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Hi6026 | Academic Research Support Assessment Answer



BHP Billiton that was incorporated in 1985 is the entity for global resources. It produces different commodities that includes uranium, metallurgical coal, copper and iron ore. Various segments of the company include petroleum, coal, copper and iron ore.  It sells its diversified products through direct arrangement with the customers for supply and on the global commodity exchanges. The business of the company covers Minerals Americas, marketing, petroleum and Minerals Australia. The main objective of the report is to focus on the auditing matters like independence of the auditor, non-audit services delivered by the auditor, key audit matters, audit committee and audit opinion expressed by the auditors and auditor’s responsibilities. The report will further highlight the subsequent material events involved in the annual report of the company. Finally the conclusion will be provided on the basis of effectiveness of material information those are reported by auditor (BHP 2018).

Auditor’s independence 

It has been found from the auditor’s declaration to the directors of BHP Billiton, as per Section 307C of Australian Corporation Act 2001, the auditor declared that to the best of his belief and knowledge there were –

  • No contraventions on the auditor’s part regarding the independence requirement as per the requirement of Australian Corporation act 2001 regarding audit procedure.
  • No contraventions found for any applicable code regarding professional conduct for audit procedure (Mostafa Mohamed and Hussien Habib 2013).

The declaration provided were related to BHP Billiton Limited and the companies those are controlled by it for the year ended 30th June 2017. Therefore, from the auditor’s declaration it can be stated that the auditor complied with the requirement of independence (Guénin-Paracini, Malsch and Tremblay 2014).


Non-audit services

Though the outside auditor offers few non-audit services, independence and objectivity of the outside auditor are protected through the restrictions applied with regard to the stipulation of those services. For instance, some of the non-audit services can be carried on by the outside auditor with aforementioned permission and approval of RAC. Other services are not carried out at all where the auditor is required to provide services where he may be needed –

  • To audit the work done by him

  • To take part in the activities that are generally carried out by the management
  • To be remunerated through the “success fee” structure
  • To act under advocacy role for the entity (Tepalagul and Lin 2015).

RAC has applied the policy named as “provision of audit and other services by the outside auditor”. It covers the pre-approval procedures and policies of RAC for maintaining the external auditor’s independence. During the year the auditor KPMG provided non – audit services like procedures for non-statutory assurances, services related to tax compliance and advice on various accounting matters and total remuneration provided for non-audit services amounted to US$ 0.027 million. However, all the non-audit services were approved as per the requirement of procedure set under the policy regarding provision of the audit and various other services by outside auditor (Tobi, Osasrere and Emmanuel 2016).


Auditor’s remuneration

Remuneration comparison with previous year

  • Charges owed to the auditors for providing assurance services –

For the entire disclosed periods, no charges were payable with regard to audit of the pension funds. Assurance services related to audit includes review of the half yearly reports and the audit work with regard to compliance requirement of Section 404 under US Sarbanes-Oxley Act. The additional services included the assurances with regard to the sustainability reporting of the company (BHP 2018).  

  • Fees payable to the auditors with regard to other services –

Other services associated with the corporate finance includes the services in association with the divestments, debt raising and acquisitions transactions. It comprised of procedures for non-statutory assurances, services related to tax compliance and advice on various accounting matters and total remuneration provided for non-audit services amounted to US$ 0.027 million (BHP 2018).

Key audit matters

The key audits matters are the matters which are as per the judgements of the auditors were of most significance for audit of financial statement for present year. Further, it includes most significant material misstatement risks identified by the auditors. It includes the matters having greatest impact on the overall strategies of audit, resource allocation for audit and providing directions for the efforts of engagement team. For providing assurance, the key audit matters and results were addressed on the basis of the procedures carried on with regard to and for the purpose of the financial statement audit (Sirois, Bédard and Bera 2018).

Key audit matter

Procedure of addressing the matter

Audit procedure

Asset valuation

· The auditor tested the key controls for valuing the company’s plant, equipment, property and intangible assets for determining the impairment and its reversals

· Comparison of impairment data with the available data in market

· Discussing with the valuation specialists available with the auditor for comparing the key assumptions including discount rates, commodity prices, country specific rates for risks and rates of foreign exchange with the external data from market.

· Performs the sensitivity analysis for the key assumptions.

· Analysing the effect of changes in valuing the assets on the basis of carrying value of the investment in the company.  

Substantive procedure required to be performed for detecting misstatements and various assertions like rights, existence, validity and obligations associated with the property, plant and equipments (Brasel et al. 2016).


· Carried out tests for key controls associated with the accounting and disclosures for tax related matters and transactions

· While working with the tax specialists in US, Chile and Australia for evaluating the tax obligation of the company. Further, the auditors made the enquiries regarding the management and internally inspected along with preparation of external documents.

· The assumptions were compared with the disclosures and public statement made by the company

· Analysing the adequacy regarding the disclosures with regard to the taxes and the ongoing tax related matters.

Substantive tests of detail procedure required to be performed for detecting misstatements and various assertions for each transaction (Kachelmeier, Schmidt and Valentine 2017).


· Carried out tests for key controls associated with the accounting and disclosures for matters related to dam failure

· Analysing the existence of constructive or legal obligations as per the shareholder’s agreement for Samarco.

· Instructing the auditor of Samarco and analysing the procedures undertaken with regard to obligation required as per the agreement framework and the preliminary agreement.

Analytical procedures shall be carried out through analysing the financial information by carrying out the study of the plausible relationship between non-financial and financial data (Bédard et al. 2016).

Audit committee and audit committee charter

The company has an audit committee that support the board for looking after the actions and decisions of CEO and the entity. Further, it helps to obtain assurance that the progress is made for achieving corporate objectives within the imposed limits by the board under the Board Governance Documents. The audit committee of the company included the following independent members –

  • Lindsay Maxsted, Chairman
  • Malcolm Broomhead - non executive director
  • Anita Frew – non executive director
  • Wayne Murdy – non executive director

Among the four members of the audit committee, 3 members are non-executive director. However, the company does not have any audit committee charter.


Audit opinion

The financial statement of BHP Billiton for the year closed on 30th June 2017 was audited by KPMG. The auditor expressed unqualified report to the company.  As per their opinion, the consolidated financial reports of the company that includes the director’s decoration are i compliance with Australian Corporation Act 2001 (Habib 2013). Further, the financial statement –

  • Delivers true and fair view for the financial position and financial of the company dated 30thJune 2017
  • Are complied with the AAS (Australian Accounting Standards) and Corporation Regulations 2001 (Gallizo Larraz and Saladrigues Solé 2016).

The opinion provided by the auditor based on the audits conducted as per the AAS (Australian auditing standards) and IAS (International Standards on auditing) and the laws applicable to the company. The auditors believe that the audit evidences obtained by them are appropriate and sufficient for providing the basis for the opinion. Further, the auditors noted that its opinions are reliable with the report of the risk and audit committee (Rahimian, Tavakolnia and Karamlou 2014).

Difference between management and directors responsibility against auditor’s responsibility with regard to financial report

The financial statement is the accountability of the management. On the other hand, expressing the opinion on financial statement is the responsibility of the auditor. Management is answerable for adoption of the sound accounting policies and establishing and following the internal control that can initiate, process, record and report the transactions. These shall be consistent with the assertion of the management embodied under the financial statements (Dhaliwal et al. 2015). The reported transactions and associated equity, assets and liabilities are within direct control and the knowledge of management. On the contrary, the auditor’s knowledge regarding internal control and these matters are limited to those attained through audit. Therefore, the fair representation of the financial statement in compliance with the the GAAP (generally accepted accounting principles) is the integral and implicit responsibility of the management. The independent auditor can provide recommendations regarding content of the financial statement in part or in whole on the basis of the information obtained from the management during the audit performance. However, the responsibility of the auditor regarding the financial statement audited by the auditor is confined to the expression of opinion (Fiolleau et al. 2013). The auditor is responsible for planning and performing the audit for obtaining the reasonable assurance that the financial reports are free from the material misstatements irrespective of the fact that the misstatement is caused by the fraud or error. Owing to the nature of the audit evidence and characteristics of the fraud, the auditor is able to gather reasonable but not the absolute assurance that they will be able to detect the material misstatement. Further, the auditor is not responsible for planning and carrying out the audit for obtaining the logical assurance that the misstatement caused due to immaterial fraud or error for detecting financial statements (Hurtt et al. 2013).


Material subsequent events

Various subsequent events those may have material impact on the company are as follows –

  • On 17thAugust, the company publicized that board of directors permitted the investment amounting to US$ 2.5 billion for the purpose of developing Spence Growth Option. It included construction of copper concentrator that will expand life of the Spence mine by further 50 years.
  • On 22ndAugust 2017, the company publicized that board of directors permitted repurchase plan of multi-currency bond with the global cap of aggregated to US$ 2.5 billion. The plan targeted 2021, 2022 and 2023 denominated in US dollar notes. Eventually, the company announced that they have enhanced value of global cap aggregated up to US$ 2.9 billion.
  • On 22ndAugust 2017, the company publicized as part of their ongoing review of the portfolio, Board of directors and the management decided that their Onshore US assets are in the nature of non-core. Further, the options for exiting the assets are actively pursued. Implementation of the options will take time and therefore the company is not able to project the financial impact of the future transaction (Lobo and Zhao 2013).

Effectiveness of material information those are reported by auditor

During July 2017 as per the requirements of US financial reporting as per the US Securities Exchange Act 1934, the company recorded material weakness with regard to processes and controls used for determining the impairment of certain onshore assets of US.  It resulted into audit focus regarding prospective implications of weakness on opening balance and management’s evaluation regarding control remediation. Further, it is found that the auditor presented the key audit matters and the actions taken against them in clear, concise and table format (Bhattacharjee, Maletta and Moreno 2015). Therefore, it is very easy for a 3rd party stakeholder to evaluate the key audit maters from the auditor’s report.

Material missing, under-reported or not fully disclosed or explained information

From the auditor’s report it is found that all the information are reported in clear and concise manner. No missing, under-reported or not fully disclosed information found from the report given by the auditor (Chong 2013).

Follow up questions to the auditor

Follow – up questions that may be asked to the auditor at AGM of the company are as follows –

  • Are the responsibilities and duties of the audit committee are formalized through written charter that are complied with the rules of stock exchange? Is the committee reassessed and reviewed annually? Is the written charter available on the website of the company or attached with the SEC filings?
  • Is the membership of the audit committee and practices are compliant with Sarbanes – Oxley Act and the rulings of Sec and the rulings of stock exchange? What are the provisions implemented by the committee? What is the action plan of the company for implementing the provisions?
  • How the committee undertakes assessment regarding the effectiveness of Section 404 of Sarbanes – Oxley Act? Whether the external auditors deliver feedback regarding the effectiveness of audit committee?
  • How the audit committee make reporting to Board of Directors? How often the reporting is made to full board?


From the above analysis it is concluded that the auditor’s report of the company complies with the AAS (Australian Accounting Standards) and Corporation Regulations 2001. Further, no contraventions on the auditor’s part regarding the independence requirement as per the requirement of Australian Corporation act 2001 regarding audit procedure were found. Regarding non-audit services it is found that though the external auditor offers few non-audit services, independence and objectivity of external auditor are protected through the restrictions applied with regard to the provision of those services. Key audit matters reported by the auditor are asset valuation, taxation and Samarco. However, no other material key information that may have material impact on the company is reported.



Bédard, J., Coram, P., Espahbodi, R. and Mock, T.J., 2016. Does recent academic research support changes to audit reporting standards?. Accounting Horizons, 30(2), pp.255-275.

Bhattacharjee, S., Maletta, M.J. and Moreno, K.K., 2015. The role of account subjectivity and risk of material misstatement on auditors' internal audit reliance judgments. Accounting Horizons, 30(2), pp.225-238.

BHP., 2018. BHP | A leading global resources company. [online] Available at: [Accessed 9 Sep. 2018].

Brasel, K., Doxey, M.M., Grenier, J.H. and Reffett, A., 2016. Risk disclosure preceding negative outcomes: The effects of reporting critical audit matters on judgments of auditor liability. The Accounting Review, 91(5), pp.1345-1362.

Chong, G., 2013. Detecting Fraud: What Are Auditors' Responsibilities?. Journal of Corporate Accounting & Finance, 24(2), pp.47-53.

Dhaliwal, D.S., Lamoreaux, P.T., Lennox, C.S. and Mauler, L.M., 2015. Management influence on auditor selection and subsequent impairments of auditor independence during the post?SOX period. Contemporary Accounting Research, 32(2), pp.575-607.

Fiolleau, K., Hoang, K., Jamal, K. and Sunder, S., 2013. How do regulatory reforms to enhance auditor independence work in practice?. Contemporary Accounting Research, 30(3), pp.864-890.

Gallizo Larraz, J.L. and Saladrigues i Solé, R., 2016. An analysis of determinants of going concern audit opinion: Evidence from Spain stock exchange. Intangible Capital, 2016, vol. 12, núm. 1, p. 1-16.

Guénin-Paracini, H., Malsch, B. and Tremblay, M.S., 2014. On the operational reality of auditors' independence: Lessons from the field. Auditing: A Journal of Practice & Theory, 34(2), pp.201-236.

Habib, A., 2013. A meta-analysis of the determinants of modified audit opinion decisions. Managerial Auditing Journal, 28(3), pp.184-216.

Hurtt, R.K., Brown-Liburd, H., Earley, C.E. and Krishnamoorthy, G., 2013. Research on auditor professional skepticism: Literature synthesis and opportunities for future research. Auditing: A Journal of Practice & Theory, 32(sp1), pp.45-97.

Kachelmeier, S.J., Schmidt, J.J. and Valentine, K., 2017. The disclaimer effect of disclosing critical audit matters in the auditor’s report.

Lobo, G.J. and Zhao, Y., 2013. Relation between audit effort and financial report misstatements: Evidence from quarterly and annual restatements. The Accounting Review, 88(4), pp.1385-1412.

Mostafa Mohamed, D. and Hussien Habib, M., 2013. Auditor independence, audit quality and the mandatory auditor rotation in Egypt. Education, Business and Society: Contemporary Middle Eastern Issues, 6(2), pp.116-144.

Rahimian, N., Tavakolnia, E. and Karamlou, M., 2014. Qualified Audit Opinion and Debt Maturity Structure.

Sirois, L.P., Bédard, J. and Bera, P., 2018. The informational value of key audit matters in the auditor's report: evidence from an Eye-tracking study. Accounting Horizons.

Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.

Tobi, B.A., Osasrere, A.O. and Emmanuel, U., 2016. Auditor’s Independence and Audit Quality: A Study of Selected Deposit Money Banks in Nigeria. International Journal of Finance and Accounting, 5(1), pp.13-21.


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