Briefly, audit report is the audit process culmination where the communication is based on underlying finding during the audit process. The mechanism is designed to express an opinion on the truth and fairness of the financial statements. The follow-up action plans are laid in substantive procedure(s) required to bring the materiality or risks level to an acceptable level. The Audit Report at TOPS consists of an Executive Summary followed by a comprehensive Audit Report.
The premise of this executive summary is provision of the audit results reflecting the transactions undertaken to determine the level of materiality, the PESTEL/ SWOT analysis, furthermore, includes but not limited to:
A history and the organisational structure of the chosen company from ASX200;
A brief description to audited areas defining the objectives of audit, scope, addressing periodic findings;
Factors affecting the scope of audit and underlying assumptions;
Opinion following the principles of AUS 702.
Table of Contents
Report Audit Opinion
Business Description - Amcor – Background and Organisational Chart
The Emergence of the new Amcor brand
Accounting Policies and Significant Estimates
AASB 36 – Intangible assets
Segment Reporting: Rigid Packing
The environmental stance
To: The senior executives of Amcor plc
From: The external auditor
Subject: Independent Audit Report
The consolidated statement of comprehensive income and statement of financial position as of June, 2019, presents true and fair view. These are in conformity with applicable regional standard and jurisdiction, while consolidating, the result was translated to parent company rules and regulations.
These underlying assumptions , in material aspect, abided by the accounting and auditing standards. Our responsibility was to base our opinion on the true and fair view of the consolidated financial statements.
The selected company for this audit report is Amcor Plc which is listed under the code AMC, dealing in the materials sector. Interestingly, its history dates back to 1860s under the influence of Mr. Samuel Ramsden – originally from Yorkshire.
It has been known as Australian Paper Manufacturers (APM) that emotionally handled Australian’s daily lives. In the 1960’s and 70’s diversification was at peak, where the name, changed to APM to Amcor Limited suiting the evolving, energetic company.
The diversification is the forward and backward conglomerate to conventional pulp and paper making activities. This ensures effective risk management, where the risk is spread to various segments.
The new brand was a response to globalisation and utilisation of environmental practices – depicting green and blue colours to embrace sustainability and sound corporate governance practices. The new Amcor pod was also consisting five rings embracing ethical stance, core collaborative values between co-workers, communities (as a whole), and the customers choosing Amcor’s material.
Notwithstanding, this 160 years’ ole company acquired (complementary) Bemis Company after 9 years of brand evolution. The footprint was globally recognised and the post-acquisition resulted in the global leading packaging company.
Today, Amcor comprises of 250 sites, more than 50,000 employees operating in more than 40 countries. The market capitalisation is US$ 13 billion.
Leaded by Ron Delia – Managing Director and CEO
Michael Casamento – Executive VP, Finance, and CFO
Mike Cash – President (Asia)
The financial report of the Amcor Plc will cover the financial or fiscal year 2019. The financial report preparation was the management’s responsibility, where, the external auditor will be conducting an independent audit of the 2Y19 financial report to express an opinion on the truth and fairness of the financial statements (AUS 702).
The audit report has followed the Australian Auditing Statutory guidelines – in particular, AUS 702 – The Audit Report on a General Purpose Financial Report. To obtain a fair opinion, audit procedures have been performed, where quantification material impact on financial statement has been determined (below).
The audit also performed substantive procedures to assess the risks of material misstatement (whether due to fraud or error), in conjunction with the business risk and financial risks, affecting the level of materiality. The procedures includes but not limited to:
Evaluation of the accounting principles,
Evaluation of the estimates and the accounting policies,
Evaluating the consolidated financial statements presentation and the ASX200 laws,
Sampling (statistical limitation considered);
Disclosures/ notes to the financial statement;
Examination on test basis of certain underlying transactions
The consolidated statements of financial position followed the AASB and IAS, along with AUASB, ISA. The Business combinations was as per AASB 13 where the goodwill was recognised on share basis and non-controlling interest were recorded at fair value of acquisition. The impairment of goodwill was externally evaluated by an independent reviewer. The subsequent or post-acquisition adjustments were in line with the AASB 8 – Accounting Policies.
The assets acquired after the Bemis acquisition were purchased with the intention of selling, meeting the requirements of AASB 15 – Discontinued Operations. The underlying assumptions were to look at the going concern status by the management which was foreseeable for the coming 12 months (per our auditing procedures). It was evaluated by procedures that the management practiced the estimations on an ongoing basis, where the estimations and provision are periodically or continually adjusted as stated by the AASB 1, AASB 37.
These information were fairly represented in the consolidated financial statements. The foreign currencies were stated in the AUS dollars (as base currency). The revenue was recognised as per AASB 15, given the diverse product line. The product includes:
The AMC pro-rated the revenue distribution and recognised its contractual agreements as per – AASB 15, AASB 16, AASB 17. This ensures the right delievered to third party (i.e. the end consumer). The contractual liabilities are stated as AASB 19 – Financial Instruments.
The factorisation of trade receivable was based on effective rate, the redemption rate, where the performance metrics or contractual obligations, were to some extent – estimated. The estimation or judgments were in line with the Australian accounting standards. Each region has different standards applied, but for consolidation purposes, the country of original was persuaded where the information was translated to base country. The shipping and handling costs were matched to its source document (more than 100 batches, limited due to audit scope, particularly resources).
These were fully expensed and in line with the accounting matching concept. The direct costs were apportioned directly to respective product line, the billed amounts formed part of cost of sales and revenue.
The research and developments costs are expensed appropriately as these are material representing 3.26% of the consolidated financial statements [64/9458.2 *100]. It was recognised in line with the standards, where the development cost met the (six criteria’s) of the development and research costs were expensed as incurred.
It was about 30% of revenue, compromising sales to Pepsi-co (major buyer) 11.1% in 2019 which is material to the financial statements. These were apportioned in line with the AASB 15 – Revenue recognition. These have been recognised as two segments Flexibles and Rigid. The ratio is 70: 30 respectively.
The environmental policy was reviewed during March and April, where the strategy amalgamated with the Bemis Company’s values to form a synergy. Major competitors were formulating a conglomerate against AMC, but AMC smart-played. Audit is prone to active and newer information, but the following assumptions were taken during the period (in order to cap the exposure to risk and the compromise on the audit opinion):
The demand and consumer pattern were in line with soft-production strategies;
The overgrowing demand after post-acquisition and lost of key customers due to synergies;
The discontinued operations were accommodated in the financial statements for 30th June, 2019
There could be a possibility that the management could have (deliberately) or erroneously omitted:
Revising strategies to its fullest,
Synergies could not have been fully recognised;
The price fluctuations;
Exposure to financial markets,
Improper hedging to protect OTC,
Internal controls could have been compromised,
Accounting policies could have been retrospectively or prospectively negated,
The FMCG profile not linked properly with AMC strategies – affecting goal congruence or focused portfolio
The management of AMC still managed to prioritise sustainable development and environment as top practices, which ensures good corporate governance practices in place. The environmental friendly handling of packaging and the frequently cleaning up of the affected area is in compliance with majority of its regions respective environmental laws.
The company has also determined to follow and upgrade the environmental practices in line with overruling precedents and jurisdictions and to produce recyclable packing or reusable till 2025 (January 2018, Annual Report). The turnout ratio of the employees is also less.
The lost customers due to environmental breach or brand changes (in 2010) and acquisition is strategically core to the AMC. The dependency is reflected by market cap, as the changes in the preferences of customers from different region can impact the environmental policy, social and perception behavioral changes.
The exposure to global cut-throat competition implies the barriers to entry (Porter Five Forces). As per BCG Matrix, the product is cash cow.
The internally generated goodwill should not be a part of business combination (AASB 3 – Business Combinations). Te Brexit impact should also be part of inter-change program where the European sites would have been impacted by the new law empowerment. The structural market implantation was 30% of undeveloped or emerging markets. Price fluctuations could be subject to currency risk.
Anon, amcor.com. Available at: https://www.amcor.com/about/overview/history [Accessed May 29, 2020].
Anon, amcor.com. Available at: https://www.amcor.com/about/ [Accessed May 29, 2020].
Anon, amcor.com. Available at: https://www.amcor.com/about/overview/senior-executives [Accessed May 29, 2020]. Anon, amcor.com. Available at: https://www.amcor.com/investors/financial-information/annual-reports [Accessed May 29, 2020].
Anon, Australian Auditing Standards. Available at: https://www.auasb.gov.au/Pronouncements/Australian-Auditing-Standards.aspx [Accessed May 30, 2020].
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