Diageo plc is a British multinational alcoholic beverage company formed in 1997 by the merger of Guinness
Question:
Diageo plc is a British multinational alcoholic beverage company formed in 1997 by the merger of Guinness and Grand Metropolitan. Diageo has a primary listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange. Diageo's brands include Smirnoff, Johnnie Walker, Bailey's and Guinness. Diageo plc's group financial statements are prepared in accordance with IFRS (as adopted by the European Union) and company financial statements are prepared in accordance with British accounting standards. PricewaterhouseCoopers LLP is the auditor of the company and conducts its audit in accordance with the ISAs (England). In January 2015, the IAASB released new and revised Auditor Reporting standards, including ISA 701, Communicating Key Audit Matters in the Independent Auditor's Report. The purpose of ISA 701 is to identify the auditor's responsibility to communicate key audit matters by addressing both the auditor's judgment of what is to be communicated in the report and the form/content of such communication. According to IAS 701.02, "The purpose of communicating key audit matters is to increase the communicative value of the auditor's report by providing greater transparency about the audit performed." ISA 701 is applicable to financial statement audits for periods ending on/after December 15, 2016. Your US-based audit firm has recently acquired an international firm as an audit client. Your audit partner wants to know how best to apply ISA 701 to their audit. The partner has heard that PwC has implemented ISA 701 for the audit of Diageo plc's 2019 annual report. Since your firm is a US-based audit firm, the partner would also like to know how ISA 701 differs from the PCAOB audit standard AS 3101, which requires reporting of Critical Audit Matters. Your task is to review PwC's audit opinion in Diageo plc's 2019 annual report, refer to applicable auditing standards, and answer the following questions:
1) Explain how the audit opinion issued on Diageo plc's financial statements meets the requirements of ISA 701.
2) Explain how the reporting requirements of ISA 701 differ from AS 3101. Also share the steps you followed while researching ISA 701 and AS 3101.
Expert Answer:
Answer 1The auditors decisionmaking process in determining key audit matters is designed to select a smaller number of matters from the matters communicated with those charged with governance based on ... View the full answer
