Independent Committee Australian Governmentâ€Myassignmenrhelp.Com

Question: Discuss About the Independent Committee Australian Government? Answer: Introduction The main objective behind the issue of ASA701 Communicating Key Audit Matters in the Independent Auditors Report was to confirm with current enhancements relating to auditors reporting (Chou, 2015). It comprises features relating to mandating the communication of KAM (Key auditing matters) in the audit report of listed organisation and the same enables the auditor to resolve the matters relating to KAM in auditors report (Chambers Odar, 2015). The present report provides discussion relating to facts and decision of the case of Lehman Brother. Further, the manner in which situation would have changed in case the compulsion of ASA 701existed the time of the collapse of Lehman Brothers. The objective and impact of ASA 701 Communicating Key Audit Matters have also been provided in the report. Audit issues surrounding the collapse of Lehman Brothers In the year 2008 liquidation and bankruptcy of one of the successful global financial Lehman Brothers was witnessed. Lehman Brothers were leading US Investment Bank who have collapsed with assets worth $600 billion. The share price of the company falls by seventy-three percent in just a few months after suffering the huge losses. The main audit issues which were revealed afterwards comprise Unethical management practices; Repeal of Glass-Steagall Act; Liquidity Crisis; Leveraging and Collateralized Debt obligation and derivative crisis. All of these have been discussed below: No details were available in auditors report relating to Unethical management practices: For attaining the expansion strategy, managers of Lehman decided to apply dubious mechanism and unacceptable accounting practices which were contravening the prudent of corporate governance practices. Even manipulation was present in their financial statements, and a fake picture was presented through window dressing to their investors so that they go attract more customers (Christensen, Glover Wood, 2013). Further, they also applied Repos 15 transactions for enhancing the financial health of the company at year end. It was also assessed later that Security and Exchange Commission were aware of these contradictions, but the same ignored these but if they would have prevented these breaches on time than they might have mitigated or reduced these losses. Repeal of Glass-Steagall Act: The act was initially established for separating commercial banking from investment banking after the great depression years 1930-1993, but the same was amended later and allowed commercial banks to carry on their investment (Cohen Simnett, 2014). Lehman brother took advantage of this fact and merged and acquired many commercial and investment bank by applying unethical merging activities. All these led to several risks faced by them such as bankruptcy. Details relating to Collateralized Debt obligation and derivative crisis: For attaining the advantage of the real estate market have ventured into several risky and unnecessary investment. Residential Whole Loans were reported to have accounted as a reason of the failure of Lehman Brothers. As they were generally traded and pooled during the process of securitization and further metamorphose the securities. As these whole loans were coupled with misstatements in assets and later aggravating their positions; all these facts were not made available in the independent auditor report as the same was not assessed by the auditor (Knechel, 2013). Collateralized Debt obligations also recognised loss during this period and evolve both prime and subprime securities intended to be sold for a special vehicle intended to be sold to a special purpose vehicle in a low-tax Unavailability of details relating to Liquidity Crisis: Lehman was not able to complete short-term obligations, and due to same reason it was losing market confidence. Due to this most of the bank withdrew their services to the company (Knechel, 2016). For resolving this issue, the company reduced their gross base asset to $160 billion and boosted their liquidity position to $ 45 billion. Thus the liquidity crises were eroded further after the actual facts of the policy adopted by the company were revealed. The manner was not forewarned in the auditors report ASA 701 Communicating Key AUdit Maters in the INdependent Auditor Report. The specified standard establishes requirement and assist application and resolving other matters relating to communication of crucial audit matters in the independent auditors report. The standard requires the compulsory communication with those charged with governance and which are necessary for significant auditors judgement (Krahel and Titera, 2015). Auditors are required to assess the areas which are significant of auditors judgement which contains higher assessed risk and impact of those significant events and transactions on business. It also specifies the purpose of communicating key audit matters i.e. for enhancing the communicative value of auditors report through offering greater transparency relating to the manner in which audit was performed (Byrnes, Warren Jr Vasarhelyi, 2015). It is because; this additional information assist the intended user in understanding those matters on the basis of which professional judgement of auditors has been made. The following matter are to required to be reported as the standard ASA 701 The matters which have been discussed with those charged with governance and the matters which require significant auditors attention while conducting an audit (Law, 2014). The specified area are: areas of higher assessed risk of material misstatement or the risk which has been identified in accordance with ASA 315; the judgements which are relating to the areas which have been made with significant management judgement comprising the estimations which have been ascertained with high uncertainty and the impact of significant transactions on the event which have occurred during the period (Preber, 2014). The auditor is also required to determine the matter in accordance with paragraph 9 of the Audit Standard 701 which were the most significance while conducting the audit of financial statements. The manner in which Lehman Brothers would have disclosed the key matter and its impact If the Lehman would have disclosed the matter they wouldnt have suffered. They commonly used repurchased agreement, and these agreements were considered as a liability on the firm investors were unaware of the Lehman brother repurchase agreements, and it negatively affected the Lehmans stock prices (Auditing Standard ASA 701 Communicating Key Audit Matters in the Independent Auditors Report, 2015). Lehman Brothers failed to navigate the severe. Collapse if the provision of the standard were applicable at that time than the company would have provided the details relating to a liquidity crisis and the manner in which manipulation was available in the policies followed by the company (Kwaku and Mawutor, 2014). As per the standard, the issues which have a significant impact on the financial statements are to be provided in independent auditors report is compulsory; thus the areas in which inappropriate estimation figures were used in the financial statements are also to be made availabl e in the audit report. The unethical management practices which have been followed by the organisation would have also been informed to the users of financial statements as these details is compulsory after the application of ASA 701 (Wong and Millington, 2014). All these significant details would have been made available in an appropriate manner in independent auditors report, and the same would have affected the opinion of auditor also (Brasel and et.al. 2016). Further, the details regarding inappropriate method followed by the company for boosting the liquidity position of the company would have also been made available to the user of financial statements to investors; shareholders, etc (Xu, Fargher and Jiang, 2013). Thus the overall impact would have been the losses which have been incurred by the investors due to unavailability of all these details would have mitigated or reduced. Conclusion Present study shows that due to the increasing competition has to lead to most banks engaging in risky exposures in banking industries. The understandable suggestion of this occurrence is the failure of Lehman. This collapse could be recognised to a variety of factors ranging from uncertain accounting practices, immoral management practices above investments in risky, unsafe investments, carelessness on the division of regulators. A major role is played by the outside auditor in this collapse by not identifying this financial statement illegal practices by the managers of Lehman. According to Greenfield (2010), the most important indicators of scam could be identified in the financial statement it seems that; the outside auditors could not detect this activity. On the other hand, it is noted that the failure of Lehman has not only affected the US economy alone but also in the entire world. Further; firms have to avoid pointless business strategies, rigid supervision of existing polic y, preventing doubtful accounting practices by modifying reporting standards, formulation of optional and realistic financial failure forecast and policy of the imitative market. The international business community has to make sure that businesses hold high standards and moral culture towards a large level necessary in avoiding the collapse of firms in the international business world. References Books and Journal Brasel, K.R. and et.al. 2016. Risk disclosure is preceding negative outcomes: The effects of reporting critical audit matters on judgments of auditor liability. The Accounting Review. Byrnes, P. E., Warren Jr, J. D., Vasarhelyi, M. 2015. Evolution of Auditing: From the Traditional Approach to the Future Audit. Audit Analytics, 71. Chambers, A. D., Odar, M. 2015. A new vision for internal audit. Managerial Auditing Journal, 30(1), 34-55. Chou, D. C. 2015. Cloud computing risk and audit issues. Computer Standards Interfaces, 42, 137-142. Christensen, B. E., Glover, S. M., Wood, D. A. 2013. Extreme estimation uncertainty and audit assurance. Current Issues in Auditing, 7(1), P36-P42. Cohen, J. R., Simnett, R. 2014. CSR and assurance services: A research agenda. Auditing: A Journal of Practice Theory, 34(1), 59-74. Hay, D., Knechel, W.R. and Willekens, M., 2014. The Routledge Companion to Auditing. Routledge. Knechel, W.R. 2013. Do auditing standards matter? Current Issues in Auditing. 7(2). Pp.A1-A16. Knechel, W.R. 2016. Audit quality and regulation.International Journal of Auditing,20(3), pp.215-223. Krahel, J.P. and Titera, W.R. 2015. Consequences of big data and formalization on accounting and auditing standards. Accounting Horizons, 29(2). Pp.409-422. Law, C., 2014. OBLIGATIONS TO REPORT. Preber, B.J., 2014. Financial Expert Witness Communication: A Practical Guide to Reporting and Testimony. John Wiley Sons. Wong, R. and Millington, A. 2014. Corporate social disclosures: a user perspective on assurance. Accounting, Auditing Accountability Journal. 27(5). Pp.863-887 Xu, Y., Carson, E., Fargher, N. and Jiang, L., 2013. Responses by Australian auditors to the global financial crisis.Accounting Finance,53(1), pp.301-338.. Online Auditing Standard ASA 701 Communicating Key Audit Matters in the Independent Auditors Report. 2015. [PDF]. Available through https://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf. [Accessed on 16th May 2016]. Kwaku, J. and Mawutor M. 2014. The Failure of Lehman Brothers: Causes, Preventive Measures and Recommendations. [PDF]. Available through https://www.iiste.org/Journals/index.php/RJFA/article/viewFile/11290/11598.[Accessed on 16th May 2017].