1 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
AUDIT REPORTS IN
AUSTRALIA 2005 – 2013:
PRELIMINARY FINDINGS
SEPTEMBER 2014
BE HEARD.
BE RECOGNISED.
2 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
AUTHORS
Elizabeth Carson (Research team leader), University of New South Wales
Yuyu Zhang, Queensland University of Technology
Neil Fargher, The Australian National University
CPA Australia would like to thank for their ongoing support:
The Auditing and Assurance Special Interest Group of the Accounting and Finance
Association of Australia and New Zealand (AFAANZ)
Robyn Moroney (AFAANZ project co-ordinator), Monash University
Amir Ghandar FCPA (CPA Australia project leader), CPA Australia
CPA Australia Ltd (‘CPA Australia’) is one of the world’s largest accounting bodies representing more than 150,000 members of the financial, accounting
and business profession in 121 countries.
For information about CPA Australia, visit our website cpaaustralia.com.au
First published 2014
CPA Australia Ltd
ACN 008 392 452
Level 20, 28 Freshwater Place
Southbank Vic 3006
Australia
Copyright © CPA Australia Ltd 2014. CPA Australia owns all copyright in these materials or uses it under licence or applicable law. For permission to reproduce
any material, a request in writing is to be made to the Legal Business Unit, CPA Australia Ltd, Level 20, 28 Freshwater Place, Southbank, Victoria 3006.
DISCLAIMER
CPA Australia Ltd has used reasonable care and skill in compiling the content of these materials. However, CPA Australia Ltd makes no warranty that the materials
are accurate and up to date. These materials do not constitute the provision of professional advice whether legal or otherwise. Users should seek their own
independent advice prior to relying on or entering into any commitment based on the materials. The materials are purely published for reference purposes alone.
CPA Australia, their employees, agents and consultants exclude completely all liability to any person for loss or damage of any kind including but not limited
to legal costs, indirect, special or consequential loss or damage (however caused, including by negligence) arising from or relating in any way to the materials
and/or any use of the materials. Where any law prohibits the exclusion of such liability, then to the maximum extent permitted by law, CPA Australia’s liability for
breach of the warranty will, at CPA Australia’s option, be limited to the supply of the materials again, or the payment of the cost of having them supplied again. 3 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
CONTENTS
1. Introduction 4
2. Sample 5
3. Types of Audit Reports 6
4. Trends in Audit Reports 8
5. Going Concern 10
6. Commentary 20
References and Further Reading 21
Data tables 22
Appendix 1: Economic Trends in Australia
26
4 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
1. INTRODUCTION
This paper provides a preliminary summary of
audit reports for Australian listed public companies
for the period 2005 to 2013, focusing on auditor
reporting in the most recent period 2011 to 2013.
Prior research has shown that audit reports
modified for uncertainty relating to the going
concern assumption increased following the
shock of the Global Financial Crisis (GFC) in late
2007. This occurred in Australia from 2008 where
Xu et al. (2011) find that reports modified for going
concern uncertainty increase from 12% in 2005
to 2007 to 18% in 2008 and 22% in 2009. Similar
trends are observable for the United States as
shown by an increase from 14% in 2003 to 21%
in 2008 (Cheffers et al. 2010, Geiger et al. 2014).
The aim of this report is to examine the frequency
of the various types of audit reports issued in
Australia during the period 2011 to 2013, with
a focus on reports emphasizing significant
uncertainty in regard to the going concern
assumption.
Our initial analysis indicates a substantial
increase in unmodified audit reports with
emphasis of matter paragraphs rising from 13%
in 2005 to 22% by 2009 following the GFC, and
a continuation of this trend to 25% in 2012 and
32% in 2013. The increase is strongest for smaller
companies and particularly for companies in the
mining and energy sector. Serious qualifications
of audit reports remain around the 3-5% level.
To the extent that the Australian economy has
recovered from the initial impact of the GFC
with the associated shocks to equity and credit
markets, reduced overall risk might be expected
to translate into lesser uncertainty regarding a
company’s ability to continue as a going concern.
However, the recent period 2011 to 2013 also
includes reductions in some commodity prices,
competitive pressure on manufacturers, and
other uncertainties regarding real growth in the
economy.
FIGURE 1 THE DISTRIBUTION OF AUDIT REPORTS BY TYPE OF AUDIT OPINION 2005 – 2013
100%
80%
60%
40%
20%
0%
YEAR
2005
Unmodified
2006
2007
2008
2009
Unmodified with an Emphasis of Matter
2010
2011
2012
2013
Total Modified
This paper is organised as follows. Section 2 summarises the sample examined in this study. Section 3
provides a brief summary of the types of audit reports in Australia. Section 4 provides a summary of the
trends in audit reports. Section 5 provides a greater focus on trends in the reports modified for going
concern uncertainty. Section 6 concludes the report.
5 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
2. SAMPLE
We reviewed 15,855 audit reports for Australian
publicly listed companies, representing around
98% of the companies listed on the Australian
Stock Exchange1 over the period 2005-2013. The
number of companies in the sample ranges from
1,489 in 2005 to a peak of 1,861 in 2011, declining
to 1,819 in 2012 and 1,837 in 2013. Our sample period covers the years 2005-2013.
Implicitly we note three sub-periods in the
analyses:
1. the pre-2007 period, which is the period
before the onset of the GFC;
2. the period 2008-2010, which is the period
during the GFC, although Australia has
outperformed economically compared to
most of the other developed nations; and
3. the period 20112-2013, which represents the
period more remote from the direct GFC
impact; however, we note that this period
includes a slowdown in Chinese economic
growth commencing in 2011 and parts of
the mining boom after 2011.
Although Australia has recorded 21 years of
consistent economic growth with no recessions
since 19933 , the Australian economy has weakened
since 2011-2012 with warnings of slower economic
growth, primarily due to the slowdown of
Chinese investment and the mining boom,
competitive pressure on manufacturers, and
other uncertainties regarding real growth in the
economy.
During 2011 to 2013, ASIC’s areas of focus for
financial reports included ensuring that directors
were realistic about their assumption about the
entity’s future obligations and that auditors should
carefully consider their reporting obligations with
respect to the going concern assumption.4
ASIC (2012) also raised the issue of the need for
auditors to consider sufficient and appropriate
evidence in assessing the appropriateness of the
going concern assumption and in particular with
regard to mining and energy entities (ASIC 2012,
page 16).
Companies with audit opinions signed outside Australia are excluded from our analysis.
The cut-off year 2011 is an estimate rather than a clear cut-off.
3
Source: http://thediplomat.com/2014/03/australias-economic-luck-21-years-and-counting/ See also “Economic growth at
slowest pace since 2011”, http://www.afr.com/p/national/economic_growth_at_slowest_pace_gAvwQX2EzosdWC9sWYd2BL
Source: http://thediplomat.com/2014/03/australias-economic-luck-21-years-and-counting/ See also “Economic growth at
slowest pace since 2011”, http://www.afr.com/p/national/economic_growth_at_slowest_pace_gAvwQX2EzosdWC9sWYd2BL
4
See ASIC’s areas of focus for 30 June 2011 financial reports MR11-139 (7 July 2011), 31 December 2012 financial reports
MR12-292 (27 November 2012), and 31 December 2013 financial reports MR13-293 (30 October 2013).
1
2
6 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
3. TYPES OF AUDIT REPORTS
3.1 AUDITING STANDARDS
AND CLASSIFICATION OF
AUDIT REPORTS
Current requirements for audit reports in Australia
are set out in ASA 700 Forming an Opinion
and Reporting on a Financial Report, ASA 705
Modification to the Opinion in the Independent
Auditor’s Report, and ASA 706 Emphasis of Matter
Paragraphs and Other Matter Paragraphs in the
Independent Auditor’s Report. ASA 700 deals
with the auditor’s responsibility to form an audit
opinion and also the form and content of the
auditor’s report.5 ASA 705 and ASA 706,6 which
replaced the pre-existing ASA 701 as a result of
the clarity project, focus on the modifications
to the audit opinion and Emphasis of Matter
paragraphs and Other Matter paragraphs
respectively. Compliance with the current
Auditing Standards enables compliance with
the corresponding International Standards on
Auditing (ISAs).
Based on the definitions employed in current
Auditing Standards, we classify the audit opinions
into Modified Opinions and Unmodified
Opinions. Unmodified Opinions are further
divided into Unmodified and Unmodified
with an Emphasis of Matter Paragraph.
Modified opinions are further categorized as
Except for, Adverse Opinion, and Disclaimer
of Opinion. Modified opinions may also contain
an Emphasis of Matter Paragraph. To be consistent
with the Australian Auditing Standards, we use
the same terminology as used in ASA700, ASA705
and ASA706.
Unmodified vs Modified Opinion
Based on ASA 700, the audit opinion is firstly
classified as either an unmodified opinion or
a modified opinion.
• Unmodified Opinion: Under normal
circumstances when the auditor concludes that
the financial report is prepared, in all material
respects, in accordance with the applicable
financial reporting framework, the auditor shall
express an unmodified opinion (ASA 700.16).
• Modified Opinion: If the auditor concludes
that the financial report, as a whole, is not free
from material misstatement or if the auditor is
unable to obtain sufficient appropriate audit
evidence to conclude that the financial report
as a whole is free from material misstatement,
the auditor shall modify the opinion (ASA
700.17).
Types of Modified Opinions
Once an audit opinion is modified, three types of
modified opinions are established for use in ASA
705, including a qualified (Except for) opinion, an
adverse opinion, and a disclaimer of opinion.
• Except For: The auditor shall issue a
qualified opinion when there is (are) material
but not pervasive misstatement(s), or when
the possible effects of the inability of the
auditor to obtain sufficient appropriate audit
evidence on the financial report of undetected
misstatements are concluded as material
but not pervasive (ASA 705.7). “Except for”
statement is required in the Basis for Qualified
Opinion paragraph (ASA 705.23)7.
• Adverse Opinion: An adverse opinion
shall be expressed if the auditor concludes
the individual and/or the aggregated
misstatements are both material and pervasive
(ASA 705.8).
• Disclaimer of Opinion: If a limitation on the
scope is validated due to the auditor’s inability
to obtain sufficient appropriate audit evidence
and its possible effects on the financial
report of undetected misstatements is both
material and pervasive, the auditor shall issue
a disclaimer of opinion. Another situation for
a disclaimer of opinion is in extremely rare
circumstances involving multiple uncertainties,
when the auditor concludes that it is not
possible to form an opinion due to the
potential interaction and the cumulative effects
of the uncertainties on the financial report.
5 F
or the period covered by this paper (2005-2013), the auditing standards on audit opinions have been substantially revised
from the initial AUS 702 Audit Report on a General Purpose Financial Report (operative until 1 July 2006), ASA 700 (operative
on or after 1 July 2006 due to the requirements of CLERP 9 Act that codify Australian Auditing Standards as legislative
instruments), to the current ASA 700 that has been revised and redrafted by using the equivalent “clarity” versions of the
International Standards on Auditing (ISAs) as the underlying standards (operative on or after 1 January 2010).
6 A
SA 701 Modifications to the auditor’s report was effective from 1 July 2006, and then replaced by ASA 705 and ASA 706 as a
part of the “clarity” project in 2009, effective from 1 January 2010.
7 “
Subject to” phrases are not appropriate for a qualified opinion as these are regarded as insufficiently clear or forceful
(ASA705. A22).
7 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
Emphasis of Matter Paragraph
An Emphasis of Matter (EoM) paragraph shall
be used when the auditor considers it necessary
to draw user’s attention to a matter presented
or disclosed in the financial report that, in the
auditor’s judgement, is of such importance
that it is fundamental to users’ understanding
of the financial report (ASA 706.6). The auditor
shall include an Emphasis of Matter paragraph
to draw attention to the additional disclosures
when the financial report has been prepared in
accordance with Australian Accounting Standards
but necessarily additional disclosures have
been made in the financial report to ensure the
financial report as a whole is comparable and
understandable (ASA 706. Aus7.1). An EoM can
be included in an unmodified or a modified audit
report.
3.2 AUDITING STANDARDS
ON EMPHASIS OF MATTER
PARAGRAPHS
Before ASA706 became effective in 2010,
Emphasis of Matter paragraphs were governed
by ASA701 which outlined the following
circumstances in which an EoM paragraph
is required:
• Significant Uncertainty – Going Concern
• Significant Uncertainty – Other
• Significant Uncertainty – Going Concern
and Other
• Additional Disclosures
• Inconsistent Other Information
• Subsequent Events Resulting in a New
Auditor’s Report on a Revised Financial Report
• Other Reporting Responsibilities
Under ASA 706, operative for financial reporting
periods commencing on or after 1 January 2010
the circumstances under which an EoM paragraph
was appropriate were amended as follows:
• ASA 706.A1 identifies three types of
circumstances in which an EoM paragraph
may be necessary including (1) an uncertainty
relating to the future outcome of exceptional
litigation or regulatory action, (2) early
application (where permitted) of a new
accounting standard (for example, a new
Australian Accounting Standard) that has a
pervasive effect on the financial report in
advance of its effective date, and (3) a major
catastrophe that has had, or continues to have,
a significant effect on the entity’s financial
position. An uncertainty, if its resolution may
materially affect the financial report, would
warrant an EoM paragraph in the auditor’s
report (ASA 706. Aus A1.1).
• ASA 706 lists four Auditing Standards where
circumstances may arise which require an
EoM paragraph to be included in the auditor’s
report (ASA 706. Appendix 1). These are
(1) ASA 210 Agreeing the Terms of Audit
Engagements – paragraph 19(b), (2) ASA 560
Subsequent Events – paragraphs 12(b) and 16,
(3) ASA 570 Going Concern – paragraph 19, and
(4) ASA 800 Special Considerations—Audits
of Financial Reports Prepared in Accordance
with Special Purpose Frameworks – paragraph
14. Of relevance for our study is that Going
Concern has been identified as a typical
circumstance for an EoM paragraph.
• In addition, ASA 706 requires auditor to
disclose a paragraph in the auditor’s report,
with the heading “Other Matter,” or other
appropriate heading if necessary.
An Emphasis of Matter paragraph does not
indicate a modification to the auditor’s opinion
or affect the auditor’s opinion (ASA 706.7(d),
ASA706.A3-A4). As stated in ASA 706.A2, a
widespread use of EoM paragraphs diminishes
the effectiveness of the auditor’s communication
of such matters; and unnecessarily excessive
information in the EoM paragraph may imply
that the matter has not been properly presented
or disclosed.
8 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
4. TRENDS IN AUDIT REPORTS
4.1 TYPES OF AUDIT REPORTS
Table 1 shows the distribution of audit reports
classified by type of audit opinion for the period
2005-2013. Figure 1 (on page 1) graphs data
from Table 1 to highlight the declining trend
in unmodified reports and the increasing trend
in the use of an emphasis of matter paragraph.
This table shows:
• There is a declining trend of standard
unmodified audit reports over the period,
dropping from 84.75% in 2005 to 64.29% in
2013. Compared with the pre-2007 period
in which the percentage of unmodified
audit reports is around 85%, there is a
relatively large drop in the percentage of
unmodified audit reports in 2008 (to 77.77%),
corresponding with the onset of the GFC. This
trend has not reversed [2009 (73.25%), 2010
(74.54%), 2011 (75.39%), 2012 (70.59%)] with the
proportion declining further in 2013 (64.29%).
• The decline in the ratio of unmodified audit
reports are mainly attributable to the increase
in the audit reports unmodified with emphasis
of matter paragraphs, rising from 12.96% in
2005 to 32.34% in 2013.
• The frequency of more severe modified reports
changes over 2005-2013 from an average of
2.79% in 2005-2007 to an average of 4.30%
in 2008-2010, and 3.97% in 2011-2013.
4.2 TYPES OF EMPHASIS OF
MATTER PARAGRAPH
Table 1 Panel B shows the types of Emphasis of
Matter (EoM) paragraph issued in 2005-2013.
As discussed above there is a change on EoM
paragraph in the standards, from ASA701 to
ASA706 in 2010, with our study period prior
to 2010 covered by ASA701 (2005-2010). We
classify the types of EoMs in accordance with the
ASA701 classifications in Table 1 Panel B. Figure
2 highlights that the majority of the EoMs are
associated with Going Concern issues.
• For the period 2005-2007, 80%-90% of EoMs
are due to Going Concern related uncertainty;
the ratio surges to 94.93% in 2008 and stays
over 90% after 2009. In 2012 and 2013, the
ratio of EoMs in relation to Going Concern
experiences another increase to 95.60%
and 95.96% respectively.
• Except for the circumstances associated
with significant uncertainties (including
uncertainties on Going Concern, and
uncertainties other than Going Concern), other
types of EoMs are rarely observed in the study
period. Before 2010, there are few audit reports
with other types of EoMs; after 2011, the
number of other types of EoMs has increased
but still stays fewer than eight observations
per year.
The findings are consistent with those suggested
in Xu et al. (2013). Xu et al. (2013) also conduct a
brief content analysis on the EoM paragraphs to
explain the underlying financial reasons included
when reporting an unmodified opinion with EoMs.
We could examine this issue further in the next
stage.
9 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
Figure 2
FIGURE 2 TYPES OF EMPHASIS OF MATTER AND/OR OTHER MATTER PARAGRAPHS 2005-2013
100%
80%
60%
40%
20%
0%
YEAR
Others
2005
2006
2007
2008
2009
2010
2011
2012
Significant Uncertainty other than Regarding the Ability to Continue as a Going Concern
Significant Uncertainty Regarding Ability to Continue as a Going Concern
2013
10 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
5. GOING CONCERN
5.1 AUDITING STANDARDS ON
GOING CONCERN
Under the going concern assumption, an entity
is viewed as continuing in business for the
foreseeable future. A general purpose financial
report is prepared on a going concern basis,
unless management either intends to liquidate
the entity or to cease operations, or has no
realistic alternative but to do so. When the use
of the going concern assumption is appropriate,
assets and liabilities are recorded on the basis
that the entity will be able to realise its assets
and discharge its liabilities in the normal course
of business (ASA 570.Para2).
Going concern can be associated with an
unmodified opinion, an unmodified opinion
with an Emphasis of Matter paragraph, a qualified
opinion, an adverse opinion, or a disclaimer of
opinion. The determination of the appropriate
audit opinion is based on consideration as
to whether there is a material going concern
uncertainty, whether the use of the going concern
assumption is appropriate, whether the disclosure
is adequate, and/or whether there is a limitation
of scope imposed by the management to obtain
sufficient appropriate audit evidence on going
concern. Specifically, in regard to:
• An unmodified opinion with an Emphasis
of Matter paragraph on Going Concern
−− An unmodified opinion with an Emphasis
of Matter paragraph on going concern
uncertainty shall be expressed when
significant going concern uncertainty
exists while the auditor concludes
that the going concern assumption is
appropriately used and the adequate
disclosure has been made (ASA 570.
Para18 & 19).
−− An unmodified opinion with an Emphasis
of Matter paragraph on alternative basis
other than going concern assumption
is appropriate if the going concern
assumption is not appropriate and the
management has prepared the financial
report on an appropriate alternative
basis with adequate disclosure (ASA 570.
A26).
• A Modified Opinion in relation to Going
Concern
−− A qualified opinion or an adverse opinion
on Going Concern uncertainty shall be
issued if the going concern assumption
is appropriate with the appearance of
significant going concern uncertainty, but
the disclosure of the material uncertainty
in the financial report is not adequate
(ASA 570.Para 20).
−− An adverse opinion shall be expressed if
the financial report has been prepared on a
going concern basis but, the use of Going
Concern assumption is inappropriate
(ASA 570.Para 21).
−− A qualified or disclaimer of opinion may
be appropriate due to management’s
unwillingness to make or extend their
going concern assessments when these
assessments are necessary to provide
additional audit evidence (including
considerations of mitigating factors) in
determination of whether a material going
concern uncertainty exists and the auditor
has requested the management to do so
(ASA 570.A27).
−− A disclaimer of opinion may be considered
appropriate instead of adding an Emphasis
of Matter paragraph due to multiple
material uncertainties on going concern
are involved that are significant to the
financial report as a whole (ASA 570.A22
& ASA 705).
11 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
5.2 REPORTS WITH GOING
CONCERN RELATED ISSUES
Table 1 Panel C and Figure 3 shows the
distribution of going concern related opinions
across the years. The Going Concern related
opinions are classified into Modified in relation
to Going Concern, and Unmodified with EoMs
on Going Concern. The Table shows:
• In 2005-2007, the percentage of Going
Concern related audit reports is stable at
around 12%, with the majority of these being
unmodified with an EoM paragraph on Going
Concern.
• There is an increasing trend in Going Concern
related audit reports for the period 2011-2013
with a peak in 2013 of 33.32%. We speculate
that it is attributable to the pause of the mining
boom and the slowdown of China’s economic
growth, and their impact on Australian
Economy, but further investigation is needed.
• For the study period, a Modified Opinion
on Going Concern is available but rarely
used by the auditing practitioners.
• Over the period 2008-2010, the percentage of
Going Concern related audit reports increases
to around 22%, consistent with the occurrence
of the GFC and its associated economic impact
on Australian entities.
Figure 3
FIGURE 3 GOING CONCERN RELATED REPORTS: QUALIFICATION AND EMPHASIS OF MATTER
PARAGRAPHS 2005-2013
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
YEAR
2005
2006
Qualified in relation to GC
2007
2008
Unqualified with EoM on GC
2009
2010
2011
2012
2013
12 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
5.3. AUDIT REPORTS ISSUED
BY DIFFERENT AUDIT FIRMS
Table 2 reports the types of audit reports over
the period 2005-2013 for Big 4 and non-Big 4
audit firms. Big 4 firms include the four largest
international accounting firms, including:
PriceWaterhouseCoopers, Ernst and Young,
KPMG and Deloitte. All other accounting firms
are classified as non-Big 4 firms.
• Over the study period, the percentage of
Modified Opinions (1.67%) and the percentage
of Unmodified with EoMs (13.07%) are lower for
Big 4 audit firms, compared to the percentages
for these types of audit reports issued by
non-Big 4 firms (Modified Opinions 5.16%
and Unmodified with EoMs 24.81%).
• Big 4 audit firms:
−− For the period 2005-2007, the percentage
of Unmodified with EoMs is steady at
around 7%; the ratio rises to over 13% in
2008 and remains stable over the years
2008-2011; in 2012 and 2013, the ratio
jumps again to 17% and 20% respectively.
−− There is no significant change in the
percentage of Modified Opinions issued
by Big 4 audit firms throughout the period,
ranging between 0.5% and 2%.
• Non-Big 4 audit firms:
−− For the period 2005-2007, the percentage
of Unmodified with EoMs ranges from 15%
to 19%; the percentage increases to 22% 27% for the period 2008-2011; the years 2012
and 2013 report the highest percentage
of Unmodified with EoMs at 31% and 41%
respectively.
−− The percentage of Modified Opinions
issued by Non-Big 4 firms is around 3%-7%
over the years.
• Non-Big 4 firms report significantly higher rate
of Going Concern related Modifications and
EoMs, compared to the Big 4 group. Moreover,
the gap seems to have increased during the
past decade.
−− For 2005-2007, Big 4 firms report around 7%
Going Concern related audit opinions; while
Non-Big 4 firms issue around 15%-18% of
their clients with Going Concern opinions.
−− In 2008-2011, Big 4 firms issue around 15%
Going Concern opinions; while Non-Big 4s
issued Going Concern related audit reports
to 25% of their clients.
−− In 2012-2013, the percentages for Big 4 firms
are 18.0% and 20.8% respectively; for the
same years, the percentages for Non-Big
4s are 32.5% and 42.3%.
We would expect that the primary difference in
reporting pattern between Big 4 and non-Big 4
firms is due to the differences in client size as Big
4 firms tend to have a client base with a larger
average size and lower levels of risk (Xu et al.
2011).
13 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
5.4 TYPES OF AUDIT REPORTS BY ENTITY SIZE
Table 3 and Figure 4 investigate the reporting patterns of entities of different size. The sampled listed
companies are divided into groups of the Largest 200, Middle, and Smallest 500 companies based on
their total assets.
Figure 4
FIGURE 4 GOING CONCERN RELATED REPORT BY ENTITY TOTAL ASSETS
70%
60%
50%
40%
30%
20%
10%
0%
YEAR
2005
Top 200
2006
Middle
2007
2008
2009
2010
2011
2012
2013
Bottom 500
Findings:
• As would be expected, entity size is strongly
associated with the likelihood of receiving a
report modified for going concern uncertainty.
By their nature, small companies have less
financial flexibility to respond to macro- and
micro-economic changes. Generally, small
companies (Smallest 500) report a much higher
percentage of audit reports modified for going
concern issues (average 37.93%) than the other
two groups; large companies (Largest 200,
2.83%).
• Largest 200 companies:
−− The percentage of Going Concern related
audit reports for the largest 200 companies
ranges from 0% in 2005 and 2006, to the
peak of 6%-7% in 2008 and 2009. The ratio
declines quickly after the GFC period to
2.5% in 2011, and declines to 1.5% in 2013
• Middle companies:
−− The ratio of Going Concern related reports
for the Middle group of companies has
consistently increased from 2005 (6.97%)
to 2009 (17.67%). After a slight drop in 2011
(14.90%), the ratio rises again to 28.06%
in 2013.
• Smallest 500 companies:
−− For the smallest 500 companies, the lowest
ratio of Going Concern is reported in 2007
(19.20%) and peaks at 2013 (58.0%). Similar
to the other two categories of companies,
there are significant increases in the ratio
in 2008 and 2012 respectively. This large
increase warrants further investigation
of the underlying factors leading to this
significant increase in reports modified
for going concern issues.
• Overall, the trend of the three categories of
companies by size shows similar pattern: the
first significant rise in 2008, corresponding to
the occurrence of the GFC, and the second rise
in 2011 or 2012, corresponding to the slowdown
of Australian economy. Specifically, large
companies have been influenced significantly
by the GFC but do not appear to have been
heavily influenced by the recent local economic
slowdown. For small companies the uncertainty
of continuing as a going concern increases with
both the GFC and the recent local context.
14 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
5. 5 TYPES OF AUDIT REPORTS
BY INDUSTRY
Table 4 summarises the types of audit reports by
industry and by year. The trends are summarized
in Figure 5, with the following findings:
• Most of the industries, including Energy,
Materials, Consumer Staples, Industrials,
Health Care and Utilities, generally show
an upward trend in terms of Going Concern
Opinion. Specifically,
−− Energy has seen a consistent increase
in GCOs since 2007; a similar (but less
consistent) pattern applies to the Materials
industry. ASIC (2012) warned that entities
in the mining and energy industries are
of high risk when auditors are assessing
the going concern assumption. Our data
supports this view and indicate that the
two industries sensitively respond to the
economic changes, e.g., the GFC (2008)
and the suspected pause of mining boom
(since 2011).
8
• Financial industry reports the highest
unmodified rate and the lowest modification
rate and the lowest GCOs over the study
period. Australia’s financial industry has been
marked with the stable financial system and
the most profitable banks in the world8. We
attribute the low modification and GCO ratios
to the strong Australian financial system and
the outperformance of Australian banks during
the recent years.
• Telecommunications industry is notable for
its downward trend in Unmodified with EoMs,
GCOs and Modifications, which is opposite to
most other industries.
Source: http://www.abc.net.au/news/2014-06-30/australian-banks-most-profitable-but-still-vulnerable/5559960
15 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
FIGURE
Figure
5.1 5 TYPES OF AUDIT REPORT BY INDUSTRY
5.1 ENERGY
100%
80%
60%
40%
20%
0%
2005
2006
Unmodified
EoMs
YEAR
2007
GCO
2008
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Modified
Figure 5.2
5.2 MATERIALS
100%
80%
60%
40%
20%
0%
2005
2006
Unmodified
EoMs
YEAR
2007
GCO
2008
Modified
16 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
Figure
5.2 5 TYPES OF AUDIT REPORT BY INDUSTRY
FIGURE
5.3 INDUSTRIALS
100%
80%
60%
40%
20%
0%
2005
2006
Unmodified
EoMs
YEAR
2007
GCO
2008
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Modified
Figure 5.4
5.4 CONSUMER DISCRETIONARY
100%
80%
60%
40%
20%
0%
2005
2006
Unmodified
EoMs
YEAR
2007
GCO
2008
Modified
17 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
FIGURE
Figure
5.5 5 TYPES OF AUDIT REPORT BY INDUSTRY
5.5 CONSUMER STAPLES
100%
80%
60%
40%
20%
0%
2005
2006
Unmodified
EoMs
YEAR
2007
GCO
2008
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Modified
Figure 5.6
5.6 HEALTH CARE
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005
2006
Unmodified
EoMs
YEAR
2007
GCO
2008
Modified
18 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
FIGURE
Figure
5.7 5 TYPES OF AUDIT REPORT BY INDUSTRY
5.7 FINANCIALS
100%
80%
60%
40%
20%
0%
YEAR
2005
Unmodified
2006
EoMs
2007
2008
GCO
Modified
2009
2010
2011
2012
2013
Figure 5.8
5.8 INFORMATION TECHNOLOGY
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005
2006
Unmodified
EoMs
YEAR
2007
GCO
2008
Modified
2009
2010
2011
2012
2013
19 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
FIGURE
Figure
5.9 5 TYPES OF AUDIT REPORT BY INDUSTRY
5.9 TELECOMMUNICATION
100%
80%
60%
40%
20%
0%
2005
2006
Unmodified
EoMs
YEAR
2007
2008
GCO
Modified
2007
2008
GCO
Modified
2009
2010
2011
2012
2013
5.10 UTILITIES
100%
80%
60%
40%
20%
0%
YEAR
2005
Unmodified
2006
EoMs
2009
2010
2011
2012
2013
20 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
6. COMMENTARY
Based on the above preliminary analyses,
the following points come to our attention.
• As expected there is a surge in GCO and EoMs
in 2008, attributable to the onset of the GFC.
• Another notable surge in GCO rates is
observed in 2012 and 2013. At this stage, we
speculate that it is attributable to reduced
growth prospects arising from China’s
economic slowdown, higher exchange
rates and the ‘pause in mining boom’ since
2011. The graphs on job vacancies and
unemployment rate over the last 30 years
(available in the Appendix) seem to support
this view.
• Although there are multiple reasons for EoMs
available in ASA706, the Going Concern issue
is the issue that is referenced most frequently
in explanations for EoMs.
• Big 4 audit firms report significantly lower ratio
of GCOs and EoMs than the non-Big 4 audit
firms, probably attributable to the difference
in their client size and characteristics. This gap
does seem to have increased during the past
decade.
• Large companies have been influenced
significantly by the GFC but not heavily
influenced by the recent prolonged uncertain
economic environment. The issuance of
emphasis of matter for going concern for
small companies increases for both the global
crisis and the subsequent period of economic
uncertainty.
• The pattern of audit reports differs in
terms of the industry category. Energy and
Materials industries have experienced a
generally consistent increase in reports with
an emphasis of matter for Going Concern.
The two industries have been identified
by ASIC as being highly risky in relation to
the appropriateness of the going concern
assumption (ASIC, 2012). The Financial industry
has been notably strong over the period,
reporting the lowest GCO ratios, and the
highest unmodified percentages.
21 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
REFERENCES AND
FURTHER READING
Auditing and Assurance Standards Board
(AUASB), 2007, Auditing Standard ASA 701:
Modifications to the Auditor’s Report.
Auditing and Assurance Standards Board
(AUASB), 2009, ‘Auditing Considerations in
an Uncertain Economic Environment’, AUASB
Bulletin, AUASB, [cited 8 May, 2014], Available at:
http://www.auasb.gov.au/admin/file/content102/
c3/Auditing_Considerations_Booklet.pdf.
Auditing and Assurance Standards Board
(AUASB), 2010, Explanatory Guide: Auditor’s
Reports.
Auditing and Assurance Standards Board
(AUASB), 2011a, Auditing Standard ASA 705:
Modifications to the Opinion in the Independent
Auditor’s Report.
Auditing and Assurance Standards Board
(AUASB), 2011b, Auditing Standard ASA 706:
Emphasis of Matter Paragraphs and Other Matter
Paragraphs in the Independent Auditor’s Report.
Auditing and Assurance Standards Board
(AUASB), 2012, ‘Auditing Considerations in a
Prolonged Uncertain Economic Environment’,
AUASB Bulletin, AUASB, [cited 8 May, 2014].
Available at: http://www.auasb.gov.au/admin/file/
content102/c3/Aug12_AUASB_Bulletin_Auditing_
Considerations_in_a_Prolonged_Uncertain_
Economic_Environment.pdf.
Auditing and Assurance Standards Board
(AUASB), 2013a, Auditing Standard ASA 570:
Going Concern.
Auditing and Assurance Standards Board
(AUASB), 2013b, Auditing Standard ASA 700:
Forming an Opinion and Reporting on a
Financial Report.
Australian Securities and Investments Commission
(ASIC), 2012, Report 317: Audit Inspection Program
Public Report for 2011-12.
Carson, E, N Fargher, M Geiger, C Lennox, K
Raghunandan and M Willekens, 2013. Audit
Reporting for Going-Concern Uncertainty:
A Research Synthesis, Auditing: A Journal of
Theory and Practice 32 (Supplement 1): 353-384.
Carson, E., Ferguson, A. and Simnett, R. 2006,
‘Australian Audit Reports: 1996-2003’, Australian
Accounting Review, 16 (3): 89-96.
Cheffers, M., Whalen, D. and Thrun, M. 2010.
‘Going Concerns: A Ten Year Review’, Audit
Analytics, Sutton, MA.
Geiger, M. A., Raghunandan, K. and Riccardi,
W. 2014. ‘The Global Financial Crisis: U.S.
Bankruptcies and Going-Concern Audit Opinions’,
Accounting Horizons, 28 (1): 59-75.
Xu. Y., Carson, E., Fargher, N., and A. Jiang,
2013. Auditor Responses to Changes in Business
Risk: The Impact of the Global Financial Crisis
on Auditors’ Behaviour in Australia, Accounting
and Finance, 53(1): 301-338.
Xu, Y., Jiang, L., Fargher, N. and Carson, E. 2011,
‘Audit Reports in Australia during the Global
Financial Crisis’, Australian Accounting Review,
21 (1): 22-31.
22 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
DATA TABLES
TABLE 1 TYPES OF REPORTS
TABLE 1 TRENDS OF AUDIT OPINION ISSUANCE FOR THE PERIOD 2005-2013
Types of Audit Opinions 2005-2013
2005
Unmodified
Unmodified
Unmodified with an Emphasis of Matter
0
1.1-1.7
Total Unmodified
2006
2007
2008
2009
2010
2011
2012
2013
No.
(%)
No.
(%)
No.
(%)
No.
(%)
No.
(%)
No.
(%)
No.
(%)
No.
(%)
No.
(%)
1262
84.75%
1357
84.76%
1494
85.62%
1413
77.77%
1342
73.25%
1382
74.54%
1403
75.39%
1284
70.59%
1181
64.29%
193
12.96%
194
12.12%
199
11.40%
335
18.44%
411
22.43%
383
20.66%
381
20.47%
455
25.01%
594
32.34%
1455
97.72%
1551
96.88%
1693
97.02%
1748
96.20%
1753
95.69%
1765
95.20%
1784
95.86%
1739
95.60%
1775
96.62%
Modified
Except for - Other
Except for - Going Concern
Adverse Opinion - Other
Adverse Opinion - Going Concern
Disclaimer - Other
Disclaimer - Going Concern
Qualification Plus Emphasis of Matter - Other
Qualification Plus Emphasis of Matter - Going Concern
3
12
0.81%
12
0.75%
22
1.26%
23
1.27%
20
1.09%
23
1.24%
27
1.45%
23
1.26%
15
0.82%
3.1
2
0.13%
8
0.50%
0
0.00%
13
0.72%
9
0.49%
5
0.27%
1
0.05%
4
0.22%
0
0.00%
0.00%
4
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
1
0.05%
0
0.00%
0
4.1
1
0.07%
2
0.12%
1
0.06%
5
0.28%
3
0.16%
1
0.05%
0
0.00%
1
0.05%
2
0.11%
5
1
0.07%
4
0.25%
10
0.57%
8
0.44%
7
0.38%
15
0.81%
13
0.70%
10
0.55%
3
0.16%
5.1
6
0.40%
6
0.37%
6
0.34%
6
0.33%
13
0.71%
12
0.65%
9
0.48%
11
0.60%
8
0.44%
6
0
0.00%
3
0.19%
0
0.00%
1
0.06%
2
0.11%
0
0.00%
0
0.00%
2
0.11%
2
0.11%
6.1
12
0.81%
15
0.94%
13
0.74%
13
0.72%
25
1.36%
33
1.78%
26
1.40%
29
1.59%
32
1.74%
Total Modified
Total number of audit reports
34
2.28%
50
3.12%
52
2.98%
69
3.80%
79
4.31%
89
4.80%
77
4.14%
80
4.40%
62
3.38%
1489
100.00%
1601
100.00%
1745
100.00%
1817
100.00%
1832
100.00%
1854
100.00%
1861
100.00%
1819
100.00%
1837
100.00%
Types of Emphasis of Matter and/or Other Matter Paragraphs 2005-2013
2005
2006
2007
2008
2009
2010
2011
2012
2013
Significant Uncertainty Regarding Ability to Continue as
a Going Concern
1.1
157
81.35%
170
87.63%
174
87.44%
318
94.93%
379
92.21%
358
93.47%
345
90.55%
435
95.60%
570
95.96%
Significant Uncertainty other than Regarding the Ability
to Continue as a Going Concern
1.2
35
18.13%
24
12.37%
23
11.56%
16
4.78%
31
7.54%
24
6.27%
28
7.35%
16
3.52%
17
2.86%
Additional Disclosure with Which the Auditor Concurs
1.3
0
0.00%
0
0.00%
0
0.00%
1
0.30%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
Inconsistent with Other Information
1.4
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
Subsequent Event Createds New Conditions
1.5
0
0.00%
0
0.00%
1
0.50%
0
0.00%
0
0.00%
1
0.26%
1
0.26%
0
0.00%
0
0.00%
Revised Financial Report
1.6
1
0.52%
0
0.00%
1
0.50%
0
0.00%
1
0.24%
0
0.00%
4
1.05%
1
0.22%
0
0.00%
Other Matter*
Total number of audit reports with an emphasis of
matter
1.7/1.8
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
3
0.79%
3
0.66%
7
1.18%
193
100.00%
194
100.00%
199
100.00%
335
100.00%
411
100.00%
383
100.00%
381
100.00%
455
100.00%
594
100.00%
Audit Reports Regarding Going Concern 2005-2013
2005
2006
2007
2008
2009
2010
2011
2012
2013
Reports qualified or unqualified regarding GC
178
11.95%
201
12.55%
194
11.12%
355
19.54%
429
23.42%
409
22.06%
381
20.47%
480
26.39%
612
33.32%
Unmodified with EoM on GC
157
10.54%
170
10.62%
174
9.97%
318
17.50%
379
20.69%
358
19.31%
345
18.54%
435
23.91%
570
31.03%
21
1.41%
31
1.94%
20
1.15%
37
2.04%
50
2.73%
51
2.75%
36
1.93%
45
2.47%
42
2.29%
Modified in relation to GC
*ASA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report is operative for financial reporting periods commencing on or after 1 January 2010. This regulation requires auditor to disclose a paragraph in the auditor’s report,
with the heading “Other Matter,” or other appropriate heading if necessary.
23 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
DATA TABLES
TABLE 2 TYPES OF AUDIT REPORTS BY AUDIT FIRM 2007-2013
TABLE 2 CONTINUED
2005
Total
Unmodified
GCO EoMs
2006
Other EoMs
GCO quals
Other quals
Total
Unmodified
GCO EoMs
Other EoMs
GCO quals
Other quals
PricewaterhouseCoopers
204
192
94.1%
9
4.4%
1
0.5%
1
0.5%
1
0.5%
204
196
96.1%
4
2.0%
1
0.5%
1
0.5%
2
Ernst and Young
270
244
90.4%
22
8.1%
1
0.4%
2
0.7%
1
0.4%
274
245
89.4%
23
8.4%
1
0.4%
2
0.7%
3
1.1%
KPMG
184
167
90.8%
13
7.1%
3
1.6%
1
0.5%
0
0.0%
201
183
91.0%
16
8.0%
0
0.0%
0
0.0%
2
1.0%
0.7%
Deloitte Touche
1.0%
112
102
91.1%
3
2.7%
2
1.8%
3
2.7%
2
1.8%
140
124
88.6%
9
6.4%
0
0.0%
6
4.3%
1
192.5
176.3
91.6%
11.8
6.1%
1.8
0.9%
1.8
0.9%
1.0
0.5%
204.75
187
91.3%
13
6.3%
0.5
0.2%
2.25
1.1%
2
1.0%
BDO
86
56
65.1%
22
25.6%
3
3.5%
5
5.8%
0
0.0%
70
43
61.4%
12
17.1%
9
12.9%
4
5.7%
2
2.9%
Grant Thornton
63
52
82.5%
10
15.9%
0
0.0%
1
1.6%
0
0.0%
75
62
82.7%
11
14.7%
1
1.3%
1
1.3%
0
0.0%
Crowe Horwath
0
0
0
0
Big Four Average
0
0
0
0
0
0
0
0
WHK
10
8
80.0%
2
20.0%
0
0.0%
0
0.0%
0
0.0%
7
5
71.4%
2
28.6%
0
0.0%
0
0.0%
0
0.0%
HLB Mann Judd
34
25
73.5%
7
20.6%
1
2.9%
1
2.9%
0
0.0%
38
29
76.3%
8
21.1%
0
0.0%
1
2.6%
0
0.0%
PKF
93
74
79.6%
14
15.1%
3
3.2%
0
0.0%
2
2.2%
99
80
80.8%
13
13.1%
0
0.0%
4
4.0%
2
2.0%
Pitcher Partners
35
30
85.7%
3
8.6%
1
2.9%
0
0.0%
1
2.9%
36
27
75.0%
5
13.9%
2
5.6%
1
2.8%
1
2.8%
Other
398
312
78.4%
52
13.1%
21
5.3%
7
1.8%
6
1.5%
457
363
79.4%
67
14.7%
10
2.2%
11
2.4%
6
1.3%
Non-Big Four Average
89.9
69.6
77.5%
13.8
15.3%
3.6
4.0%
1.8
1.9%
1.1
1.3%
97.8
76.1
77.9%
14.8
15.1%
2.8
2.8%
2.8
2.8%
1.4
1.4%
1489
1262
84.8%
157
10.5%
36
2.4%
21
1.4%
13
0.9%
1601
1357
84.8%
170
10.6%
24
1.5%
31
1.9%
19
1.2%
Total
2007
Total
Unmodified
GCO EoMs
2008
Other EoMs
GCO quals
Other quals
Total
Unmodified
GCO EoMs
Other EoMs
GCO quals
Other quals
PricewaterhouseCoopers
199
184
92.5%
10
5.0%
1
0.5%
1
0.5%
3
1.5%
188
163
86.7%
20
10.6%
1
0.5%
0
0.0%
4
2.1%
Ernst and Young
266
242
91.0%
20
7.5%
2
0.8%
0
0.0%
2
0.8%
260
217
83.5%
36
13.8%
2
0.8%
2
0.8%
3
1.2%
KPMG
204
186
91.2%
18
8.8%
0
0.0%
0
0.0%
0
0.0%
202
170
84.2%
23
11.4%
4
2.0%
4
2.0%
1
0.5%
Deloitte Touche
147
130
88.4%
12
8.2%
0
0.0%
3
2.0%
2
1.4%
143
118
82.5%
20
14.0%
0
0.0%
4
2.8%
1
0.7%
Big Four Average
204
185.5
90.9%
15
7.4%
0.75
0.4%
1
0.5%
1.75
0.9%
198.3
167.0
84.2%
24.8
12.5%
1.8
0.9%
2.5
1.3%
2.3
1.1%
BDO
138
106
76.8%
20
14.5%
2
1.4%
4
2.9%
6
4.3%
172
108
62.8%
51
29.7%
2
1.2%
6
3.5%
5
2.9%
Grant Thornton
70
57
81.4%
10
14.3%
1
1.4%
1
1.4%
1
1.4%
132
102
77.3%
24
18.2%
2
1.5%
4
3.0%
0
0.0%
Crowe Horwath
0
0
0
0
WHK
36
29
80.6%
6
16.7%
0
0.0%
0
0.0%
1
2.8%
48
44
91.7%
3
6.3%
0
0.0%
0
0.0%
1
2.1%
HLB Mann Judd
52
41
78.8%
6
11.5%
0
0.0%
1
1.9%
4
7.7%
72
51
70.8%
15
20.8%
1
1.4%
2
2.8%
3
4.2%
117
98
83.8%
13
11.1%
2
1.7%
1
0.9%
3
2.6%
120
90
75.0%
20
16.7%
1
0.8%
5
4.2%
4
3.3%
44
34
77.3%
6
13.6%
4
9.1%
0
0.0%
0
0.0%
41
31
75.6%
7
17.1%
2
4.9%
1
2.4%
0
0.0%
PKF
Pitcher Partners
Other
0
0
0
0
0
0
0
0
472
387
82.0%
53
11.2%
13
2.8%
9
1.9%
10
2.1%
439
319
72.7%
99
22.6%
2
0.5%
9
2.1%
10
2.3%
Non-Big Four Average
116.1
94.0
80.9%
14.3
12.3%
2.8
2.4%
2.0
1.7%
3.1
2.7%
128.0
93.1
72.8%
27.4
21.4%
1.3
1.0%
3.4
2.6%
2.9
2.2%
Total
1745
1494
85.6%
174
10.0%
25
1.4%
20
1.1%
32
1.8%
1817
1413
77.8%
318
17.5%
17
0.9%
37
2.0%
32
1.8%
24 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
TABLE 2 TYPES OF AUDIT REPORTS BY AUDIT FIRM 2007-2013 (CONTINUED)
TABLE 2 BY AUDIT FORM
2009
Total
Unmodified
GCO EoMs
2010
Other EoMs
GCO quals
Other quals
Total
Unmodified
GCO EoMs
Other EoMs
GCO quals
Other quals
PricewaterhouseCoopers
181
161
89.0%
19
10.5%
0
0.0%
1
0.6%
0
0.0%
176
156
88.6%
19
10.8%
0
0.0%
1
0.6%
0
0.0%
Ernst and Young
254
205
80.7%
42
16.5%
3
1.2%
2
0.8%
2
0.8%
259
210
81.1%
43
16.6%
1
0.4%
4
1.5%
1
0.4%
KPMG
205
168
82.0%
27
13.2%
5
2.4%
3
1.5%
2
1.0%
197
169
85.8%
18
9.1%
4
2.0%
4
2.0%
2
1.0%
Deloitte Touche
141
110
78.0%
29
20.6%
0
0.0%
1
0.7%
1
0.7%
182
145
79.7%
31
17.0%
2
1.1%
1
0.5%
3
1.6%
195.3
161.0
82.5%
29.3
15.0%
2.0
1.0%
1.8
0.9%
1.3
0.6%
203.5
170.0
83.5%
27.8
13.6%
1.8
0.9%
2.5
1.2%
1.5
0.7%
3.5%
Big Four Average
BDO
187
112
59.9%
61
32.6%
4
2.1%
9
4.8%
1
0.5%
198
115
58.1%
62
31.3%
3
1.5%
11
5.6%
7
Grant Thornton
133
94
70.7%
25
18.8%
4
3.0%
7
5.3%
3
2.3%
127
92
72.4%
25
19.7%
2
1.6%
3
2.4%
5
3.9%
Crowe Horwath
1
0
0.0%
1
100.0%
0
0.0%
0
0.0%
0
0.0%
1
0
0.0%
1
100.0%
0
0.0%
0
0.0%
0
0.0%
2.4%
WHK
43
37
86.0%
6
14.0%
0
0.0%
0
0.0%
0
0.0%
42
31
73.8%
9
21.4%
0
0.0%
1
2.4%
1
HLB Mann Judd
77
52
67.5%
19
24.7%
1
1.3%
2
2.6%
3
3.9%
88
73
83.0%
13
14.8%
0
0.0%
1
1.1%
1
1.1%
121
93
76.9%
22
18.2%
1
0.8%
3
2.5%
2
1.7%
84
53
63.1%
26
31.0%
1
1.2%
4
4.8%
0
0.0%
PKF
Pitcher Partners
29
21
72.4%
7
24.1%
0
0.0%
1
3.4%
0
0.0%
25
20
80.0%
4
16.0%
1
4.0%
0
0.0%
0
0.0%
460
289
62.8%
121
26.3%
14
3.0%
21
4.6%
15
3.3%
475
318
66.9%
107
22.5%
11
2.3%
21
4.4%
18
3.8%
Non-Big Four Average
131.4
87.3
66.4%
32.8
24.9%
3.0
2.3%
5.4
4.1%
3.0
2.3%
130.0
87.8
67.5%
30.9
23.8%
2.3
1.7%
5.1
3.9%
4.0
3.1%
Total
1832
1342
73.3%
379
20.7%
32
1.7%
50
2.7%
29
1.6%
1854
1382
74.5%
358
19.3%
25
1.3%
51
2.8%
38
2.0%
Other
2011
Total
Unmodified
GCO EoMs
2012
Other EoMs
GCO quals
Other quals
Total
Unmodified
GCO EoMs
Other EoMs
GCO quals
Other quals
PricewaterhouseCoopers
172
151
87.8%
11
6.4%
10
5.8%
0
0.0%
0
0.0%
176
156
88.6%
18
10.2%
2
1.1%
0
0.0%
0
Ernst and Young
251
207
82.5%
40
15.9%
1
0.4%
1
0.4%
2
0.8%
239
182
76.2%
52
21.8%
0
0.0%
4
1.7%
1
0.4%
KPMG
191
160
83.8%
27
14.1%
1
0.5%
2
1.0%
1
0.5%
176
143
81.3%
31
17.6%
1
0.6%
1
0.6%
0
0.0%
1.2%
Deloitte Touche
0.0%
182
150
82.4%
25
13.7%
1
0.5%
3
1.6%
3
1.6%
171
137
80.1%
29
17.0%
1
0.6%
2
1.2%
2
199.0
167.0
83.9%
25.8
12.9%
3.3
1.6%
1.5
0.8%
1.5
0.8%
190.5
154.5
81.1%
32.5
17.1%
1.0
0.5%
1.8
0.9%
0.8
0.4%
BDO
201
128
63.7%
56
27.9%
5
2.5%
4
2.0%
8
4.0%
238
140
58.8%
80
33.6%
2
0.8%
8
3.4%
8
3.4%
Grant Thornton
139
101
72.7%
31
22.3%
0
0.0%
4
2.9%
3
2.2%
162
111
68.5%
46
28.4%
0
0.0%
3
1.9%
2
1.2%
Crowe Horwath
36
27
75.0%
6
16.7%
0
0.0%
2
5.6%
1
2.8%
32
18
56.3%
11
34.4%
0
0.0%
1
3.1%
2
6.3%
33.3%
Big Four Average
7
4
57.1%
2
28.6%
0
0.0%
0
0.0%
1
14.3%
3
1
33.3%
1
33.3%
0
0.0%
0
0.0%
1
HLB Mann Judd
WHK
97
78
80.4%
12
12.4%
1
1.0%
3
3.1%
3
3.1%
99
75
75.8%
16
16.2%
3
3.0%
4
4.0%
1
1.0%
PKF
77
48
62.3%
25
32.5%
1
1.3%
1
1.3%
2
2.6%
11
8
72.7%
3
27.3%
0
0.0%
0
0.0%
0
0.0%
3.3%
Pitcher Partners
29
21
72.4%
8
27.6%
0
0.0%
0
0.0%
0
0.0%
30
19
63.3%
9
30.0%
1
3.3%
0
0.0%
1
479
328
68.5%
102
21.3%
16
3.3%
16
3.3%
17
3.5%
482
294
61.0%
139
28.8%
10
2.1%
22
4.6%
17
3.5%
Non-Big Four Average
133.1
91.9
69.0%
30.3
22.7%
2.9
2.2%
3.8
2.8%
4.4
3.3%
132.1
83.3
63.0%
38.1
28.9%
2.0
1.5%
4.8
3.6%
4.0
3.0%
Total
1861
1403
75.4%
345
18.5%
36
1.9%
36
1.9%
41
2.2%
1819
1284
70.6%
435
23.9%
20
1.1%
45
2.5%
35
1.9%
Other
2013
Total
Unmodified
GCO EoMs
Other EoMs
GCO quals
Other quals
PricewaterhouseCoopers
177
144
81.4%
32
18.1%
0
0.0%
0
0.0%
1
0.6%
Ernst and Young
241
183
75.9%
51
21.2%
1
0.4%
6
2.5%
0
0.0%
KPMG
179
141
78.8%
34
19.0%
3
1.7%
0
0.0%
1
0.6%
Deloitte Touche
172
134
77.9%
35
20.3%
0
0.0%
2
1.2%
1
0.6%
0.4%
192.3
150.5
78.3%
38.0
19.8%
1.0
0.5%
2.0
1.0%
0.8
BDO
Big Four Average
243
126
51.9%
107
44.0%
0
0.0%
6
2.5%
4
1.6%
Grant Thornton
164
91
55.5%
65
39.6%
2
1.2%
4
2.4%
2
1.2%
Crowe Horwath
29
15
51.7%
12
41.4%
0
0.0%
0
0.0%
2
6.9%
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
101
54
53.5%
42
41.6%
1
1.0%
3
3.0%
1
1.0%
4
3
75.0%
0
0.0%
0
0.0%
1
25.0%
0
0.0%
0.0%
WHK
HLB Mann Judd
PKF
Pitcher Partners
33
22
66.7%
11
33.3%
0
0.0%
0
0.0%
0
494
268
54.3%
181
36.6%
17
3.4%
20
4.0%
8
1.6%
Non-Big Four Average
133.5
72.4
54.2%
52.3
39.1%
2.5
1.9%
4.3
3.2%
2.1
1.6%
Total
1837
1181
64.3%
570
31.0%
24
1.3%
42
2.3%
20
1.1%
Other
25 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
DATA TABLES
TABLE 3 BY ENTITY SIZE
TABLE 3 AUSTRALIAN MODIFIED AUDIT REPORT TYPES BY ENTITY TOTAL ASSETS
Full Sample
Top 200
Middle
Bottom 500
Year
n
No. GCO
GCO%
n
No. GCO
GCO%
n
No. GCO
GCO%
n
No. GCO
GCO%
2005
1489
178
11.95%
200
0
0.00%
789
55
6.97%
500
123
24.60%
2006
1601
201
12.55%
200
0
0.00%
901
67
7.44%
500
134
26.80%
2007
1745
194
11.12%
200
3
1.50%
1045
95
9.09%
500
96
19.20%
2008
1817
355
19.54%
200
12
6.00%
1117
143
12.80%
500
200
40.00%
2009
1832
429
23.42%
200
15
7.50%
1132
200
17.67%
500
214
42.80%
2010
1854
409
22.06%
200
9
4.50%
1154
192
16.64%
500
208
41.60%
2011
1861
381
20.47%
200
5
2.50%
1161
173
14.90%
500
203
40.60%
2012
1819
480
26.39%
200
4
2.00%
1119
237
21.18%
500
239
47.80%
2013
1837
612
33.32%
200
3
1.50%
1137
319
28.06%
500
290
58.00%
15855
3239
20.43%
1800
51
2.83%
9555
1481
15.50%
4500
1707
37.93%
Total
26 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
DATA TABLES
TABLE
4 BYOF
INDUSTRY
TABLE
4 TYPES
AUDIT REPORTS BY INDUSTRY 2007-2013
2005
Industry
Total
Energy
10
114
97
85.09%
13
11.40%
2
1.75%
0
0.00%
2
1.75%
Materials
15
413
352
85.23%
42
10.17%
17
4.12%
1
0.24%
1
Industrial
20
165
144
87.27%
17
10.30%
0
0.00%
2
1.21%
Consumer discretionary
25
166
140
84.34%
15
9.04%
2
1.20%
7
4.22%
Consumer staples
30
49
41
83.67%
8
16.33%
0
0.00%
0
0.00%
0
0.00%
49
37
75.51%
10
20.41%
1
Health care
35
142
111
78.17%
25
17.61%
5
3.52%
1
0.70%
0
0.00%
148
110
74.32%
30
20.27%
1
Financials
40
269
251
93.31%
8
2.97%
5
1.86%
1
0.37%
4
1.49%
288
273
94.79%
9
3.13%
0
Information technology
45
124
91
73.39%
23
18.55%
2
1.61%
6
4.84%
2
1.61%
121
90
74.38%
23
19.01%
Telecommunication
Services
50
29
21
72.41%
4
13.79%
2
6.90%
2
6.90%
0
0.00%
34
25
73.53%
6
17.65%
Utilities
55
Total
Unmodified
GCO EoMs
2006
Code
OtherEoM
GCO quals
Other quals
Total
GCO EoMs
139
121
87.05%
12
8.63%
4
2.88%
1
0.72%
1
0.72%
180
161
89.44%
16
8.89%
0
0.00%
0
0.00%
3
1.67%
0.24%
464
395
85.13%
47
10.13%
12
2.59%
5
1.08%
5
1.08%
543
471
86.74%
51
9.39%
14
2.58%
3
0.55%
4
0.74%
2
1.21%
176
154
87.50%
15
8.52%
2
1.14%
3
1.70%
2
1.14%
184
168
91.30%
9
4.89%
1
0.54%
2
1.09%
4
2.17%
2
1.20%
162
135
83.33%
15
9.26%
3
1.85%
7
4.32%
2
1.23%
161
133
82.61%
13
8.07%
3
1.86%
5
3.11%
7
4.35%
2.04%
1
2.04%
0
0.00%
52
41
78.85%
8
15.38%
1
1.92%
0
0.00%
2
3.85%
0.68%
4
2.70%
3
2.03%
152
117
76.97%
28
18.42%
3
1.97%
3
1.97%
1
0.66%
0.00%
2
0.69%
4
1.39%
303
280
92.41%
15
4.95%
0
0.00%
2
0.66%
6
1.98%
0
0.00%
6
4.96%
2
1.65%
115
83
72.17%
25
21.74%
2
1.74%
2
1.74%
3
2.61%
1
2.94%
2
5.88%
0
0.00%
31
20
64.52%
7
22.58%
1
3.23%
2
6.45%
1
3.23%
OtherEoM
GCO quals
Other quals
Total
Unmodified
GCO EoMs
OtherEoM
GCO quals
Other quals
18
14
77.78%
2
11.11%
1
5.56%
1
5.56%
0
0.00%
20
17
85.00%
3
15.00%
0
0.00%
0
0.00%
0
0.00%
24
20
83.33%
2
8.33%
0
0.00%
1
4.17%
1
4.17%
1489
1262
84.75%
157
10.54%
36
2.42%
21
1.41%
13
0.87%
1601
1357
84.76%
170
10.62%
24
1.50%
31
1.94%
19
1.19%
1745
1494
85.62%
174
9.97%
25
1.43%
20
1.15%
32
1.83%
2008
Industry
2007
Unmodified
Unmodified
GCO EoMs
2009
Code
Total
OtherEoM
GCO quals
Other quals
Energy
10
207
167
80.68%
31
14.98%
1
0.48%
5
2.42%
3
1.45%
Materials
15
596
440
73.83%
129
21.64%
7
1.17%
9
1.51%
11
Industrial
20
183
156
85.25%
19
10.38%
2
1.09%
4
2.19%
Consumer discretionary
25
156
125
80.13%
20
12.82%
1
0.64%
6
Consumer staples
30
56
40
71.43%
12
21.43%
2
3.57%
1
Health care
35
148
97
65.54%
43
29.05%
3
2.03%
Total
2010
Unmodified
GCO EoMs
OtherEoM
GCO quals
Other quals
Total
Unmodified
GCO EoMs
211
160
75.83%
38
18.01%
5
2.37%
5
2.37%
3
1.42%
217
162
74.65%
47
21.66%
OtherEoM
4
1.84%
GCO quals
1
0.46%
Other quals
3
1.85%
617
435
70.50%
148
23.99%
12
1.94%
13
2.11%
9
1.46%
656
482
73.48%
138
21.04%
6
0.91%
18
2.74%
12
1.83%
2
1.09%
189
145
76.72%
34
17.99%
3
1.59%
4
2.12%
3
1.59%
192
152
79.17%
25
13.02%
6
3.13%
5
2.60%
4
2.08%
3.85%
4
2.56%
155
123
79.35%
24
15.48%
3
1.94%
3
1.94%
2
1.29%
152
118
77.63%
22
14.47%
2
1.32%
6
3.95%
4
2.63%
1.79%
1
1.79%
52
36
69.23%
10
19.23%
1
1.92%
2
3.85%
3
5.77%
53
31
58.49%
15
28.30%
1
1.89%
2
3.77%
4
7.55%
4
2.70%
1
0.68%
149
93
62.42%
46
30.87%
2
1.34%
7
4.70%
1
0.67%
145
94
64.83%
43
29.66%
0
0.00%
3
2.07%
5
3.45%
1.84%
1.38%
Financials
40
301
268
89.04%
24
7.97%
0
0.00%
3
1.00%
6
1.99%
290
237
81.72%
37
12.76%
4
1.38%
8
2.76%
4
1.38%
272
228
83.82%
30
11.03%
3
1.10%
6
2.21%
5
Information technology
45
109
74
67.89%
30
27.52%
0
0.00%
3
2.75%
2
1.83%
108
66
61.11%
30
27.78%
2
1.85%
7
6.48%
3
2.78%
106
73
68.87%
24
22.64%
3
2.83%
5
4.72%
1
0.94%
Telecommunication
Services
50
31
20
64.52%
7
22.58%
1
3.23%
2
6.45%
1
3.23%
29
22
75.86%
5
17.24%
0
0.00%
1
3.45%
1
3.45%
28
19
67.86%
6
21.43%
0
0.00%
3
10.71%
0
0.00%
Utilities
55
30
26
86.67%
3
10.00%
0
0.00%
0
0.00%
1
3.33%
32
25
78.13%
7
21.88%
0
0.00%
0
0.00%
0
0.00%
33
23
69.70%
8
24.24%
0
0.00%
2
6.06%
0
0.00%
1817
1413
77.77%
318
17.50%
17
0.94%
37
2.04%
32
1.76%
1832
1342
73.25%
379
20.69%
32
1.75%
50
2.73%
29
1.58%
1854
1382
74.54%
358
19.31%
25
1.35%
51
2.75%
38
2.05%
Code
Total
Unmodified
Energy
10
223
156
69.96%
49
21.97%
7
3.14%
8
3.59%
3
1.35%
Materials
15
732
551
75.27%
144
19.67%
14
1.91%
11
1.50%
12
1.64%
Industrial
20
192
151
78.65%
29
15.10%
3
1.56%
2
1.04%
7
3.65%
177
133
75.14%
27
15.25%
1
0.56%
9
5.08%
7
Consumer discretionary
25
138
112
81.16%
21
15.22%
0
0.00%
2
1.45%
3
2.17%
135
105
77.78%
22
16.30%
0
0.00%
3
2.22%
5
Consumer staples
30
42
25
59.52%
13
30.95%
0
0.00%
1
2.38%
3
7.14%
46
32
69.57%
11
23.91%
0
0.00%
2
4.35%
1
2.17%
Total
2011
Industry
GCO EoMs
2012
OtherEoM
GCO quals
Other quals
Total
2013
Unmodified
GCO EoMs
OtherEoM
GCO quals
Other quals
Total
Unmodified
GCO EoMs
230
154
66.96%
66
28.70%
3
1.30%
4
1.74%
3
1.30%
239
136
56.90%
88
36.82%
OtherEoM
5
2.09%
GCO quals
6
2.51%
Other quals
4
1.67%
729
460
63.10%
230
31.55%
10
1.37%
19
2.61%
10
1.37%
752
388
51.60%
336
44.68%
7
0.93%
18
2.39%
3
0.40%
3.95%
174
134
77.01%
29
16.67%
3
1.72%
4
2.30%
4
2.30%
3.70%
139
115
82.73%
20
14.39%
0
0.00%
3
2.16%
1
0.72%
44
28
63.64%
11
25.00%
1
2.27%
3
6.82%
1
2.27%
Health care
35
130
84
64.62%
36
27.69%
1
0.77%
2
1.54%
7
5.38%
114
81
71.05%
27
23.68%
1
0.88%
2
1.75%
3
2.63%
114
75
65.79%
37
32.46%
1
0.88%
1
0.88%
0
0.00%
Financials
40
259
219
84.56%
23
8.88%
9
3.47%
4
1.54%
4
1.54%
250
221
88.40%
20
8.00%
3
1.20%
2
0.80%
4
1.60%
244
218
89.34%
18
7.38%
4
1.64%
1
0.41%
3
1.23%
Information technology
45
97
68
70.10%
21
21.65%
2
2.06%
5
5.15%
1
1.03%
91
61
67.03%
23
25.27%
1
1.10%
4
4.40%
2
2.20%
84
55
65.48%
19
22.62%
1
1.19%
5
5.95%
4
4.76%
Telecommunication
Services
50
21
15
71.43%
4
19.05%
0
0.00%
1
4.76%
1
4.76%
20
17
85.00%
3
15.00%
0
0.00%
0
0.00%
0
0.00%
20
17
85.00%
3
15.00%
0
0.00%
0
0.00%
0
0.00%
Utilities
55
Total
27
22
81.48%
5
18.52%
0
0.00%
0
0.00%
0
0.00%
27
20
74.07%
6
22.22%
1
3.70%
0
0.00%
0
0.00%
27
15
55.56%
9
33.33%
2
7.41%
1
3.70%
0
0.00%
1861
1403
75.39%
345
18.54%
36
1.93%
36
1.93%
41
2.20%
1819
1284
70.59%
435
23.91%
20
1.10%
45
2.47%
35
1.92%
1837
1181
64.29%
570
31.03%
24
1.31%
42
2.29%
20
1.09%
27 | AUDIT REPORTS IN AUSTRALIA 2005 – 2013: A PRELIMINARY ANALYSIS
APPENDIX 1:
ECONOMIC TRENDS IN AUSTRALIA
THE SEASONALLY ADJUSTED UNEMPLOYMENT RATE SINCE 1978
THE NUMBER OF JOB VACANCIES (THOUSANDS) SINCE 1979
CPAH1113_09/2014
Source: Australian Bureau of Statistics (ABS)