Financial auditing is the process in which monetary reports are evaluated with the aim to provide fair view to the stakeholders about organizational performance. In this regard, financial auditing plays a vital role in developing faith in the mind of stakeholders. Moreover, it provides investors, directors and managers with the suitable framework for decision making and thereby aid in the growth aspect. The rationale behind this, financial auditing provides deeper insight about the extent to which annual statements are evaluated and analyzed according to specific rules related to it. The present report is based on British Petroleum (BP) which is multinational oil and Gas Company. It has attained seven positions in the oil and gas sector all over the world. In this, report will describe the extent to which BP has complied with audit rules and regulations. Besides this, it will also shed light on the deficiencies take place in the audit report of 2012 as compared to 2015.
1. Critically analyzing the audit report on the consolidated financial statements of BP Group
In the present era, before taking investment decision investors make thorough analysis of audit report with the aim to get information about company’s performance and position. In accordance with ISA 250 there are several objectives which auditor undertakes while making evaluation of financial statements. At the time of doing investigation it is the prior responsibility of the auditor to gather enough evidences for assessing the material amounts which have high level of impact on the financial aspects. By this, auditors are in position to present the fair view of financial statements and information (Sharma and Iselin, 2012). Along with this, auditors follow specified process while carry out investigation with the aim to reduce the effect of materiality.
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Independent auditors report presented by BP for the year ended at 31 December, 2015 clearly shows that investigators have complied with all the rules and regulations of IFRS. Moreover, IFRS contains the rules which are accepted at international level and thereby develops trust in the mind of stakeholders that company’s financial view is appropriate. Along with this, parent company of BP has prepared report by following the rules of UK GAAP including FRS 101. Further, audit report of BP Group presents that financial statements are prepared by the firm in accordance with Companies Act 2006. In 2015, auditors had reviewed all the financial statements such as income and cash flow, balance sheet, changes in equity format and related notes by taking into consideration IFRS. This aspect shows that auditors have fulfilled their responsibilities to the large extent.
Further, according to the laws auditors are required to assess the risk of material misstatement. Hence, auditors responded towards the each risk in the best possible way. Moreover, assessment of risk and giving response towards it is one of the main responsibilities of an auditor. Hence, audit report presented that auditors make verification of all the accounting principles. Audit report clearly entails that there were no new standards have adopted during the year which does not have high level of impact on the financial statements. However, it is to be critically evaluated that each rule and regulation of IFRS has its own significance (Kasim and Sanusi, 2013)
In 2015, changes were introduced in IAS 28 which is related to making investments in associates. Along with this, IFRS 9 entailed different measures in relation to classifying and measurement of the asset level. In addition to this, changes were also made in IFRIC 21 which provides information about the aspects of employee contribution. This aspect shows that auditors made their best efforts in relation to identifying the deficiencies which are involved in the financial statements. In addition to this, whole report is presented by the auditor in a highly structured format.
Further, it is reported by the auditors in the audit report of 2015 is that BP group had prepared income and cash flow statement, balance sheet, changes in equity and summary notes according to IFRS which is adopted by EU (Huault and Richard, 2012). In addition to this, auditors ensured that they have followed the rules which are issued by International Accounting Standard Board. In accordance with the section of .05 regarding general principles of audit it is the accountability of an auditor to ensure that financial statements are free from the risk of material misstatement.
Section .07 entails that auditors are responsible for identifying and gathering enough evidences for evaluating the material misstatements which are prevailed in the financial statements. Hence, audit report of BP for the year ended at 31st December 2015 presents that auditors were identified and thereby commented on each material misstatement on the basis of evidence. This aspect shows that auditors were performed their tasks more effectively and efficiently. Along with this, section .08 presents that auditor needs to follow other audit process while forming an opinion about the financial statements. On the basis of this aspect, the objective of an auditor is to perform activities by keeping in mind the rules and regulations of IFRS and GAAP (Smith-Lacroix, Durocher and Gendron, 2012). Thus, audit report of BP shows that auditors placed emphasis on assessing the rules of IFRS and GAAP which are followed by the business organization during the period of 2015.
Besides this, section .10 suggests that auditors need to follow specific process of audit which in turn helps them in identifying the laws and legislation which are not undertaken by the firm. By this, material effect can be identified by auditors in the best possible way. Thus, while conducting audit auditors followed the rules of IFRS with the aim to assess the deficiency level. In contrast to this, for making evaluation of the evaluation of parent company’s accounts auditors had undertaken the rules of GAAP for conducting evaluation of the appropriateness of company’s account (Stoel, Havelka and Merhout, 2012). Further, section .12 presents the extent to which business unit is complied with the legal framework. Audit report 2015 presented that BP was complied with the legal framework while preparing the financial statement such as accounting principles and conventions.
In accordance with .15, auditors need to alert in relation to the aspect that there may issues related to the compliance and non-compliance. Further, section from .17-.20 contained rules regarding the audit process when non-compliance is identified or suspected. Along with this, section from .21 to .23 having rules about the reporting process or aspects when non-compliance is identified or suspected (Consideration of Laws and Regulations in an Audit of Financial Statements, 2016). In addition to this, .24 to .26 sections comprise information about the reporting aspect of non-compliance pertaining to the financial statements (Fung, 2014). Legislation related to .28 provides deeper insight about the extent to which laws had been followed for the purpose of documentation. Hence, by taking into consideration such aspect it can be said that there are several laws and legislation which are introduced by the higher authority regarding the preparation and reporting aspect of auditing.
2. Comparing and contrasting the audit reports presented on the year ended 2012 and 2015
There are several aspects due to which changes made in the format of audit report 2013. Moreover, in the accounting year 2012 brief audit report format had been followed by BP. Audit report for the year of 2012 shows only summary statement of the deficiencies which are prevailed in the final accounts. On the contrary to it, audit report of 2013 and 2015 contains detailed information about the risk, materiality and actions taken by management for resolving it. British petroleum being one of the leading companies in the energy and oil sector contributes a major portion in GDP of UK. Audit report refers to the written statement which provides the assurance about the correctness and fairness of the financial statement of the company. It is always into a standard and mandated format defined by the regulations of the country. UK has faced a great evolution in the form of audit reports since 2012. Format of audit report was just slightly changed since the very beginning by additions or deletions of some words, phrases or paragraphs (Financial statements of BP, 2015). But in 2014 the whole format was changed to provide detailed expansion of audit report and requirements. The audit report now is exhaustive and extensively covers all the areas of risk evaluation. Although the companies Act 2006 remains followed in both the years.
All the stakeholders of the company including the customers, users, shareholders, government and big audit firms strongly supported the detailed audit format adopted as it has greatly added the value and enhanced content of the audit report. Further audit report now is detailed and therefore easily understandable by the general public. The audit report extended now shines like focussed light on the black box of conventional audit report (The revolution in audit reports, 2015). The extended audit report now present a clear process of audit regarding the input and outputs of conducting audit. The reports now present a better understanding and assists investors in decision making regarding continual of their relationship with the company (Vanderhoof and Altman, 2013). New audit report presents a clear review about the financial statement of the company and better outlook.
Addition of materiality to the audit report is appreciated by the general public and they have given positive sign towards the audit reporting as well as audit in general. The latest audit reports explains in detail the risk areas and the responses of auditors to those areas which reflect and highlights the areas where risk of material misstatement is high. Moreover it also includes provision regarding reporting the conclusion to the audit committee (Kouakou, Boiral and Gendron, 2013). Therefore the audit report now provides better assurance and creates confidence in the audit reports.
Further detailed analysis of matters on exception provides detailed regulations regarding compliance of Companies act 2006, Listing Rules and ISA's (UK and Ireland) reporting. Further expansion of audit scope has demonstrated the clear and exhaustive explanations regarding materiality and allocation of performance (Dando and Swift, 2003). This provides clear evidence of the detailed analysis and study of financial statements of the company and improvements in the processes in current year in comparison with previous year.
The audit report is regarded as one of the important statements presented among the officials by assessing the financial statements of the business. The opinion need to be expressed by an enterprise on the existing financial performance of the firm. The right of forming opinion on the accuracy of the financial statements by the auditors. The Officials of International auditing board members has presented various auditing and the reporting standards (Hope, Langli and Thomas, 2012). The business has taken important step by revising the standard in order to guide the audit conducted by an individual using SA 700 in order to form appropriate opinion (Leung, 2016). This revised standards will guide an individual in examining the financial reports of 2012 and 2013. There are various changes takes places in the preparation and its presentation of the factors in the audit report gets changes which is mention below:
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The purpose of the auditing gets changed as in the 2012 to focuses on the general aspects of the firm but on the other hand the 2013 audit report emphasises on the specific streams. The errors and frauds are given more importance in order to uses CAAT techniques to reduce the technical failure.
In the audit report of 2012 there are no clauses related to the one person company in which the single owner have full right to conduct the audit of the organization (Feroz, Park and Pastena, 2008). On the contrary, 2013 audit report legalizes the inclusion of one person company.
the guidance to notes are optional for the auditors to guide their overall report in order to complete it with a high precision. On the other side, the guidance notes are compulsory for all the users of the business in order to follow. The compliance of these frameworks will help an entity in order to form good opinion by assessing the financial reports.
IFRS 9 is the one of the most important standard that is now followed by the firm in its annual report. This standard was earlier not followed by the firm in preparing its annual report. In this standard proper classification of assets and liabilities is done in the proper manner. Apart from this there are some specific rules in respect to impairment of asset that are prepared in this standard (K. Johl and et.al., 2013). After following this standard now assets of the British petroleum is valued at fair value. As per rules assets cannot be values at their market price. By using discount rate fair value of the asset is measured in proper manner by the charter accountant (Geiger, Raghunandan and Riccardi, 2013). Hence, it can be said that tis standard make reporting better in comparison to the previous time period. Hedge accounting also get changes after application of the IFRS 9 rules. Now after introduction of the mentioned standard accounting for hedge is done in systematic way. Hedging is basically done in respect to the financial securities on which firm used to make investment each and every year so that best use of the cash can be made in the business (Pedrosa and Costa, 2012). Usually firms makes an investment in shares in order to ensure that their cash will not remain idle and extra income will be generated in the business. Thus, it can be said that use of these standard help stakeholders in knowing condition of the business firm in proper manner. There is a great importance of the IFRS 9 because it improve reporting of the business transactions and assets better than earlier (Iyer, Bamber and Griffin, 2012). This is the reason due to which most of the business firms are using IFRS 9 in order to prepare their accounting records. With passage of time many new improvements may come in the IFRS 9.
From the above assignment, it has been concluded that auditors of BP followed the rules and regulations of IFRS while preparing report. This in turn encourages investors to take suitable decision by considering the reports of auditors. Moreover, rules of IFRS and IAS are highly related with the fair presentation of financial information. Thus, it can be revealed from the report from auditors that business unit has employed the rules of IFRS. On the other side, parent company adopted the regulations of UK GAAP while preparing and presenting the financial statements. Besides this, it can be inferred that in both 2012 and 2015 auditors of BP followed Companies ACT 2006. Hence, it is one of the main similarities which take place in the audit report of 2012 and 2015. Further, it has been articulated that additions were made in the report of 2015’s report. Moreover, detailed description were mentioned in the audit report about the performance of company and management’s action.
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