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Auditing Assignment: Rules & Regulations Of James Hardie Industries


Task: You have completed your research on the major sub-task of a real-life high-profile company which collapsed or recovered from a near collapse (turned around) in the Individual Case Study Assignment.
Based on your research, you conclude that it is highly probable that your high-profile company will NOT continue as a going concern as on 30 June 2019.
As you have a disagreement with the management on a PERVASIVE ISSUE, you need to write an “Adverse” Audit report using the relevant Australian Auditing Standards in the required Audit Report format.
This PERVASIVE ISSUE is from your allocated sub-task investigation (i.e. the One applicable to you out of the list of 5 major sub-tasks) given below:
For quick reference, the 5 major sub-tasks from the Individual Case study Assignment are given below:

  • Business risk, inherent risk, control risk and other risks
  • Corporate governance, directors, executives and non-compliance of laws
  • Going concern, administration and liquidation
  • Fraud, aggressive accounting policies and other misappropriations
  • Role, reporting obligations and negligence of auditors – (Unsatisfactory Internal Audit)


Basis of adverse opinion
Opinion on the given scenario of the proposed auditing assignment has been provided according to the description provided by another regulatory authority regarding government operations and governance practices undertaken by directors and other senior members of the company. According to the applicable rules and regulations auditor of business organization is required to analyse the applicability of rules and regulations on an organization. It is essential for an organization to follow certain rules and regulations and as James Hardie Industries has been listed on Australian stock exchange, regulatory Framework applicable on the company increases. According to the current legislature following are some of the rules and regulations provided within this auditing assignment that are required to be followed by the company.

  • Rules and regulations described in Corporation Act 2001.
  • Rules and regulations of provided in accordance with Australian accounting standards.
  • Rules and regulations are developed by other regulatory authorities such as ASX and ASIC (Gay and Simnett, 2017).

According to the provided legislature discussed herein auditing assignment it is essential for directors and top management of the company to ensure that all these rules and regulations are properly followed by the company. It can be said that primary responsibility of following rules and regulations lies with management and auditors are only responsible for identifying whether such rules and regulations has been followed by the company or not. In the given scenario there was an investigation undertaken by Australian securities and investment commission which concluded that members of the management towards charged with breach of Corporation Act 2001. Specifically, it was mentioned in the report that management of the company has priest rules and regulations provided in Corporation Act 2001 regarding director’s responsibility. According to the investigation undertaken by ASIC, problem statement was provided by top management and directors of James Hardie Industries during liquidation of its subsidiary MRCF. These violations are the primary reason that it has been recommended in the given scenario.

Emphasis on the matter
As it is already identified in the above part of the auditing assignment that primary focus of auditors due to which adverse report has been provided is violation of Corporation Act 2001. One of the responsibilities of auditors to ensure that all the regulations are provided in Corporation Act 2001 has been followed in governance as well as developing financial statements of the company (Arens, 2013). After the report issued by Australian Security and Investment Commission, there was a violation of director's duties of directors provided in Corporation Act 2001.

One of the primary responsibilities of auditor mentioned in this section of auditing assignment is to ensure that all the legislatures have been followed and this is not the case in JAMES HARDIE INDUSTRIES. While developing financial reports as well as statements in describing the liquidity position of MRCF, various chief executive officer and other senior executive members of the company were providing fraudulent statements to the investors (Patel and Xavier 200). In addition to the civil liability criminal charges were also applicable on the directors. Judgement provided by Supreme Court of New South Wales indicated that all the directors were banned from becoming Board members for next 5 years. In addition to that chief executive officer i.e. Peter MacDonald was banned for 15 years and along with a penalty of $350000. It clearly indicates that there is negative indicator of going concern concept.

The research on auditing assignment illustrates that every business organization is required to consider the concept of Going Concern while developing their financial accounts. It means that if a business transaction or business event has negative impact on future perspective of the company then it should be disclosed in the notes to accounts. In addition to that of financial statements should be developed in such a manner that there is a liquidation process initiated against the company even if such process has not been initiated by the government.

Audit report of adverse opinion
Dear Board members
Declaration of independence
I have conducted the review of financial accounts and other disclosures provided by the company. I am providing a declaration of independence to the directors of James Hardie Industries and all the opinions provided in this report are independent and unbiased. All the professional standards provided by AUAUSB have been followed properly in conducting audit review of the financial accounts and other governance structure of the company.

According to the applicable rules and regulations following are the regulations that are required to be followed by the organization-

  • Corporation Act 2001
  • Australian accounting standards
  • Rules and regulations provided by regulatory authorities such as Australian Stock Exchange.

After conducting independent audit of the financial accounts, it is concluded that there are some deficiencies in the way discloses are provided by the management of James Hardie Industries. Based on this review I can conclude that the financial statements of the organization and not representing its true and fair view of financial position of the company in market. According to the applicable rules and regulations of management of the company is indirect violation of Corporation Act 2001. In addition to that management is also in violation of rules and regulations governed by Australian Stock Exchange. Following are the detailed description of the violations provided within this auditing assignment due to which adverse opinion on the financial statement is being provided- 

Violation of duties of directors- According to a review undertaken by Australian securities and investment commission in 2007, properties roses were not provided by senior executive members of the company in relation to the liquidity of MRDF (Gunz and van der Laan, 2011). According to the opinion provided by ASIC consider, directors were providing fraudulent statements regarding liquidity position of the organization to attract new businesses and investors. It is compulsory for James Hardie Industries to follow rules and regulations are provided by ASIC being a regulatory authority. One of the regulations noted herein auditing assignment that is provided by the security includes true and fair disclosure to the investors.

Violation of going concern concept- Going concern concept has also been not followed properly by the organization as they were aware about the violations and still did not prepared the financial account in accordance with these rules. Going concern concept has been violated as future operations of the organization are in jeopardy. Four directors of the company and chief executive officer has been band from becoming board directors of the company for 5 years and 15 years respectively. It clearly indicates that governance structure of the organization has affected significantly and there is a probability that with the lack of governance overall structure of the organization will fall apart. This type of disclosure should have been provided in notes to accounts as a contingent liability and violation of going concern concept should have been disclosed in the notes (Haines, 2017).

After evaluating these violations and report issued by Australian securities and investment Commission, it can be said that management of the company is in violation of Corporation Act 2001 as well as accounting standards. It can be concluded from the above discussion on auditing assignment that financial reports and other reports issued by the company are not providing true and fair presentation of the company.

Key audit matter
Key audit matters are those business transactions or business activities that requires special attention on part of auditor. According to auditing standard ASA 701, it is responsibility of auditor to disclose these matters in their audit report and provide procedures that are followed by the company in achieving evidence in relation to the audit matter disclosed (Brouwer, Eimers and Langendijk, 2016).

Key audit matter- Director's duties and responsibilities

Matter will include the director's duties and responsibilities that are mentioned in Corporation Act 2001. It is essential for every business organization to ensure that these regulations are properly communicated to the directors and others executive members of the company. In my opinion as an auditor these duties and responsibilities are not properly followed by the top executive members of James Hardie Industries. This conclusion is made based on report issued by Australian securities investment commission regarding violation of Corporation Act 2001. According to this report studied in the auditing assignment, fraudulent statements were provided by directors regarding liquidity of MRCF. Governance structure of the company requires special attention on part of auditors as there is a clear structural and governance issue in the management process of James Hardie Industries. Auditors will be responsible for ensuring that proper procedures are taken to gather evidence with respect to the violation.

5 auditors procedures for key audit matter
Evaluating the regulations - First president adopted by the auditor’s examination of all the rules and regulations provided by Corporation Act 2001 with respect to the issue under consideration. It was identified that it is responsibility of directors to ensure that all the statement provided to stakeholders are relevant and accurate.

Report issued by ASIC- According to the discussion on auditing assignment, report issued by ASIC along with decision taken by Supreme Court of New South Wales was evaluated in detailed by the auditors to examine the responsibility of directors with respect to the issue under consideration. All the reports have clearly indicated that the governance structure of the organization was not appropriate.

Consulting with management employees- Consultation with management employees was also undertaken to identify the governance structure of the company. Questions used in the case scenario of auditing assignment were designed in such a manner that behaviour and general operations of Executive members can be evaluated.

Conversation with the directors- Opinion of directors with respect to the fraudulent activities undertaken by them was also taken into consideration.

Governance structure and environment of JAMES HARDIE INDUSTRIES- Governance structure and environment of JAMES HARDIE INDUSTRIES was also identified with the help of committees and general memorandum of association developed by the company (McNamara, Kelly and Mathews, 2019).

Arens, A.A., Best, P., Shailer, G. and Fiedler, B., 2013. Auditing, Assurance Services and Ethics in Australia. Auditing Assignment Pearson Higher Education AU.

Brouwer, A., Eimers, P. and Langendijk, H., 2016. The relationship between key audit matters in the new auditor’s report and the risks reported in the management report and the estimates and judgments in the notes to the financial statements. Maandblad Voor Accountancy en Bedrijfseconomie, 90, p.503.

Gay, G.E. and Simnett, R., 2017. Auditing and assurance services in Australia (rev). Roseville: McGraw Hill.

Gunz, S. and van der Laan, S., 2011. Actuaries, conflicts of interest and professional independence: The case of James Hardie Industries limited. Auditing Assignment Journal of business ethics, 98(4), pp.583-596.

Haines, F., 2017. Corporate and white collar crime. In The Palgrave Handbook of Australian and New Zealand Criminology, Crime and Justice (pp. 237-249). Palgrave Macmillan, Cham.

McNamara, R., Kelly, S. and Mathews, J., 2019. Key Audit Matters Disclosure: An Event Study of Negative Consequences.

Patel, A. and Xavier, R., 2005, July. Legitimacy challenged: James Hardie Industries and the asbestos case. Auditing Assignment In The Annual Meeting of the Australian and New Zealand Communication Association, Christchurch, New Zealand (pp. 1-14).


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