Audit, Assurance and Compliance Report

This report analyzes the audit, assurance, and compliance practices of Wesfarmers Ltd, a leading Australian company. It examines key audit matters, auditor independence, non-audit services, auditor remuneration, and the role of the audit committee. The report also discusses the responsibilities of directors, managers, and auditors in financial reporting and the assessment of the effectiveness of material information reported by the auditor to stakeholders. Desklib provides past papers and solved assignments for students.

Audit, Assurance and
Compliance

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Overview of the company...........................................................................................................1
Non audit services.......................................................................................................................2
Auditor's remuneration................................................................................................................2
Role, functions and composition of the audit committee............................................................4
Audit committee helps the board in doing their responsibilities such as overlook on the
company's financial reports, compliance with general laws and regulations..............................4
Audit Opinion..............................................................................................................................5
Key Audit Matters.......................................................................................................................5
Responsibilities of Director, manager and auditor......................................................................6
Material subsequent events.........................................................................................................7
Assessment of the effectiveness of the material information reported by the auditor................8
Follow up questions from auditor in AGM.................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

EXECUTIVE SUMMARY
This project consist of various audit, assurance and compliance concepts. In this project,
the annual report of Wesfarmers are analysed in way to provide an understanding regarding
auditing process. Various key audit matters are discussed in below report along with audit
opinion and committee so audit report of company can be examined.

INTRODUCTION
Auditing is a process of analysing and evaluating financial report of an organisation to
determine statements accuracy. Auditor is an individual who is appointed by company to conduct
audit. The auditor person is responsible for planing and performing audit to obtain correct
financial statements which is free from error or fraud. Internal and external auditors examine
statements on the basis of company's rules and regulations. Internal employee who examine
records and assist in improving inside processes like risk management, operations, internal
control etc. is known as internal auditor. A person comes from outside the company for
examining financial and accounting records and recommend independent opinion for statements
is known as external auditors.
In this report, company's annual report is reviewed and analysed with key areas such as
auditor's independence declaration, non audit services, auditor's remuneration. Function, role,
composition of audit committee is also examine. In last independent auditors report to
stakeholders and all key matters are identified during auditing procedure also covered in report
(Arens, Elder and Mark, 2012).
MAIN BODY
Overview of the company
Wesfarmers Ltd is one of the leading Australian company listed under ASX. It engaged
in several operations such as energy, fertilizers, safety & industrial products, coal, liquor,
convenience stores and hotels etc. Company has approximately 223000 employees throughout 25
locations. It generates majority of its revenue from grocery and supermarkets in Australia. It is
ranked first among top 2000 companies. In 2018 organisation generate total sales revenue of
$66,608,000,000. Mr Rob Scott is the chief executive and Mr Michael Chaney is the chaiirman
of Wesfarmers Ltd. The retail department deals with operations from departmental and
supermarket to office and hardware supplies. Its also operates in industrials division such as
resources, chemicals and fertilizers (Louwers and et. al., 2015).
Auditor's declaration complied with independence requirements
Auditor's independence: It refers to independence of an internal and external auditor
from stakeholders who have financial interest in an organisation. The term independence refers
to integrity as well as an objective approach to audit process. Ernst & Young and DS Lewsen are
1

the two auditors of Wesfarmers who are responsible of presenting accurate information to
company's shareholders. Below are the declaration that have been given by Ernst & Young at the
end of financial year 30 June 2018:
 No contraventions of the auditor's independence according to Australian Corporations
Act 2001 in relation to the audit.
 No contraventions of some applicable code of professional conduct in relation to audit.
These declarations have been made under section 324DAC of the Corporations Act 2001. Mr
Lewsen also play a important role in company's auditing process.
Non audit services
Non-audit service: It is a professional service which are non included in audit process at
the time of reviewing organisation's financial statements. These are services other than audit
work. Business consulting, payroll preparation, tax planning, accounting services etc. are some
non audit services (Mills, 2012).
Tax compliance and other are the non audit services of Wesfarmers Ltd provided by
Ernst & Young. The total non audit service is $1026000 which consist of $683000 as tax
compliance fee and $ 343000 is other. Total non-audit services fees represent 12% of total fees
paid to auditor and relevant practices for the financial year ended on June 2018. Audit and risk
committee give advice to board about the provision of non audit services. Taxation services
which are provided by the auditor are mandatory to be conducted due to regulations of
governmental authorities, these services are compulsory in nature. The general standard related
to auditor's independence are imposed by Australian Corporations Act, 2001 on the basis of
below reasons:
 Non audit services rendered don't involve reviewing auditor's work in company's decision
making process.
 These services were dependent on corporate governance policies and procedures adopted
by Wesfarmers and review by Audit and risk committee in way that they doesn't affect
the objectivity and integrity of Ernst & Young.
 No reason to argue the truthfulness of auditor's independence declaration (Ryan and et.
al., 2012).
2

Auditor's remuneration
Auditor's remuneration: It is a fee that company's pay to its external auditor for the
activities performed by an auditor. Remuneration of auditors is decided in company's general
meeting. Organisation have to disclosure the break up of auditor's remuneration in its annual
report. Wesfarmers appoint Ernst & Young as an auditor for year ended 30June 2018. Company
paid remuneration for reviewing and auditing its financial reports. It also consist of assurance
related services that company pay to its auditor and other audit firms. Following is the
description of Auditor's remuneration in year end 2017-2018.
Auditor's Remuneration
Fees paid to the auditors of company 2018
Comparison in % from
2017 to 2018 2017
Audit services
Review and audit of financial
statements
Ernst & Young – Australia 5761000 5723000
Ernst & Young – overseas 812000 702000
Services related to assurance
Australian & oversee firm (Ernst &
Young) 942000 1272000
Other audit firms 218000
7515000 5.05% 7915000
Non audit services
Tax compliance 683000 1088000
Other audit firms 343000 1219000
1026000 55.53% 2307000
Total fees paid to auditors 8541000 16.44% 10222000
3

From the above table of remuneration, it has been concluded that total fees paid to auditor
in year 2018 i.e. 8571000 is less than 2017 which is 1022200. There was a 16.44% of reduction
in total audit fees that Wesfarmers was paid to auditors. Fees paid for reviewing and auditing
Australia also declines from last year that was 5723000 in 2017 and 5761000 in 2018. For
oversee it was increased by 110000 from year 2017 to 2018. Assurance services to Ernst &
Young decreased from 1272000 in 2017 to 942000 in year 2018. Company didn't paid to other
audit firms in 2018 but they paid in 2017 which was 218000. Total percentage change in audit
service is 5.05% and total percentage change in non audit service is 55.53%.
Role, functions and composition of the audit committee
Audit committee: It is group of members selected by company's board of directors who
are responsible for tracking its financial records. All organisation form a audit committee for
controlling its activities. Company select members from its present board of directors and they
take help of other auditors to interpret the corrective measures of its transactions (Prempeh,
Twumasi, and Kyeremeh, 2015).
There is a audit committee in Wesfarmers Ltd to examine the transparency in its financial
reports. Audit committee in Wesfermer includes nine board or director, eight out of them are
non-executive director. These committee member are group of people who posses proper mix of
skills, experience, knowledge and expertise. They also enable the board to more focus on current
businesses operation like, supermarkets, hotels, various comfort store. These audit committee
also work on the study and measure of financial statements, as it help them to know the current
position of company (Wesfarmers, 2018).
Role,function and responsibilities of audit committee.
Audit committee helps the board in doing their responsibilities such as overlook on the
company's financial reports, compliance with general laws and regulations.
 They also assist board to actively manage the all teams and their system of internal
control and also manage financial and non financial risk management.
 Member of this committee supervise the group's cyber safety that includes data
protection , third party data security management and also develop escalation process on
audit risk.
 They monitor the ethical communicator of various product for resale through retail
network (Whitaker, 2013).
4

 Audit committee review and assess the team process in Wesfermer that assure the
honesty of the final account and reports.
 This committee control different compliance with the accounting system, check legal
requirement for audit in the company.
 Member of audit committee review the process of control around the identification of
mercantile income by the selling section that is further used to check that identification is
related to the accounting standard.
 They also review and calculate the quality of the team or group protection arrangements
to make sure that appropriate cover are provided for functional and concern risks.
 Main responsibilities of this committee is to manage and display the company tax
agreement program in Australia and foreign part , it also includes checking of transverse
intra group transactions (Knechel and Salterio, 2016).
Audit Opinion
The auditors of Wesfarmers Ltd gives various opinions on the company's annual report
and that are mentioned below:
 The financial statements shows the true and fair view of each transactions for year
ended 30 June 2018.
 The financial managers prepare a accurate consolidated income statement and balance
sheet of the organisation.
 The annual reports of company are generate as per the Australian Corporations Act,
2001.
 The financial statements are prepared as per the accounting standards of Australia.
Key Audit Matters
Key audit matters are those which are matters which holds most significance in the audit
of financial statements. This matters are identified by the auditors and are communicated with
the organisational authorities. According to the annual report of Wesfarmers Limited, various
key audit matters are identified by the auditor of this company which are mentioned below along
with its audit procedures:
 The first most and primary key audit matter of Wesfarmers is Impairment of non current
assets including intangible assets in target. This matter is considered as important as
5

determination of recoverable amounts of property, plant and equipment and other
intangible assets requires judgement.
Procedure - In order to avoid the impairment assessment charges it is important to
address this matter with audit procedures. To tackle this matter impairment tests such as discount
tests, terminal growth rates, market evidences of industry earnings, long term inflation and
growth are used (Fiolleau and et. al ., 2013).
 Another key audit matter of Wesfarmers is Supplier rebates which is significant for
auditors as rebates received by the group of suppliers associated with its retail
operations.
Procedure - In order to address this matter, various procedures are used such as assessment of
effectiveness of relevant controls and inspection of sample of materials new contracts.
 Discontinued operations is also an important key audit matter for auditors of
Wesfarmers. This key audit matter is important as this company has entered into an
agreement to sell the coal mine. This agreement also includes a value share mechanism
linked to future coal prices.
Procedure - In order to tackle this situation, auditor of this company has obtained
procedures of assessing purchase and sale agreements of this company. Auditor has evaluated the
key inputs of the post tax gain on sale calculation. Tax specialists of this audit group has
considered tax impacts of the divestment including considering external advice obtained by the
group (Tepalagul and Lin, 2015).
 Another key audit matter is discontinued operations of Bunnings UK and Ireland. This
matters is considered as key audit matter because ample of amount has been paid by the
company due to this impairment.
Procedure - In order to tackle this issue, auditor of this company has assessed the
appropriateness of impairment recognition. Audit group has evaluated the appropriateness of key
inputs by including discount rates, terminal growth rates, market evidences of industry earnings
and many more. Audit procedures for this issue are assessing financial statements disclosures
including the classification of both continued and discontinued operations.
Responsibilities of Director, manager and auditor
Responsibilities of auditors differs from responsibilities of directors and management in
financial reporting by following reasons:
6

 No specific responsibility to substantiate other information but should review such
information to ensure it does not contain maternal inconsistencies or misstatements of
facts.
 If revision of other information is necessary and management refuses, the auditor should
an OM paragraph.
 Most annual reports includes information that is not a part of financial reports, much
which contains of financial information {for example , summarising past year's operating
results, director's and manager's report (Jones, 2017).
 Statutory auditors are required to make a statement in their auditors report, whether the
company has adequate IFC system in place and the operating effectiveness of such
controls.
 Directors and managers have to select and apply accounting policies,as director's are
responsible for keeping proper financial records which disclose with reasonable accuracy
at any time for financial position of company, for safeguarding the assets, for taking
reasonable steps for preventing and detecting of fraud or other irregularities for the
preparation of director's and manager's remuneration and performance report (Ng, Chong
and Ismail, 2012).
Responsibilities of management and director's differs from the responsibilities of
auditors in financial reporting:
 Managers are responsible for providing financial statements to directors, creditors and
others.
 Managers may acknowledge their responsibility by including several statements in annual
reports.
 Directors responsibility statement that they have laid down internal financial controls to
be followed and that such IFCs are adequate and operating effectively.
 Requires the board of directors' report of all companies to tom state in details the
adequacy of internal financial controls with reference to the financial statements.
 Auditor's responsibilities differs from director's responsibilities, as they have to perform
internal and external audit functions (Greiner, Kohlbeck and Smith, 2013).
 Auditing compliance with laws and regulations, they have to follow.
7

Material subsequent events
Subsequent events: There are certain significant events has been arisen since the closing
of the accounting period within Wesfarmer company. some of them are:
Dividend: According to the annual report prepared as on 17th August, 2017 provide a
fully-franked final dividend of 120% per share resulting in a total dividend of $1.361 million was
declared by the company. The payment made on 28th September, 2017. This dividend has been
not declared for the entire financial period. This event of dividend declaration will be recorded as
foot note in financial statements.
Kmart brand name acquisition: In the month of August, 2017, Kmart acquired the brand
name with various nations such as Australia and New Zealand which as earlier used by the
business under a long-term agreement for $100 million. These transactions are not being taken
into account a material implication on overall earning of the Kmart (Sarkar and Sarkar, 2012).
Assessment of the effectiveness of the material information reported by the auditor to the
stakeholders
Stakeholders such as suppliers and investors are concerned with the true and fair financial
reporting of the company. As the effectiveness of these reports can help them in taking various
decisions such as investment and credit decisions (Nicolăescu, 2013).
Follow up questions from auditor in AGM
Q1. Were appropriate resources dedicated to the audit or not ?
Q2. Did the audit team pertains experienced auditors or not?
Q3. Did the audit provide the details on quality of organisation's financial reporting ?
Q4. Are they free from errors and fraud or not?
CONCLUSION
From the above project report, it has been concluded that company's financial statement
is analysed and evaluated by auditor which help in enhancing audit, assurance and compliance.
Various key audit matters are examine that associated in audit procedures. Tax compliance and
other are the non audit services that are performed by auditor. From the above project report, it
has been seen that the concept of audit is the most significant process which helps in
investigating and checking financial position of an organisation.
8

REFERENCES
Books and Journals
Arens, A. A., Elder, R. J. and Mark, B., 2012. Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Louwers, T. J., and et. al., 2015. Auditing & assurance services. McGraw-Hill Education.
Mills, J., 2012. Quality auditing. Springer Science & Business Media.
Ryan, K., and et. al., 2012. Development of a standardised approach to observing hand hygiene
compliance in Australia. Healthcare infection. 17(4). pp.115-121.
Prempeh, K. B., Twumasi, P. and Kyeremeh, K., 2015. Assessment of financial control practices
in Polytechnics in Ghana. A case study of Sunyani Polytechnic.
Whitaker, S., 2013. PMP Rapid Review. Microsoft Press.
Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Routledge.
Fiolleau, K., and et. al ., 2013. How do regulatory reforms to enhance auditor independence work
in practice?. Contemporary Accounting Research. 30(3). pp.864-890.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review.
Journal of Accounting, Auditing & Finance. 30(1). pp.101-121.
Jones, P., 2017. Statistical sampling and risk analysis in auditing. Routledge.
Ng, T. H., Chong, L. L. and Ismail, H., 2012. Is the risk management committee only a
procedural compliance? An insight into managing risk taking among insurance
companies in Malaysia. The Journal of Risk Finance. 14(1). pp.71-86.
Sarkar, J. and Sarkar, S., 2012. Auditor and audit committee independence in India.
Greiner, A., Kohlbeck, M. and Smith, T., 2013. Do auditors perceive real earnings management
as a business risk?.
Nicolăescu, E., 2013. Understanding Risk Factors for Weaknesses in Internal Controls over
Financial Reporting. Journal of Self-Governance and Management Economics. 1(3).
pp.38-43.
Online
Wesfarmers. 2018. [Online]. Available through:
<http://www.wesfarmers.com.au/util/news-media/article/2018/09/16/release-of-the-
2018-annual-report-and-shareholder-review>.
9