279 --> 00:28:00,279 implementing new software. And that was a 698 00:28:00,279 --> 00:28:03,189 six-month project for $20,000,000. 699 00:28:03,189 --> 00:28:04,279 So, and you wouldn't earn 700 00:28:04,279 --> 00:28:06,000 anywhere near that much on an audit. 701 00:28:06,000 --> 00:28:07,559 You'd probably earn a few million 702 00:28:07,559 --> 00:28:09,159 dollars on an audit for about 6-8 703 00:28:09,159 --> 00:28:12,360 weeks work, so there's definitely lots 704 00:28:12,360 --> 00:28:14,000 of margin aid there. 705 00:28:14,000 --> 00:28:17,240 Now, you find very few firms that 706 00:28:17,240 --> 00:28:19,480 are in the sole proprietorship or the 707 00:28:19,480 --> 00:28:22,240 partnership model. That's because of the 708 00:28:22,240 --> 00:28:24,720 idea of joint and several liability, and 709 00:28:24,720 --> 00:28:26,720 that would mean that if the partner of 710 00:28:26,720 --> 00:28:28,000 the firm did something wrong and then 711 00:28:28,000 --> 00:28:30,080 they they skipped out of town, I would be 712 00:28:30,080 --> 00:28:32,799 liable as one of the partners left over. 713 00:28:32,799 --> 00:28:36,200 The big four firms these days, and most 714 00:28:36,200 --> 00:28:37,760 of our second tier are almost all 715 00:28:37,760 --> 00:28:39,519 incorporated companies. So while you have 716 00:28:39,519 --> 00:28:41,679 partners who are shareholders in the 717 00:28:41,679 --> 00:28:43,960 firm, they're not partners in the typical 718 00:28:43,960 --> 00:28:46,360 sense of a partnership. 719 00:28:46,360 --> 00:28:48,279 Now, in terms of the 720 00:28:48,279 --> 00:28:50,399 hierarchy or the shape of an audit 721 00:28:50,399 --> 00:28:53,880 firm, previously, they looked like this. 722 00:28:53,880 --> 00:28:56,519 Alright. So you had the partners 723 00:28:56,519 --> 00:28:59,200 at the very top and then lots of junior 724 00:28:59,200 --> 00:29:01,519 staff doing what we call grunt work, 725 00:29:01,519 --> 00:29:03,120 ticking and bashing, or ticking and 726 00:29:03,120 --> 00:29:06,559 flicking at the bottom. What we're seeing 727 00:29:06,559 --> 00:29:08,480 in terms of trends and the data that's 728 00:29:08,480 --> 00:29:09,880 coming out of CA, 729 00:29:09,880 --> 00:29:12,679 is that the audit firm is looking a 730 00:29:12,679 --> 00:29:13,880 lot more rectangular. 731 00:29:13,880 --> 00:29:16,760 Now, and that you're 732 00:29:16,760 --> 00:29:19,600 having a lot less staff at the junior 733 00:29:19,600 --> 00:29:21,120 levels and that comes from a number of 734 00:29:21,120 --> 00:29:23,399 different reasons. The first one 735 00:29:23,399 --> 00:29:25,691 is outsourcing 736 00:29:26,679 --> 00:29:28,880 or offshoring. 737 00:29:28,880 --> 00:29:32,760 And that's especially... you 738 00:29:32,760 --> 00:29:34,480 scan a lot of audit documentation then 739 00:29:34,480 --> 00:29:37,279 you would have had graduates, interns 740 00:29:37,279 --> 00:29:39,519 doing a lot of ticking and checking. All 741 00:29:39,519 --> 00:29:41,399 of that gets scanned and then sent off 742 00:29:41,399 --> 00:29:44,640 to India or, you know, Pakistan, and they 743 00:29:44,640 --> 00:29:46,440 do a whole lot of the audit checking 744 00:29:46,440 --> 00:29:48,120 work for about a third the price 745 00:29:48,120 --> 00:29:50,480 overnight. So the amount of staff doing 746 00:29:50,480 --> 00:29:53,480 that work is much less, and then we've 747 00:29:53,480 --> 00:29:55,919 also seen a lot more automation. So we're 748 00:29:55,919 --> 00:29:58,159 using a lot more big data, we're using a 749 00:29:58,159 --> 00:30:00,399 lot more intelligent agents, and 750 00:30:00,399 --> 00:30:03,480 artificial intelligence in audits. So, you 751 00:30:03,480 --> 00:30:04,799 know, the future is still looking bright 752 00:30:04,799 --> 00:30:06,360 for auditing, and auditing at this point 753 00:30:06,360 --> 00:30:08,919 is not going to be replaced by machines. 754 00:30:08,919 --> 00:30:10,640 But there's a lot less at the bottom 755 00:30:10,640 --> 00:30:12,760 level than there was before. 756 00:30:12,760 --> 00:30:14,919 What do the professional bodies 757 00:30:14,919 --> 00:30:16,880 do? They do a few different things: they 758 00:30:16,880 --> 00:30:18,440 help establish standards through the 759 00:30:18,440 --> 00:30:20,720 Auditing Standards Board, they do a lot 760 00:30:20,720 --> 00:30:22,760 of research and then the biggest 761 00:30:22,760 --> 00:30:24,600 one is education to make sure that once 762 00:30:24,600 --> 00:30:27,480 you become a member you are continuously 763 00:30:27,480 --> 00:30:31,279 up to date on latest auditing trends and 764 00:30:31,279 --> 00:30:33,480 changes within legislation, especially at 765 00:30:33,480 --> 00:30:34,960 the international level. 766 00:30:34,960 --> 00:30:37,279 Now, what about our auditing 767 00:30:37,279 --> 00:30:38,919 standards? Our auditing standards are 768 00:30:38,919 --> 00:30:40,679 called ASAs. 769 00:30:40,679 --> 00:30:43,080 Alright. And you can find those 770 00:30:43,080 --> 00:30:50,440 free on the auausb website. auasb.gov.au 771 00:30:50,440 --> 00:30:54,399 Now, remember our exam is open book, so 772 00:30:54,399 --> 00:30:56,320 you can bring in--oh, somebody has one of 773 00:30:56,320 --> 00:30:58,880 these--I'm just going to borrow this here. 774 00:30:58,880 --> 00:31:01,200 One of these handbooks, if you want all 775 00:31:01,200 --> 00:31:03,480 your standards in one book, or you could 776 00:31:03,480 --> 00:31:04,440 print them out. 777 00:31:04,440 --> 00:31:06,880 Alright. And bring them into the exam. 778 00:31:06,880 --> 00:31:08,159 You can bring your textbook into the 779 00:31:08,159 --> 00:31:11,399 exam. You could bring anything you like, 780 00:31:11,399 --> 00:31:12,600 comic books, if you think you're going to 781 00:31:12,600 --> 00:31:14,440 have time at the end to, you know, have a 782 00:31:14,440 --> 00:31:17,320 bit of a read. So you don't 783 00:31:17,320 --> 00:31:19,320 necessarily need to buy the standards 784 00:31:19,320 --> 00:31:21,200 book if you don't want to. You can look 785 00:31:21,200 --> 00:31:23,000 at them online and then print out the 786 00:31:23,000 --> 00:31:24,880 sections that you think you'll need. I 787 00:31:24,880 --> 00:31:26,320 will actually tell you in the last week 788 00:31:26,320 --> 00:31:27,480 of the term, which ones I think are going to 789 00:31:27,480 --> 00:31:29,960 be key ones for the final exam. So you 790 00:31:29,960 --> 00:31:31,440 don't have to worry about that. 791 00:31:31,440 --> 00:31:34,200 So the AUASB 792 00:31:34,200 --> 00:31:37,840 issues the auditing standards and 793 00:31:37,840 --> 00:31:39,679 we're internationally harmonized so 794 00:31:39,679 --> 00:31:41,440 they come down from the International 795 00:31:41,440 --> 00:31:44,960 Auditing Standards Board, and the key is 796 00:31:44,960 --> 00:31:46,519 that they are mandatory. 797 00:31:46,519 --> 00:31:48,600 Alright. So while some 798 00:31:48,600 --> 00:31:51,000 companies or some countries--sorry--the 799 00:31:51,000 --> 00:31:54,000 auditing standards say, "The auditor 800 00:31:54,000 --> 00:31:56,639 may..." Our auditing standards say, "The 801 00:31:56,639 --> 00:31:59,760 auditor must or the auditor shall..." 802 00:31:59,760 --> 00:32:02,240 because our requirements are enshrined 803 00:32:02,240 --> 00:32:05,440 within the Corporations Act. We must do 804 00:32:05,440 --> 00:32:08,679 them as the minimum set of standards. You 805 00:32:08,679 --> 00:32:10,320 could do more than what the standard 806 00:32:10,320 --> 00:32:13,519 says, but the minimum is contained within 807 00:32:13,519 --> 00:32:15,960 the ASAs, and we'll be referring back and 808 00:32:15,960 --> 00:32:17,480 I'll show you excerpts from the 809 00:32:17,480 --> 00:32:20,240 standards on a regular basis of things 810 00:32:20,240 --> 00:32:21,639 that are really critical and important 811 00:32:21,639 --> 00:32:23,080 to understand. 812 00:32:23,080 --> 00:32:25,440 Alright. So, how do we make 813 00:32:25,440 --> 00:32:27,360 sure that everybody who's doing an audit 814 00:32:27,360 --> 00:32:29,039 is doing the right thing that 815 00:32:29,039 --> 00:32:31,639 comes from quality control? And so 816 00:32:31,639 --> 00:32:37,039 quality control needs to exist across firms, 817 00:32:38,639 --> 00:32:41,880 and quality control also needs to 818 00:32:41,880 --> 00:32:45,320 exist within firms. 819 00:32:45,919 --> 00:32:48,559 Alright. So I need to make sure 820 00:32:48,559 --> 00:32:51,320 that PwC are doing the same minimum 821 00:32:51,320 --> 00:32:55,679 standard as KPMG, and then within PwC's, 822 00:32:55,679 --> 00:32:57,440 however many offices, we need to make 823 00:32:57,440 --> 00:32:59,760 sure that all staff are doing the same 824 00:32:59,760 --> 00:33:03,039 thing. And there are specific--whoops-- 825 00:33:03,039 --> 00:33:06,200 specific quality control standards 826 00:33:06,200 --> 00:33:09,000 that the auditing standards and the 827 00:33:09,000 --> 00:33:11,440 Corporations Act actually set out. So 828 00:33:11,440 --> 00:33:13,960 things about having leadership, 829 00:33:13,960 --> 00:33:15,679 meeting ethical and independence 830 00:33:15,679 --> 00:33:18,200 requirements, rules about how to accept 831 00:33:18,200 --> 00:33:21,080 clients, selecting the right people doing 832 00:33:21,080 --> 00:33:22,919 the audits, and then monitoring or 833 00:33:22,919 --> 00:33:24,279 checking each other. 834 00:33:24,279 --> 00:33:27,519 And that's where the peer review 835 00:33:27,519 --> 00:33:29,000 program comes in 836 00:33:29,000 --> 00:33:31,159 from chartered 837 00:33:31,159 --> 00:33:33,279 accountants and CPA Australia, where 838 00:33:33,279 --> 00:33:36,559 firms check each other's work to make 839 00:33:36,559 --> 00:33:38,519 sure that they're all following the 840 00:33:38,519 --> 00:33:40,639 standards appropriately. 841 00:33:40,639 --> 00:33:44,159 So CA and CPA both have 842 00:33:44,159 --> 00:33:45,919 sets of auditors that actually audit 843 00:33:45,919 --> 00:33:50,760 them. Also, on top of that, we have the 844 00:33:50,760 --> 00:33:53,880 Australian Securities and Investment 845 00:33:53,880 --> 00:33:56,720 Commission doing their own inspection 846 00:33:56,720 --> 00:33:58,346 program. 847 00:33:59,000 --> 00:34:00,720 Alright. So they audit the big four 848 00:34:00,720 --> 00:34:03,360 firms every single year. Smaller firms on 849 00:34:03,360 --> 00:34:05,960 a rotating schedule, and they can find 850 00:34:05,960 --> 00:34:08,000 audit firms for not complying with the 851 00:34:08,000 --> 00:34:10,480 auditing standards. I'll provide you 852 00:34:10,480 --> 00:34:13,000 guys with a link to look at the latest 853 00:34:13,000 --> 00:34:15,800 inspection report from ASIC. It 854 00:34:15,800 --> 00:34:18,679 doesn't actually show names of firms. 855 00:34:18,679 --> 00:34:20,239 This also happens in the U.S. and the U.S. 856 00:34:20,239 --> 00:34:22,000 has started naming firms who are not 857 00:34:22,000 --> 00:34:24,280 doing the right thing. So there's big 858 00:34:24,280 --> 00:34:27,440 bucks in making sure that everybody 859 00:34:27,440 --> 00:34:30,119 within the firm is doing the right 860 00:34:30,119 --> 00:34:31,719 thing in terms of following the order, 861 00:34:31,719 --> 00:34:33,800 standards, acting independently, and 862 00:34:33,800 --> 00:34:35,679 acting ethically. How are we doing on 863 00:34:35,679 --> 00:34:39,520 time? Oh, okay. Alright. Corporations Act. 864 00:34:39,520 --> 00:34:42,760 Besides governing company directors, 865 00:34:42,760 --> 00:34:46,679 setting up companies in Australia-- 866 00:34:46,679 --> 00:34:47,918 you guys have all done Australian 867 00:34:47,918 --> 00:34:50,839 company law? Have you guys done company law? 868 00:34:50,839 --> 00:34:52,079 Yep, or for the people who haven't done 869 00:34:52,079 --> 00:34:54,679 it yet? One of the assignments many, many 870 00:34:54,679 --> 00:34:56,918 years ago used to be prepare all the 871 00:34:56,918 --> 00:34:59,200 documents to start company. Right? We'd 872 00:34:59,200 --> 00:35:00,359 have to actually go back to the 873 00:35:00,359 --> 00:35:01,920 Corporations Act and figure out what 874 00:35:01,920 --> 00:35:04,280 that is. So while the Corporations Act 875 00:35:04,280 --> 00:35:06,800 specifies how companies get set up, it 876 00:35:06,800 --> 00:35:10,119 also specifies what auditors need to do. 877 00:35:10,119 --> 00:35:12,280 You need to be qualified, you need to be 878 00:35:12,280 --> 00:35:14,720 registered, management can't just choose 879 00:35:14,720 --> 00:35:17,400 the auditor, it has to be ratified by 880 00:35:17,400 --> 00:35:18,880 shareholders at an annual general 881 00:35:18,880 --> 00:35:21,280 meeting, we can't just quit as an auditor, 882 00:35:21,280 --> 00:35:22,280 there's all sorts of rules about 883 00:35:22,280 --> 00:35:24,599 quitting. What our responsibilities are 884 00:35:24,599 --> 00:35:25,760 and reporting. 885 00:35:25,760 --> 00:35:27,800 And you can go into those 886 00:35:27,800 --> 00:35:29,320 in more detail in the textbook. 887 00:35:29,320 --> 00:35:32,400 Alright. So here is the output, 888 00:35:32,400 --> 00:35:33,599 and this is really important. And you 889 00:35:33,599 --> 00:35:35,119 might be thinking, "Well, why am I 890 00:35:35,119 --> 00:35:38,560 interested in looking at the end point 891 00:35:38,560 --> 00:35:39,920 when we're only at the beginning?" And 892 00:35:39,920 --> 00:35:42,359 this is so that you have in your mind 893 00:35:42,359 --> 00:35:45,480 the idea of what we're striving for, or 894 00:35:45,480 --> 00:35:47,720 what we're planning to... 895 00:35:47,720 --> 00:35:52,079 So, we're going to look at why do 896 00:35:52,079 --> 00:35:54,960 we have the report? What goes into 897 00:35:54,960 --> 00:35:56,720 something called an unmodified audit 898 00:35:56,720 --> 00:35:58,640 report? We're going to look at when 899 00:35:58,640 --> 00:36:00,760 we might do different sorts of reports, 900 00:36:00,760 --> 00:36:05,760 and adding extra information. Okay. Now, before-- 901 00:36:05,760 --> 00:36:07,800 oh, I'm trying to remember what 902 00:36:07,800 --> 00:36:09,599 case it was--we'll go into the cases, I 903 00:36:09,599 --> 00:36:11,119 think next week. 904 00:36:11,119 --> 00:36:13,680 There was never a legal requirement 905 00:36:13,680 --> 00:36:15,480 to produce a paper audit report. You 906 00:36:15,480 --> 00:36:17,800 could have done a verbal audit report at 907 00:36:17,800 --> 00:36:20,520 one stage. But now, we must provide a 908 00:36:20,520 --> 00:36:22,880 written audit report about the financial 909 00:36:22,880 --> 00:36:24,760 statements in accordance with the 910 00:36:24,760 --> 00:36:27,560 Australian accounting the 911 00:36:27,560 --> 00:36:28,920 standards and our auditing 912 00:36:28,920 --> 00:36:31,000 standards. And reporting is pretty 913 00:36:31,000 --> 00:36:33,000 similar, to the point, where if you go to 914 00:36:33,000 --> 00:36:35,319 the auditing standard on audit reporting, 915 00:36:35,319 --> 00:36:37,480 there's actually templates in the back. 916 00:36:37,480 --> 00:36:39,640 And if you look at... almost all of the 917 00:36:39,640 --> 00:36:41,520 publicly listed companies their audit 918 00:36:41,520 --> 00:36:43,880 reports almost say exactly the same 919 00:36:43,880 --> 00:36:45,520 thing word for word except the company 920 00:36:45,520 --> 00:36:47,640 name is different, and the year might be 921 00:36:47,640 --> 00:36:49,040 different, and the name of the audit 922 00:36:49,040 --> 00:36:50,960 partner might be different. 923 00:36:50,960 --> 00:36:53,520 So audit reporting is fairly 924 00:36:53,520 --> 00:36:56,240 standardized and it has very specific 925 00:36:56,240 --> 00:36:58,720 legal language. Because it is a legal 926 00:36:58,720 --> 00:37:01,040 document that exposes the auditor to 927 00:37:01,040 --> 00:37:04,160 liability, if we've done something wrong. 928 00:37:04,160 --> 00:37:06,400 So, what is the gold standard that 929 00:37:06,400 --> 00:37:08,720 everybody is looking for? So, what most 930 00:37:08,720 --> 00:37:11,200 firms want... 931 00:37:12,640 --> 00:37:16,720 Firms want what we call an 932 00:37:16,720 --> 00:37:20,520 unmodified audit report, and it's also 933 00:37:20,520 --> 00:37:23,319 sometimes called an unqualified report. 934 00:37:23,319 --> 00:37:25,640 Now, this is where it's a bit funny and a 935 00:37:25,640 --> 00:37:26,520 bit counterintuitive. 936 00:37:26,520 --> 00:37:29,119 So when you do your CA, 937 00:37:29,119 --> 00:37:31,520 or you do a medical degree, or you finish 938 00:37:31,520 --> 00:37:34,040 your engineering qualification, you 939 00:37:34,040 --> 00:37:35,400 become qualified. 940 00:37:35,400 --> 00:37:38,359 Right? And qualified is a good 941 00:37:38,359 --> 00:37:41,560 thing. Okay? When it comes to an audit, it 942 00:37:41,560 --> 00:37:44,280 is the exact opposite. The one that 943 00:37:44,280 --> 00:37:47,079 people want... The one that says, 944 00:37:47,079 --> 00:37:50,880 "Big tick management are telling the 945 00:37:50,880 --> 00:37:54,359 truth, is something called an unqualified 946 00:37:54,359 --> 00:37:55,520 or an 947 00:37:55,520 --> 00:37:58,319 unmodified audit report." 948 00:37:58,319 --> 00:38:00,200 Okay. You might think why is it that way? 949 00:38:00,200 --> 00:38:02,480 I don't know. It's probably something I 950 00:38:02,480 --> 00:38:04,680 could historically dig into the 951 00:38:04,680 --> 00:38:06,800 archives and look at. Sometimes, I wonder 952 00:38:06,800 --> 00:38:08,400 if we do things sort of a bit back to 953 00:38:08,400 --> 00:38:10,960 front in auditing to make it seem really 954 00:38:10,960 --> 00:38:13,400 mysterious and difficult. Because 955 00:38:13,400 --> 00:38:15,160 auditing is a lot about logic and common 956 00:38:15,160 --> 00:38:16,599 sense, and we don't want too many people 957 00:38:16,599 --> 00:38:18,359 getting into the awesome area that is 958 00:38:18,359 --> 00:38:20,680 auditing. So we want to make it seem 959 00:38:20,680 --> 00:38:22,800 really complicated and tricky by using 960 00:38:22,800 --> 00:38:25,240 language that doesn't quite make sense. 961 00:38:25,240 --> 00:38:27,599 So most firms 962 00:38:27,599 --> 00:38:29,480 probably about-- 963 00:38:29,480 --> 00:38:31,839 I think the last time we checked-- 964 00:38:31,839 --> 00:38:35,119 it was something like 98% of firms on 965 00:38:35,119 --> 00:38:38,240 the ASX, get an unqualified, unmodified 966 00:38:38,240 --> 00:38:40,800 report. Management are telling the truth. 967 00:38:40,800 --> 00:38:43,240 Now that sends a signal to shareholders. 968 00:38:43,240 --> 00:38:46,200 That says, "Management, telling the truth. 969 00:38:46,200 --> 00:38:47,720 You can rely on this information for 970 00:38:47,720 --> 00:38:51,079 your decision-making." Alright. What happens 971 00:38:51,079 --> 00:38:53,760 do you think to company share 972 00:38:53,760 --> 00:38:55,920 prices, if I give them the opposite? If I 973 00:38:55,920 --> 00:38:57,920 say, "Management are not being truthful, 974 00:38:57,920 --> 00:39:00,200 and here are the reasons why." What do you 975 00:39:00,200 --> 00:39:01,800 think is going to happen to share 976 00:39:01,800 --> 00:39:04,560 price? it's going to go down and it goes 977 00:39:04,560 --> 00:39:07,119 down pretty quickly in terms of what 978 00:39:07,119 --> 00:39:08,680 we see from the research, in terms of 979 00:39:08,680 --> 00:39:11,280 share price reaction. So firms want this. 980 00:39:11,280 --> 00:39:13,920 Managers want to work with us, as the 981 00:39:13,920 --> 00:39:16,680 auditors, to come to an agreement on a 982 00:39:16,680 --> 00:39:18,240 set of financial statements that we 983 00:39:18,240 --> 00:39:21,839 think is unqualified, is free from misstatement. 984 00:39:21,839 --> 00:39:25,480 So ASA--this is our first ASA-- 985 00:39:25,480 --> 00:39:27,880 700 and all the the ones I'm reporting 986 00:39:27,880 --> 00:39:30,280 are in the 700 area. Say that we want 987 00:39:30,280 --> 00:39:33,440 to get reasonable assurance that it's 988 00:39:33,440 --> 00:39:36,040 free from misstatements due to fraud or 989 00:39:36,040 --> 00:39:37,920 error. So I'm not interested--I don't care 990 00:39:37,920 --> 00:39:40,720 whether it's a mistake, a type 5,000, 991 00:39:40,720 --> 00:39:43,640 instead of 500,000, or it's fraud, I have 992 00:39:43,640 --> 00:39:46,280 a responsibility to detect those. I want 993 00:39:46,280 --> 00:39:48,000 to make sure that it matches the 994 00:39:48,000 --> 00:39:50,880 applicable financial reporting framework, 995 00:39:50,880 --> 00:39:54,160 which for us is at AASBs. 996 00:39:54,319 --> 00:39:57,440 Alright. And that it is a fair 997 00:39:57,440 --> 00:39:58,599 presentation 998 00:39:58,599 --> 00:40:01,119 that it fairly represents 999 00:40:01,119 --> 00:40:03,040 what happened during the 1000 00:40:03,040 --> 00:40:05,839 company's financial period. So if the 1001 00:40:05,839 --> 00:40:07,480 company was exposed to a lot of 1002 00:40:07,480 --> 00:40:10,040 fluctuation changes and adverse 1003 00:40:10,040 --> 00:40:12,640 movements in foreign exchange, and a 1004 00:40:12,640 --> 00:40:14,560 decline in sales, then we'd expect to see 1005 00:40:14,560 --> 00:40:17,200 a loss from that company. Is what we're 1006 00:40:17,200 --> 00:40:19,880 seeing commensurate with what we know 1007 00:40:19,880 --> 00:40:22,359 about the firm? And then making sure 1008 00:40:22,359 --> 00:40:24,640 that the financial report is, again, in 1009 00:40:24,640 --> 00:40:27,500 accordance with our double AASBs. 1010 00:40:28,560 --> 00:40:30,560 There's all sorts of parts to the audit 1011 00:40:30,560 --> 00:40:34,000 report, and this has actually 1012 00:40:34,000 --> 00:40:37,599 changed a little bit. So this bit here 1013 00:40:37,599 --> 00:40:40,000 used to be right at the end. We have a 1014 00:40:40,000 --> 00:40:41,920 new standard change, so in the textbook, 1015 00:40:41,920 --> 00:40:42,760 this is going to be a little bit 1016 00:40:42,760 --> 00:40:43,960 different than what you're looking at 1017 00:40:43,960 --> 00:40:49,119 right here. New ASA 700 now says that 1018 00:40:49,119 --> 00:40:51,319 we tell the shareholders the very first 1019 00:40:51,319 --> 00:40:54,359 thing, here's our opinion. We used to give 1020 00:40:54,359 --> 00:40:56,760 them all this legal jargon first, all 1021 00:40:56,760 --> 00:40:59,480 this other crap used to come first, and 1022 00:40:59,480 --> 00:41:01,160 then we would do this sort of at the end. 1023 00:41:01,160 --> 00:41:03,440 But now it's right at the front, to make 1024 00:41:03,440 --> 00:41:05,520 sure that shareholders know what's going 1025 00:41:05,520 --> 00:41:10,119 on. Now on UTS online, in this week's 1026 00:41:10,119 --> 00:41:12,640 folder, I've also put a whole lot of 1027 00:41:12,640 --> 00:41:14,400 audited opinions in there for you to 1028 00:41:14,400 --> 00:41:18,359 look at. And I'll also copy in for you 1029 00:41:18,359 --> 00:41:21,040 the link to the QBE Insurance 1030 00:41:21,040 --> 00:41:24,720 annual report because it is 1031 00:41:24,720 --> 00:41:27,440 one of the few early adopters of some 1032 00:41:27,440 --> 00:41:29,400 new regulations. And so I'll make a 1033 00:41:29,400 --> 00:41:30,760 little video on that in a couple of 1034 00:41:30,760 --> 00:41:34,720 weeks as well. Alright. Now, what happens 1035 00:41:34,720 --> 00:41:37,520 if management aren't being truthful? How 1036 00:41:37,520 --> 00:41:39,480 do I know what sort of opinion to give 1037 00:41:39,480 --> 00:41:41,800 them? Then, I'm going to use this table, 1038 00:41:41,800 --> 00:41:44,920 and this table comes out of ASA 700, 1039 00:41:44,920 --> 00:41:48,160 705--sorry. And so I'm just going to lean 1040 00:41:48,160 --> 00:41:49,560 over here because I want to write some 1041 00:41:49,560 --> 00:41:52,680 numbers here. So step one is this step 1042 00:41:52,680 --> 00:41:54,280 over here. 1043 00:41:54,280 --> 00:41:57,280 Alright. The first thing I want to 1044 00:41:57,280 --> 00:41:59,400 do is find out why I'm not giving an 1045 00:41:59,400 --> 00:42:01,839 unqualified opinion. Number one: The 1046 00:42:01,839 --> 00:42:04,359 financial report is materially misstated. 1047 00:42:04,359 --> 00:42:06,880 That is, essentially, saying management 1048 00:42:06,880 --> 00:42:09,520 are not being truthful 1049 00:42:09,640 --> 00:42:12,800 about something. Alright. So 1050 00:42:12,800 --> 00:42:14,880 they're understating a number, 1051 00:42:14,880 --> 00:42:16,720 they're failing to make a disclosure, 1052 00:42:16,720 --> 00:42:19,000 they're just lying about something. 1053 00:42:19,000 --> 00:42:21,520 Alright. The second one, which is this one 1054 00:42:21,520 --> 00:42:24,079 here, is that we cannot get enough 1055 00:42:24,079 --> 00:42:27,599 evidence. Alright. So not 1056 00:42:27,599 --> 00:42:29,529 enough evidence. 1057 00:42:30,480 --> 00:42:32,760 This is a bit like Donald Trump 1058 00:42:32,760 --> 00:42:35,359 refusing to release his tax returns. 1059 00:42:35,359 --> 00:42:36,800 Can't make an opinion if I don't have 1060 00:42:36,800 --> 00:42:40,319 any information. So step one is I look at 1061 00:42:40,319 --> 00:42:42,280 well, what are the two reasons why I 1062 00:42:42,280 --> 00:42:44,640 might go away from the 1063 00:42:44,640 --> 00:42:48,040 unqualified? Step two is I need to look 1064 00:42:48,040 --> 00:42:50,480 at the severity, and there's two terms 1065 00:42:50,480 --> 00:42:53,000 here, material but not pervasive or 1066 00:42:53,000 --> 00:42:55,240 material and pervasive. For material, 1067 00:42:55,240 --> 00:42:56,559 it means it's important enough that we 1068 00:42:56,559 --> 00:42:59,119 think shareholders should know about it, 1069 00:42:59,119 --> 00:43:00,760 but not pervasive. And I'm going to 1070 00:43:00,760 --> 00:43:02,200 introduce you to two different 1071 00:43:02,200 --> 00:43:03,760 characters here, and I didn't name these 1072 00:43:03,760 --> 00:43:05,160 guys--actually one of my other lectures 1073 00:43:05,160 --> 00:43:06,599 did. 1074 00:43:06,599 --> 00:43:10,359 So here we have Norman, 1075 00:43:10,440 --> 00:43:12,809 Norman the 1076 00:43:12,809 --> 00:43:17,150 non-pervasive slug. 1077 00:43:17,640 --> 00:43:20,839 Alright. And so Norman's there 1078 00:43:20,839 --> 00:43:22,400 because if you imagine your financial 1079 00:43:22,400 --> 00:43:24,720 statements--let me pick a different color 1080 00:43:24,720 --> 00:43:26,720 here--so imagine you've got your 1081 00:43:26,720 --> 00:43:29,200 financial statements and all of your 1082 00:43:29,200 --> 00:43:30,240 different 1083 00:43:30,240 --> 00:43:33,640 accounts here. If you prong to Norman on 1084 00:43:33,640 --> 00:43:35,079 one of those, 1085 00:43:35,079 --> 00:43:39,760 alright, and you said, "Okay, Norman 1086 00:43:39,760 --> 00:43:43,359 is right here." Norman's only can self-contain. 1087 00:43:43,359 --> 00:43:45,599 Right? He's only in a small 1088 00:43:45,599 --> 00:43:47,920 part of the financial statements. So 1089 00:43:47,920 --> 00:43:50,240 Norman is the situation where we have 1090 00:43:50,240 --> 00:43:52,480 either something not truthful or not 1091 00:43:52,480 --> 00:43:56,040 enough evidence in just one spot, and in 1092 00:43:56,040 --> 00:43:58,839 that case, we give an opinion called a 1093 00:43:58,839 --> 00:44:00,280 qualified opinion. 1094 00:44:00,280 --> 00:44:04,599 Okay. Now the second person I'm 1095 00:44:04,599 --> 00:44:07,400 going to introduce you to-- 1096 00:44:07,400 --> 00:44:09,920 let me make sure my pen is a bit 1097 00:44:09,920 --> 00:44:14,520 smaller, maybe I'll type, here we go--is 1098 00:44:16,160 --> 00:44:19,960 Perry, the pervasive octopus. 1099 00:44:20,240 --> 00:44:22,480 And I'd always use the octopus 1100 00:44:22,480 --> 00:44:24,559 but I've never named him, and then Nelson 1101 00:44:24,559 --> 00:44:26,839 who does our night classes said, "We 1102 00:44:26,839 --> 00:44:29,559 need to give the octopus a name." So his 1103 00:44:29,559 --> 00:44:30,800 name is Perry. 1104 00:44:30,800 --> 00:44:34,160 So if I took Perry, and I put Perry 1105 00:44:34,160 --> 00:44:35,599 on the financial statements 1106 00:44:35,599 --> 00:44:38,119 as my octopus. 1107 00:44:38,119 --> 00:44:40,859 Alright. 1108 00:44:41,119 --> 00:44:44,319 There's his body, there's his 1109 00:44:44,319 --> 00:44:46,480 little legs 1110 00:44:46,480 --> 00:44:48,680 everywhere--oh, that's not, that's a 1111 00:44:48,680 --> 00:44:50,800 really, you obviously, I'm not, you're not 1112 00:44:50,800 --> 00:44:53,359 coming for the art--but the idea with 1113 00:44:53,359 --> 00:44:56,640 Perry is that his little tentacles reach 1114 00:44:56,640 --> 00:44:59,000 far and wide across the financial 1115 00:44:59,000 --> 00:45:01,040 statements. So that is what we call 1116 00:45:01,040 --> 00:45:03,319 pervasive. Alright? There's lots of 1117 00:45:03,319 --> 00:45:06,559 tentacles of errors, so if I have errors 1118 00:45:06,559 --> 00:45:08,119 in the financial statements and I have 1119 00:45:08,119 --> 00:45:09,559 lots of them across lots of different 1120 00:45:09,559 --> 00:45:11,280 areas, I say, "I'm going to give an adverse 1121 00:45:11,280 --> 00:45:13,440 opinion," like "This is bad." This is the 1122 00:45:13,440 --> 00:45:14,920 signal to shareholders that management 1123 00:45:14,920 --> 00:45:17,040 aren't being truthful on a range of 1124 00:45:17,040 --> 00:45:19,960 things. If I can't get enough information 1125 00:45:19,960 --> 00:45:22,760 over a lot of different areas, then 1126 00:45:22,760 --> 00:45:24,200 Perry's going to say give me a 1127 00:45:24,200 --> 00:45:26,520 disclaimer of an opinion. And disclaimer 1128 00:45:26,520 --> 00:45:28,520 means that I'm not actually giving an 1129 00:45:28,520 --> 00:45:30,800 opinion at all. It's no 1130 00:45:30,800 --> 00:45:35,040 opinion. Alright. So you've got Norman, 1131 00:45:35,040 --> 00:45:36,480 and you've got Perry. 1132 00:45:36,480 --> 00:45:39,160 Okay. And a lot of students even 1133 00:45:39,160 --> 00:45:41,440 draw the little animals, that's cool. 1134 00:45:41,440 --> 00:45:42,960 But that's a way to figure out the 1135 00:45:42,960 --> 00:45:45,760 different sorts of modified audit 1136 00:45:45,760 --> 00:45:47,559 reports when I say, "I'm not going to give 1137 00:45:47,559 --> 00:45:49,839 an unqualified... I think something's 1138 00:45:49,839 --> 00:45:52,599 wrong." Then, there's my options right there. 1139 00:45:53,529 --> 00:45:56,810 Now. Okay. 1140 00:45:57,780 --> 00:46:01,020 Sometimes, everything is truthful. 1141 00:46:01,880 --> 00:46:04,839 I have an unmodified or unqualified report, but 1142 00:46:04,839 --> 00:46:06,920 I want to say, "Shareholders, I want to 1143 00:46:06,920 --> 00:46:08,880 draw your attention to some extra 1144 00:46:08,880 --> 00:46:13,400 information." And I do that using an 1145 00:46:13,400 --> 00:46:15,680 emphasis of matter paragraph. What color 1146 00:46:15,680 --> 00:46:19,119 pen am I using? Oh, let's change that to blue. 1147 00:46:19,119 --> 00:46:22,520 Alright. I use an emphasis of 1148 00:46:22,520 --> 00:46:25,200 matter paragraph, sometimes shortened to 1149 00:46:25,200 --> 00:46:26,828 an EOM. 1150 00:46:27,740 --> 00:46:29,510 Okay. Now, the emphasis of matter 1151 00:46:29,760 --> 00:46:33,440 paragraph says, "Everything is fine. But I 1152 00:46:33,440 --> 00:46:36,119 just want to draw your attention to a 1153 00:46:36,119 --> 00:46:37,880 new joint venture the company might be 1154 00:46:37,880 --> 00:46:40,880 involved in." Some unusual accounting 1155 00:46:40,880 --> 00:46:42,520 about something that is a little bit 1156 00:46:42,520 --> 00:46:46,040 different that we've found a mistake 1157 00:46:46,040 --> 00:46:47,599 in the previous report and we're now 1158 00:46:47,599 --> 00:46:50,079 revising it and reissuing it. So this is 1159 00:46:50,079 --> 00:46:51,760 still saying that management is still 1160 00:46:51,760 --> 00:46:54,240 being truthful, but my emphasis of matter 1161 00:46:54,240 --> 00:46:57,000 is just highlighting extra information 1162 00:46:57,000 --> 00:46:59,480 to shareholders. Alright. And in the 1163 00:46:59,480 --> 00:47:01,839 bundle on UTS online, you'll actually see 1164 00:47:01,839 --> 00:47:04,480 some examples of the sorts of things 1165 00:47:04,480 --> 00:47:07,000 that could go in emphasis of matter. 1166 00:47:07,000 --> 00:47:10,160 Probably, the biggest one is emphasis 1167 00:47:10,160 --> 00:47:12,559 of matter about going concerned. Do we 1168 00:47:12,559 --> 00:47:15,040 understand the concept of going concern? 1169 00:47:15,040 --> 00:47:17,839 Yes? Hopefully, that we expect companies 1170 00:47:17,839 --> 00:47:20,359 to continue in the future. If the company 1171 00:47:20,359 --> 00:47:22,359 is experiencing financial distress, 1172 00:47:22,359 --> 00:47:24,960 but they are being truthful 1173 00:47:24,960 --> 00:47:27,040 about their financial distress. So they're 1174 00:47:27,040 --> 00:47:29,880 showing a loss, they're showing lots of 1175 00:47:29,880 --> 00:47:32,480 debts and not many assets, then we can 1176 00:47:32,480 --> 00:47:34,359 still give them the big tick in the 1177 00:47:34,359 --> 00:47:36,400 financial report because they're being 1178 00:47:36,400 --> 00:47:38,520 truthful. But we might want to say, "Hey, 1179 00:47:38,520 --> 00:47:40,400 shareholders. There are some financial 1180 00:47:40,400 --> 00:47:42,559 difficulties at this firm. We do need to 1181 00:47:42,559 --> 00:47:45,694 warn you about those." So that's important. 1182 00:47:46,160 --> 00:47:49,920 Now, this is new. This is not going to be 1183 00:47:49,920 --> 00:47:52,839 in any textbook that you're looking 1184 00:47:52,839 --> 00:47:54,720 at--oh, I think there's a new textbook 1185 00:47:54,720 --> 00:47:55,800 coming out at the end of this year that 1186 00:47:55,800 --> 00:47:58,280 will have it in it. New standard is 1187 00:47:58,280 --> 00:48:02,119 ASA 701 about communicating key audit 1188 00:48:02,119 --> 00:48:04,960 matters in the auditor's report. And up 1189 00:48:04,960 --> 00:48:07,640 until this point in time, 1190 00:48:07,640 --> 00:48:10,640 what the auditors did was a black box. 1191 00:48:10,640 --> 00:48:12,480 The audit report simply said he's 1192 00:48:12,480 --> 00:48:15,400 our opinion, unmodified, unqualified, or 1193 00:48:15,400 --> 00:48:18,599 one of the other options, and that was 1194 00:48:18,599 --> 00:48:21,920 it. Now, the auditors must disclose 1195 00:48:21,920 --> 00:48:25,079 parts of the processes that 1196 00:48:25,079 --> 00:48:27,160 they go through to make their opinion. 1197 00:48:27,160 --> 00:48:29,000 Alright. Now, not for everything--oh, this 1198 00:48:29,000 --> 00:48:30,480 is how we audited sales, this is how we 1199 00:48:30,480 --> 00:48:32,000 audited cash, this is how we audited a 1200 00:48:32,000 --> 00:48:34,920 property of plant and equipment--instead, 1201 00:48:34,920 --> 00:48:38,400 it's only for areas that they think 1202 00:48:38,400 --> 00:48:41,240 there was significant judgment or that 1203 00:48:41,240 --> 00:48:43,119 they found particularly difficult, which 1204 00:48:43,119 --> 00:48:47,559 they call Key Audit Matters or KAMs. 1205 00:48:48,480 --> 00:48:49,670 Alright. 1206 00:48:50,310 --> 00:48:54,520 Now, the idea is to have increased 1207 00:48:54,520 --> 00:48:57,359 transparency over decision-making. If I 1208 00:48:57,359 --> 00:49:00,520 know how auditors made a difficult 1209 00:49:00,520 --> 00:49:02,880 decision about writing down an 1210 00:49:02,880 --> 00:49:06,680 intangible asset, then that allows me to 1211 00:49:06,680 --> 00:49:08,000 interpret the information in the 1212 00:49:08,000 --> 00:49:10,040 financial report with a little bit more 1213 00:49:10,040 --> 00:49:12,079 clarity. So this is about trying to make 1214 00:49:12,079 --> 00:49:14,920 auditors accountable and giving expert 1215 00:49:14,920 --> 00:49:16,640 uses of financial statements more 1216 00:49:16,640 --> 00:49:18,400 information. Now, I'm pretty sure the key 1217 00:49:18,400 --> 00:49:20,400 audit matters, my mom and dad are still 1218 00:49:20,400 --> 00:49:22,319 going to gloss over and be, like, "Oh, 1219 00:49:22,319 --> 00:49:24,400 whatever." Right? They look at the glossy 1220 00:49:24,400 --> 00:49:25,960 front part of the annual report with 1221 00:49:25,960 --> 00:49:28,960 smiling employees and graphs that go up. 1222 00:49:28,960 --> 00:49:30,240 They're not really looking at the 1223 00:49:30,240 --> 00:49:33,200 tricky bit at the back, but your share 1224 00:49:33,200 --> 00:49:35,920 analysts, your fun managers. 1225 00:49:35,920 --> 00:49:38,119 Those people are going to be 1226 00:49:38,119 --> 00:49:39,359 looking at the key audit matters and 1227 00:49:39,359 --> 00:49:41,880 saying, "Okay, well, this is an account like 1228 00:49:41,880 --> 00:49:44,319 intangibles that has a lot of discretion 1229 00:49:44,319 --> 00:49:46,599 by managers and the auditors. How did 1230 00:49:46,599 --> 00:49:49,839 they handle different opinions? How did 1231 00:49:49,839 --> 00:49:52,160 they handle a standard that was really, 1232 00:49:52,160 --> 00:49:53,680 you could do a couple of different 1233 00:49:53,680 --> 00:49:57,160 things?" Now, this must come in for all 1234 00:49:57,160 --> 00:50:00,240 financial years after the 31st of 1235 00:50:00,240 --> 00:50:02,640 December, at the end of this year. However, 1236 00:50:02,640 --> 00:50:05,240 we have three firms who are early adopters: 1237 00:50:05,240 --> 00:50:08,760 QBE Insurance, Cochelar, which are 1238 00:50:08,760 --> 00:50:11,359 the medical implants, and the Australian 1239 00:50:11,359 --> 00:50:12,960 Stock Exchange Limited because the stock 1240 00:50:12,960 --> 00:50:14,839 exchange is a public entity. They've 1241 00:50:14,839 --> 00:50:17,119 actually gone ahead. I'll include some 1242 00:50:17,119 --> 00:50:18,640 links so that you can look at the actual 1243 00:50:18,640 --> 00:50:21,280 key audit matters. And over the next 1244 00:50:21,280 --> 00:50:22,799 coming weeks, I'm going to make a video 1245 00:50:22,799 --> 00:50:24,760 where I actually walk through their 1246 00:50:24,760 --> 00:50:26,440 financial statements, and talk a little 1247 00:50:26,440 --> 00:50:29,520 bit about what goes into these 1248 00:50:29,520 --> 00:50:32,240 KAMs. At the moment, firms can write a lot, 1249 00:50:32,240 --> 00:50:34,880 or they can write a little. KAMs 1250 00:50:34,880 --> 00:50:38,000 first came in the UK, or here's the 1251 00:50:38,000 --> 00:50:39,400 requirements that says what they need to 1252 00:50:39,400 --> 00:50:42,880 do. It's not very exciting but there 1253 00:50:42,880 --> 00:50:45,319 is a risk. There's nothing to say how 1254 00:50:45,319 --> 00:50:47,040 many key audit matters the auditor needs 1255 00:50:47,040 --> 00:50:49,520 to describe, and when this was first 1256 00:50:49,520 --> 00:50:51,599 introduced in the first place, it came 1257 00:50:51,599 --> 00:50:53,640 up was in the UK 1258 00:50:53,640 --> 00:50:57,480 about 2012, I think it started. 1259 00:50:58,080 --> 00:51:00,600 Rolls-Royce and I think it was KPMG at 1260 00:51:01,000 --> 00:51:05,240 the time, wrote something like 12 pages 1261 00:51:05,240 --> 00:51:08,240 on key audit matters in tiny, tiny, tiny 1262 00:51:08,240 --> 00:51:09,640 font. It was a lot of 1263 00:51:09,640 --> 00:51:12,680 information. The very same year, Vodafone 1264 00:51:12,680 --> 00:51:15,640 wrote about two pages. The audit of a 1265 00:51:15,640 --> 00:51:18,200 Vodafone in the UK wrote about two pages on 1266 00:51:18,200 --> 00:51:20,920 key audit matters. Both were deemed to be 1267 00:51:20,920 --> 00:51:23,359 compliant with the standard. So, what we 1268 00:51:23,359 --> 00:51:25,119 worry about is something that we call 1269 00:51:25,119 --> 00:51:28,000 boiler plating. So the audit partner is 1270 00:51:28,000 --> 00:51:30,640 meant to really describe the tricky 1271 00:51:30,640 --> 00:51:33,160 decision-making per processes they went 1272 00:51:33,160 --> 00:51:36,440 through to look at auditing this really 1273 00:51:36,440 --> 00:51:38,799 difficult part of the firm. But what we 1274 00:51:38,799 --> 00:51:41,240 worry about is that firms will have 1275 00:51:41,240 --> 00:51:44,280 standard lines that they will use for 1276 00:51:44,280 --> 00:51:46,319 different things, and that won't provide 1277 00:51:46,319 --> 00:51:48,960 too much information, it'll just be a 1278 00:51:48,960 --> 00:51:51,799 standardized line that might not say 1279 00:51:51,799 --> 00:51:53,200 anything at all. And sometimes the 1280 00:51:53,200 --> 00:51:55,960 wording has been really, really bizarre. 1281 00:51:55,960 --> 00:51:57,520 In one of the early ones I read from 1282 00:51:57,520 --> 00:52:00,329 Rolls-Royce, it said something about 1283 00:52:00,799 --> 00:52:04,359 the auditor is reasonably optimistic 1284 00:52:04,359 --> 00:52:08,040 that management's forecasts are based on 1285 00:52:08,040 --> 00:52:10,400 reasonable assumptions of blah, blah, blah, 1286 00:52:10,400 --> 00:52:11,839 blah, blah. I'm like, what does reasonably 1287 00:52:11,839 --> 00:52:12,920 optimistic 1288 00:52:12,920 --> 00:52:15,520 mean? So there is going to be some issue 1289 00:52:15,520 --> 00:52:18,920 about what we see and I tell you that 1290 00:52:18,920 --> 00:52:20,640 the auditing researchers and the 1291 00:52:20,640 --> 00:52:22,799 linguists are all going to be looking at 1292 00:52:22,799 --> 00:52:25,520 this information of this topic very 1293 00:52:25,520 --> 00:52:27,960 closely. Alright. Oh, and we're doing--I'm 1294 00:52:27,960 --> 00:52:30,160 ahead of time. This is awesome. So if you 1295 00:52:30,160 --> 00:52:31,400 didn't get a subject outline, they're 1296 00:52:31,400 --> 00:52:33,040 down here at the front. Come grab one. 1297 00:52:33,040 --> 00:52:36,119 Next week, we start the weekly accessible quizzes. 1298 00:52:36,119 --> 00:52:39,400 Your quizzes will start 5 1299 00:52:39,400 --> 00:52:41,680 minutes past the start of your class 1300 00:52:41,680 --> 00:52:44,319 time. So my 9:00 class in the morning, 1301 00:52:44,319 --> 00:52:47,040 quiz starts at 9:05 AM, and if you're 1302 00:52:47,040 --> 00:52:48,280 late. that doesn't matter. You don't get 1303 00:52:48,280 --> 00:52:51,319 any extra time. How do you prep? You can 1304 00:52:51,319 --> 00:52:52,799 look at the textbook. There'll be some 1305 00:52:52,799 --> 00:52:55,920 videos. This lecture video will go up 1306 00:52:55,920 --> 00:52:58,200 and remember, it's open book. 1307 00:52:58,200 --> 00:53:01,160 Okay. So bring as much stuff as you 1308 00:53:01,160 --> 00:53:03,920 want. You can use the Internet. And one 1309 00:53:03,920 --> 00:53:08,160 other thing. Shhh. Just one last thing: Make sure 1310 00:53:08,160 --> 00:53:11,240 that the night before or the day 1311 00:53:11,240 --> 00:53:12,559 before, and I'm going to send you a 1312 00:53:12,559 --> 00:53:14,839 reminder email about this, that you can 1313 00:53:14,839 --> 00:53:16,920 log into Learning Catalytics. If you 1314 00:53:16,920 --> 00:53:18,319 haven't written down your password 1315 00:53:18,319 --> 00:53:20,200 somewhere, make sure you write it down 1316 00:53:20,200 --> 00:53:22,119 because the retrieve password function 1317 00:53:22,119 --> 00:53:26,640 in LC takes 6 hours. So if you need to 1318 00:53:26,640 --> 00:53:28,359 reset your password, you need to do it 1319 00:53:28,359 --> 00:53:30,680 well ahead of time because there's no 1320 00:53:30,680 --> 00:53:32,720 paper quizzes if you don't bring your 1321 00:53:32,720 --> 00:53:35,319 device. If you need a device or you don't 1322 00:53:35,319 --> 00:53:37,079 have one, come talk to me. We do have 1323 00:53:37,079 --> 00:53:40,160 spares you can borrow. Otherwise, thank 1324 00:53:40,160 --> 00:53:41,599 you for coming along to our first week, 1325 00:53:41,599 --> 00:53:43,775 and I will see you next week.