Hi6026 Audit - Assurance And Assessment Answer

Answer:

Introduction:

Woolworths limited is being audited by one of the very famous and big four audit companies which is Deloitte. The ethical behaviour of the audit team and the professional conduct by which they carry out the activities are of some serious concerns. The action of the individuals determines their strength in the company. Deloitte is famous for working with full integrity. The professionalism rules and ethical values that are set up in a company help them to take correct actions in difficult situations. The Global principles of Business consuct guide the code of ethics and professional conduct. This creates a standardised framework for the professional who has been working in Deloitte which guides them to act accordingly (Atkinson, 2012).

As we know, the auditor must express his opinion independently. Deloitte has a reputed name worldwide because it has always committed to the principles and code of ethics which led to fulfilment of the independence requirements. As per section 307 C of the Corporations Act 2001, the audit reports must declare that it is to the best of knowledge and belief of the auditors there is no violation in relation to the professional conduct and independence (Berry, 2009). This is also known as the Auditor’s declaration.

There are some non audit services that are provided by the audit companies with the audit services. It has been stated in the Statutory report of the Director that the company has provided few non audit services but such services has not influenced the independence of the auditor in any manner. These non audit services exclude sharing of risk and rewards on behalf of the company or taking any kind of important decision on behalf of the company (Boyd, 2013).

The non audit services that are provided comprise of providing assistance in the fields of accounting, regulatory services or any other services relating to assurance and there are few more petty services which are provided. The remuneration that is charged for providing the non audit services are $504000. However, these services do not have any kind of influence on the statutory audit requirements.

We can observe in the table provided below that the remuneration of the auditor has increased when compared to the last year. The number of non audit services has also increased compared to the previous years (Girard, 2014). The additional non audit service that was provided by the auditors included assistance in fields of accounting and taxation. So, we can say that the increase in the remuneration occurred because of the increase in non audit services.


AUDITOR'S REMUNERATION

Particulars

2017 ($'000)

2016 ($'000)

% Change

Auditor of the parent entity : Deloitte Touche Tohmatsu Australia

 

 

 

Audit or review of the financial report

3254

2748

18.41%

compliance & regulatory services

129

239

-46.03%

other non-audit related services

421

173

143.35%

tax compliance services

108

113

-4.42%

Total

3912

3273

19.52%

Other Auditors

 

 

 

Audit or review of the financial report

305

218

39.91%

other non-audit related services

83

44

88.64%

tax compliance services

154

160

-3.75%

Total

542

422

28.44%

Key Audit Matters

There are some matters that are of great importance in order to proceed with the audit works. These audit works are also said to be as the key audit matters. An auditor states such matters in his audit report of the present year as well as the audit procedures that it has used in order to analyse such matters (Gow, 2016). Few of the audit procedures that are adopted by the auditors are analytical procedure, test of controls and substantive test of details. The following table explains the audit procedures adopted and the key audit matter of the present year:

Particulars

Description

Substantive Test of details

test of controls

analytical procedures

Accounting for rebates

We can observe in the notes that there is an improvement in the exit of hotel business. Few concerns that has to be looked upon is Lowe’s put option, transactions of Home Corsotium, property cost accounting, matters relating to taxation, inventory management, settlement of liabilities as well as liquidation and closure matters. These matters are considered to be complex because it involved certain estimates and judgements for the purpose of measuring assets and liabilities. Therefore, it was considered as a key matter.

The substantive test includes reviewing the sales agreement of Hardware as well as Timber. It also includes assessment of the terms and conditions of liquidation, reviewing the lease agreements, and also checking and staying updated about the carrying value of assets and liabilities.

To check the accuracy and appropriateness of the accounting methods that are followed for the purpose of recording sale of Home Timber and hardware, results of Home improvement exit, whether there are required disclosures made or not.

. In relation to the appointment of GA Australian Pty Ltd., the amount of revenue and the cot related to liquidation is tested. The estimates, assumptions and judgements that are used for the purpose of asset and liabilities measurement and also there is a comparison of least amounts with the past historical data.

IT system

The inventory valuation policy that is adopted by the group is the lower of cost or net realisable value. The current value of inventory is $4080.4. It takes into consideration the estimates in of the sales keeping in mind the historical trends and also the discrepancies and obsolescence of the inventories

This includes understanding the policy adopted by the company to treat the provisions that are made with respect to the seasonal changes, selling as per the rate, evaluating the historical values of inventories and also keeping a track of the inventory that is written off.

Testing the correctness of the inventory valuation shows the strength of the internal controls. Also, the judgements involved and the assumptions made are taken into consideration.

-

Audit Commitee

There are various committees that are formed such as audit committee, risk committee and compliance committee. Such committees usually comprises of five people- four members and one chairman (Holtzman, 2013). These four members are considered to be the independent non executive directors.

The actions of the audit committee are usually governed on the basis of the audit committee charter. There has to be minimum three persons in the audit committee as members and one of them has to play the role of chairperson. The member should be the independent directors of the board.  Such members should perform their works independently. Such member cannot be a part of more than three audit committees of the public. However, they can be appointed if the board approves it (Zack, 2009).


The functions of the audit committee are as follows:

  • It is the responsibility of the board of directors to fulfill their responsibility towards the shareholders.
  • To prepare the financial reports and other documents of the company by maintaining full integrity.
  • There must be an effective internal control for the purpose of reporting financial statements.
  • To assure whether the legal requirements are complied with or not.

All the responsibilities that has to be fulfilled by the audit committee is mentioned in the charter. It is the respondibility of the management to prepare annual reports that give truse and clear picture of the company. It should follow the ethical pricinpals, accounting standards and should also strengthen the internal control of the company (Kieso, 2014).

The policies and procedures that a company follows must be flexible enough so that it can be modified with the changing circumstances. The company must take steps to check the quality of the financial reports that are prepared, whether there are any business threats and also the risks that are associated. The company must engage itself in formulating a plan of actions with the internal and external auditors (Mattessich, 2016).

Auditor’s Opinion and Responsiblity

The most important component of the audit report is the opinion that is expressed by the auditor. This audit opinion that is expressed is an assurance provided by the auditor about the quality of the financial reports. However, it is not a guarantee. This opinion should be formed on the basis of suitable audit evidences (McLaney & Adril, 2016).

The audit opinion for Woolworths limited at 25 June 2017 stated by the auditor is unqualified. The auditor has not only audited the company but has also audited the financial reports of the subsidiaries (Wink, 2011). The financial reports that are audited are: Statement of financial position, Statement of other comprehensive income, Statement of cash flow, Statement of profit and loss and also the notes to accounts.

As per the Corporation Act 2001, unqualified opinion of an auditor means that the financial reports that are prepared by the management of the company shows a true and fair view about the company’s financial performance as well as position as on 25 June, 2017. It also means that the company has followed all the norms and standards that is formed by Australian accounting standard board (Rosenfield, 2009).


It is the responsibility of the management to prepare and present the financial reports in accordance with the accounting standards and also the Corporation Act, 2001. It is very important to maintain a strict internal control which will lead to deliver true and fair view of the company’s financial reports (Schroeder, 2014). The audited annual reports are considered to be free from any material misstatements, risk and frauds, errors.

There are few more factors that the company has to asses. Few such factors are the company’s ability to continue as a going concern and fulfilling the requirement of disclosures (Wolk, 2013).

The events that occur after the reporting date but before the financial statements are issued are known as material subsequent events. So, the events occurring after 25 June, 2017 in Woolworths is considered to be material subsequent events (Scott, 2014).

The company entered in an agreement on 26th June, 2017 as per which the company has to sell 66.7% of its shares of Hydrox to Home Consortium. This agreement was a share sale agreement. The agreement comprised of 21 masters freehold development sites, 40 master’s freehold trading sites and 20 masters leasehold sites.

It was also observed that on 4th August, 2017, the shares of Lowe in Hydrox was sold o Trust with Home Consortium. In return the company agreed to receive $250.8 million. Also, JVA was subsequently terminated (Seal, 2012).

Woolworths limited is one of the largest companies in the retail sector that is operating in the oligopoly market. Since, it holds 31% of the total market and therefore, it is one of the biggest contributors of economy’s GDP. It helps Australia to generate around $53 million which is almost 4.1% of the GDP (Siciliano, 2015).

 On analysing the financial statements, it was found that the branch expenses of the company amounted to $10671.40 million. The company has not provided any justification for such huge expenditure. The company must have provided details about the nature of expense and the branch in which t was incurred. The company failed to provide proper information of such expenses which kept the users dissatisfied. There is a chance that the amounts are over reported and under reported. This can be found out only by directly confirming with the branch offices. So, disclosure of such information should be presented more clearly (Siciliano, 2015).

Conclusion

In the annual general meeting of the company, the auditor will be asked to explain the Notes of accounts 6.5 which states about the subsequent events. The company has incurred huge capital losses and according to the managements view the company will have enough capital gains in the future to set off the losses. However, the capital gains that would be derived in future is forecasted (Taillard, 2013).

The second question that can be asked to the auditor is in relation to the ‘other information’ provided at the end of the audit report. In this part of the report the auditor has just motioned whether such information has been taken into consideration or not. The nature of such information is not stated but only it has been stated that it is immaterial for the report (Warren, 2017).

Transparency and quality are the two most important factors that should be there in an audit report.

Bibliography

Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.

Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.

Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.

Girard, S. L. (2014). Business finance basics. Pompton Plains, NJ: Career Press.

Gow, I. D. (2016). Causal Inference in Accounting Research. Journal of Accounting Reseach , 54 (2), 477-523.

Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.

Kieso, D. E. (2014). 2014 FASB Update Intermediate Accounting. New York: Wiley.

Mattessich, R. (2016). Reality and accounting. [S.I.]: Routledge.

McLaney, E., & Adril, D. P. (2016). Accounting and Finance: An Introduction. United Kingdom: Pearson.

Rosenfield, P. (2009). Contemporary Issues in Financial Reporting: A User-Oriented Approach (Routledge New Works in Accounting History). [S.I.]: Wiley.

Schroeder, R. G. (2014). Financial Accounting Theory and Analysis: Text and Cases. Hoboken: John Wiley & Sons.

Scott, W. R. (2014). Financial Accounting Theory. Toronto: Pearson.

Seal, W. (2012). Management accounting. Maidenhead: McGraw-Hill Higher Education.

Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.

Taillard, M. (2013). Corporate finance for dummies. Hoboken, N.J.: Wiley.

Warren, C. S. (2017). Accounting . [S.I.]: South-Western College Pub.

Wink, G. B. (2011). Intermediate accounting demystified. New York, NY: McGraw-Hill.

Wolk, H. I. (2013). Accounting Theory: Conceptual Issues in a Political and Economic Environment. Thousand Oaks, CA: SAGE.

Zack, G. M. (2009). Fair Value Accounting Fraud: New Global Risks and Detection Techniques. Hoboken: Wiley.

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