Ethics and Auditing Report 2022

Running head: AUDIT AND ETHICS
Audit and Ethics
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1AUDIT AND ETHICS
Table of Contents
Section 1..........................................................................................................................................2
Materiality Application in Auditing............................................................................................2
Draft Notes and Disclosures........................................................................................................3
Section 2..........................................................................................................................................4
Preliminary Analytical Review....................................................................................................4
Section 3..........................................................................................................................................7
Statement of Cash Flows.............................................................................................................7
Analysis of the Auditor Report....................................................................................................7
References........................................................................................................................................9
Appendix........................................................................................................................................11
1) Ratio Analysis Data Table......................................................................................................11

2AUDIT AND ETHICS
Section 1
Materiality Application in Auditing
Materiality in the context of the Audit shows the threshold level above which the missing
or incorrect information in financial statement is considered have an impact on the decision
making ability on the users of the company. Materiality is an important convention that should
be well applied in the context of auditing and accounting relating to the important and well
significant of amount, transaction, discrepancy. The objective of the Audit in the context of
financial statements enables the auditors for expressing an opinion whether the presented
financial statements are well prepared in the various aspects of materiality, in the context of
conformity for an identified financial reporting framework. The company that has been taken
into consideration for the purpose of analysis is the Metcash Ltd where the financial data for the
company for the year 2015-2018 has been taken into consideration for the purpose of analysis
(Annual Report, 2018).
Materiality of the financial statement well states that the financial report presented by the
company should well represent financial information and updates that are well viable so that the
same can be taken into consideration by the Equity Shareholders of the company for the purpose
of assessment of financial performance. There are various accounting estimates and judgments
that are deployed by the management of the company for the purpose of classification and
recording the various transactions of the company. It is equally important that the management
of the Auditors undertakes all the judgments and assumptions into account by carefully
reviewing by the same (Announcements Search Results, 2011). It is the key responsibility of the
Auditor to obtain reasonable assurance whether the presented financial statements is free from

3AUDIT AND ETHICS
any kind of material misstatements that otherwise could jeopardize the quality of the overall
financial statement of the company. The ability in the usage and application of the financial
statement should be well prevailing for any financial statement that is presented.
It is essential for the Auditor of the company to estimate the planning materiality with the
help of the highest value that is reflected in the financial statement of the company. The highest
value in the financial statement of the company would be taken in order to assess the overall
valuation of materiality of the financial statements (Lakis & Masiulevičius, 2017). There are
various judgments and assumptions that has been well applied for the purpose of calculating the
overall materiality in the business. A total of 2% would be taken into consideration for deciding
the materiality of the overall report. The computation of planning materiality can be done as
follows:
Planning Materiality = Total Assets of Company * Estimated Percentage
=$ 3655.2*2%
=$ 731.044
The derived amount would be used by the Auditors of the company for the purpose of
evaluating overall materiality in the business (Eilifsen et al., 2017).
Draft Notes and Disclosures
The draft notes that were presented by the company in relation to the various assets and
accounts of the company were primarily because of the various judgments made by the
management of the company for the purpose of classifying the various transactions done.

4AUDIT AND ETHICS
 Impairment Assessment for Goodwill and other Intangible Assets of the Company:
In order to determine the fair value of the assets the company has deployed various
concerning factors like the forecasting of cash flows, discount rates and various other
terminal growth rates that are directly associated with the valuation of the assets. The
estimates and assumptions made are impacted by the given set of future performance,
market and economic conditions (Zhukova & Zhukov, 2018). The Auditor needs to
review this portion carefully as minor changes in the valuation factors involved in the
assignment would be leading to an overall change in the fair value of the assets. The
Auditor of the company needs to take important and crucial steps in order to determine
the materiality of the information used in the valuation of the intangible assets of the
company. The key matters such as the basis for the valuation and classification if the
intangible assets of the company should be well analyzed and introspected by the
Auditors of the company for the stated period 2018.
 Accounting for Supplier Rebates: The Group company at times receives various types
of rebates and similar associated benefits from the suppliers that are determined based on
the number of measures including the volume of inventory purchased, sold and
performance of promotional activity of the company (Canning, O’Dwyer &
Georgakopoulos, 2019). During the analysis of the financial statement of the company it
was well found that the Suppliers Rebate observes a significant weightage in the financial
statement making it important for the Auditors of the company to evaluate and assess the
overall risk associated with the same. The Accounting policies used by the company for
the purpose of recording and classification of the Suppliers Rebate should be well
analyzed by the company in the stated time period where particularly the Auditor of the

5AUDIT AND ETHICS
company should be reviewing the basis and judgments made by the management of the
company and its compliance with the Applicable Accounting Standards.
Section 2
Preliminary Analytical Review
The key Preliminary Article Review that the company can utilize for the purpose of
evaluating the overall financial statement of the company is the ratio analysis that would be
covering various aspects of the company. For the purpose of preliminary review of the company
ratio like profitability, liquidity, activity and efficiency ratios were derived for the company for
the period 2015-2018 (Appendix 1).
Liquidity Ratios: The Liquidity ratios for the company well reflects about the ability of the
company in meeting up the current obligations of the company. The current ratio for the
company was around 1.13 times in the year 2015 that has slightly increased to around 1.17 times
in the year 2018. On the other hand the quick ratio for the company has also not changed
materially for the company in the trend period where a slight movement from 0.690 times in the
year 2015 to 0.80 times was seen in the quick ratio of the company (William, Glover & Prawitt,
2016). The Auditor of the company should be looking at various aspects of the financial position
of the company or te purpose of assessing the various classification of the current assets of the
company and the associated current liabilities of the company.
Profitability Ratios: The profitability ratio for the company well indicates about the financial
performance of the company and the ability of the company in generation of profitability for the
company for the stated current period. The return on assets for the company has been profitable
in the analyzed trend period and the same was quite volatile due to the changing net profit

6AUDIT AND ETHICS
reported in the trend period analyzed for the company. The changes in the profitability has been
mainly due to the one time reporting of significant items in the financials comprised of
impairment of the assets of the company which has been the key reason for changes in the net
profitability of the company, The Auditor of the company should take preemptive actions and
measures in order to properly analyze the estimates and judgments made by the management of
the company for the purpose of the impairment of the assets so that the same can be well taken
into consideration for the purpose of better sustainability in the financial numbers reported. The
net profit margin for the company also has been consistently low for the company in the trend
period analyzed for the company. It is consistently important for the Auditors of the company to
undertake various courses of actions and recommendations for the properly recording and
estimating the valuation of the assets so that changes in the fair value of the asset does not impact
the overall financial performance for the financial year. In order to analyze the various aspects of
the reported figures in the income statement of the company the management of the company
should be looking and carefully analyzing the expenses of the company especially the
impairment expenses and the basis for recognition of revenue for the company. The Auditor of
the company needs to take prior action for the purpose of viewing the stability in the profitability
of the company and the level of changes in the profitability in the trend period analyzed. The
changes in the profitability level will be well analyzed with the help of planning materiality
determining the overall true and fair representation of the financial statement presented.
Efficiency Ratios: In terms of efficiency the company is at the maximum point of return that it
can generate with the assets deployed in the company. The efficiency ratio for the company
states that the company is generating enough revenue with the help of total assets that is
available in the company. The efficiency ratio can be well reinstated with the help of the fixed

7AUDIT AND ETHICS
asset turnover ratio and total asset turnover ratio that is required to be calculated for the
company.
Activity Ratios: The key activity ratios that were calculated for the assignment includes the
receivable turnover and the average days in receivable for the company for the stated period
2015-2018. The receivable turnover ratio for the company for the period 2015 was around 13.19
times and the same has consistently reduced to around 8.42 times in the year 2018. This well
implies that the company is having issue in collecting accounts receivables from the debtors of
the company in the trend period analyzed for the company. On the other hand, the days taken by
the management of the company in collecting the due amount from the debtors of the company
has also increased consistently for the company from 28 days in the year 2015 to around 43 days
in the year 2018. The Auditor of the company needs to take appropriate action in order to
determine the overall increase in the receivables figures of the company as the management of
the company may be taking several steps in order to increase the sales by channel stuffing and
credit sales which may lead to increase in the accounts receivables of the company.
Leverage and Coverage Ratio: The debt to total equity ratio for the company will be the key
ratio that would be evaluated for the purpose of evaluating the financial position of the company
in the year 2015-2018. The weightage of debt in the financial books of the company has
increased consistently for the company in the trend period from 69% in the year 2015 to around
10% in the year 2018. The consistent decrease in the financial leverage of the company will be
helping the company in better managing the financial position and the financial risk of the
company. The Auditors of the company should carefully review the debt outstanding in the
books of the company with respect to exposure to the company with the various types of debt in
terms of classification of debt and nature of debt it has in the financial books of the company.

8AUDIT AND ETHICS
Section 3
Statement of Cash Flows
The cash flow statement of the company reports the various operating, investing and
financing activities that are well carried out by the company for the year 2018. The Operating
Activity of the company reflects the receipts from customers, payment made to suppliers and
employees, the interest and dividends paid and the net income tax paid by the company. The total
cash inflow for the company for the year 2018 was around 276.3 million. On the other the
investing activities of the company consisted of key items for the company including the
proceeds from sales of business and assets and acquisitions of other business assets of the
company (Lai, Melloni & Stacchezzini, 2017). The total amount of cash outflow from investing
activities of the company was around $43.8 million. The financing activities of the company
included the borrowings activities in the form borrowings and payment for buyback of shares
that were offered by the company. The Net cash used in financing activities by the company was
around $167.8 million (Ruhnke, Pronobis & Michel, 2018).
As a going concern risk it was well observed that the operations of the company should
be well sufficient so that it helps in carrying out the various operations of the company but the
same was not observed from the presented financial statement of the company. It is well
important for the company to have a stable and a consistent cash flow in the financials of the
company so that the operations of the company goes in a stable manner.
Analysis of the Auditor Report
As per the opinion of the Audit Report presented in the financial statement the report well
states that the financial statement of the company gives a true and fair view about the financial

9AUDIT AND ETHICS
statement of the company. The annual report presented by the company has been in well
compliance with the relevant accounting standards and provisions of the Corporations Act 2001.
The Auditor of the company has issued an Unqualified Report in contrast to the financial
statement of the company thereby including and following the various accounting policies as the
accounting standards. The Financial statement of the company has been well made in
compliance with the Corporations Act 2007 and the judgment and assumptions made in the
classification of the various accounting information has been found material enough for the
purpose of considering and analyzing the financial performance.
The key Audit Matters that has been specifically covered by the Auditor of the company
is primarily in the field of Impairment of Goodwill and the Rebate that the Suppliers gives to the
company included various accounting estimates and judgments that were made by the company,
the auditor of the company has taken several steps in ensuring the materiality of the annual report
by carefully analyzing the true and fair view of the financial result presented. The Auditor of the
company has also taken several steps in ensuring whether the financial statement of the company
has been in well compliant with the relevant accounting standards so that the financial
information users can take well important economic decisions in relation to investment.

10AUDIT AND ETHICS
References
Announcements Search Results. (2011). Asx.com.au. Retrieved 27 August 2019, from
https://www.asx.com.au/asx/statistics/announcements.do?
by=asxCode&asxCode=MTS&timeframe=D&period=M6
Annual Report (2018). Asx.com.au. Retrieved 27 August 2019, from
https://www.asx.com.au/asxpdf/20190624/pdf/4461vyrxm0d8py.pdf
Bassey, D. R., Eyo, B., Temitayo, D. E., & Anthony, A. (2018). The Effects of Materiality
Concept on Auditing Practices and Decision Making. decision making, 9(2).
Bennett, G. B., & Hatfield, R. C. (2017). Do approaching deadlines influence auditors'
materiality assessments?. Auditing: A Journal of Practice & Theory, 36(4), 29-48.
Canning, M., O’Dwyer, B., & Georgakopoulos, G. (2019). Processes of auditability in
sustainability assurance–the case of materiality construction. Accounting and Business
Research, 49(1), 1-27.
Christensen, B. E., Eilifsen, A., Glover, S. M., & Messier Jr, W. F. (2018). The Effect of
Materiality Disclosures on Investors’ Decision Making. Available at SSRN 3096564.
Eilifsen, A., Hamilton, E., & Messier Jr, W. F. (2017). The Importance of Quantifying
Uncertainty: Examining the Effects of Sensitivity Analysis and Audit Materiality
Disclosures on Investors’ Judgments and Decisions. Available at SSRN 2966291.

11AUDIT AND ETHICS
Lai, A., Melloni, G., & Stacchezzini, R. (2017). What does materiality mean to integrated
reporting preparers? An empirical exploration. Meditari Accountancy Research, 25(4),
533-552.
Lakis, V., & Masiulevičius, A. (2017). ACCEPTABLE AUDIT MATERIALITY FOR USERS
OF FINANCIAL STATEMENTS. Journal of Management, 2(31).
Ruhnke, K., Pronobis, P., & Michel, M. (2018). Effects of Audit Materiality Disclosures:
Evidence from Credit Lending Decision Adjustments. Betriebswirtschaftliche Forschung
und Praxis (BFuP), 70(4), 440-471.
William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and assurance services: A systematic
approach. McGraw-Hill Education.
Zhukova, A. K., & Zhukov, A. L. (2018). Materiality in Audit of Financial Reporting Party
Conducting Accounting of Joint Activity. European Research Studies Journal, 21(4),
109-118.

12AUDIT AND ETHICS
Appendix
1) Ratio Analysis Data Table
Ratio Analysis
Particulars 2018 2017 2016 2015
Ratio Particulars:
Metcash Ltd (MTS) Formula
Abso
lute
Abso
lute
Abso
lute
Abso
lute
Catego
ry
$
Value
s
$
Value
s
$
Value
s
$
Value
s
Liquidi
ty
Current ratio
Current assets 2,405 2,025 1,724 1,850
Current liabilities 2,055 1,684 1,544 1,642
Ratio Ratio Ratio Ratio
1.17 1.20 1.12 1.13
Quick ratio
Highly liquid current assets 1,651 1,266 1,051 1,138
Current liabilities 2,055 1,684 1,544 1,642
(EXCLUDES INVENTORY AND
PREPAID ASSETS)
Ratio Ratio Ratio Ratio
0.80 0.75 0.68 0.69
Activit
y Ratio
Receivables
Turnover
Sales 12,44
2
14,12
2
13,40
3
13,37
0
Accounts Receivables 1,478 1,137 981 1,014
Ratio Ratio Ratio Ratio
8.42 12.42 13.66 13.19
Average days in
Receivables
365 365 365 365 365
Receivables Turnover Ratio 8.42 12.42 13.66 13.19
Ratio Ratio Ratio Ratio
43 29 27 28
Efficie
ncy
Ratio
12,44
2
14,12
2
13,40
3
13,37
0
Sales/Total Fixed Assets 1,250 1,631 1,624 1,917
Fixed Asset
Turnover
995.4
6%
865.8
5%
825.3
8%
697.4
3%

13AUDIT AND ETHICS
Total Asset Turnover
12,44
2
14,12
2
13,40
3
13,37
0
3,655 3,656 3,348 3,767
Sales /Total Assets
340.4
0%
386.2
9%
400.3
1%
354.9
2%
Profita
bility
Ratio
Return on assets
Profit after tax -145 174 218 -383
Total assets 3,655 3,656 3,348 3,767
Ratio Ratio Ratio Ratio
-
3.98
%
4.75
%
6.52
%
-
10.16
%
Return on Equity
Net Income -145 174 218 -383
Shareholder's Equity 1,334 1,637 1,369 1,157
Ratio Ratio Ratio Ratio
-
10.90
%
10.61
%
15.94
%
-
33.10
%
Net Profit Margin
Net Profit -145 174 218 -383
Total Sales 12,44
2
14,12
2
13,40
3
13,37
0
Ratio Ratio Ratio Ratio
-
1.17
%
1.23
%
1.63
%
-
2.86
%
Levera
ge and
Covera
ge
Ratio
Debt to Total Equity
Total Long term Debt 127 187 299 795
Shareholder's Equity 1,334 1,637 1,369 1,157
Ratio Ratio Ratio Ratio
0.10 0.11 0.22 0.69
Debt to total assets
Total Debt 2,321 2,018 1,979 2,610
Total assets 3,655 3,656 3,348 3,767
Ratio Ratio Ratio Ratio
63.50
%
55.21
%
59.11
%
69.29
%