Audit, Assurance and Compliance in Australian Companies - Desklib

This article discusses the implementation of new methods and techniques to enhance the quality of audit reports in Australian companies. It covers topics such as key audit matters, auditor's remuneration, audit committee charter, subsequent events and more. The article also emphasizes the importance of maintaining a true and fair view of financial statements. Course code, course name, and college/university are not mentioned.

AUDIT, ASSURANCE AND COMPLIANCE
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Executive summary
It has been observed in the recent times that the companies in Australia, USA, etc. are trying to implement new methods and techniques in order
to enhance the quality of the audit reports. Because of the need for such an element of the audit reports a special paragraph has been issued in the
independent auditor's report which is stated to be as the key audit matters. These key audit matters are the major factors which affect the
organizations business because of which it is very important to get into the notice of the investors and auditors so that a proper analysis can be
made on them. The establishment of the new Australian reporting requirements has helped to create reports on the basis of financial accounts of
the organization which delivers transparent data and also is qualitative and quantitative in nature. Therefore, it can be stated that these reporting
standards have helped a lot to the accounting and auditing industry to improve the quality of the reports which are further analyzed by the
investors and shareholders for the purpose of decision making.
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Contents
Executive summary....................................................................................................................................................................................................................... 2
Introduction................................................................................................................................................................................................................................... 4
Auditor’s remuneration.................................................................................................................................................................................................................. 5
Key audit matters........................................................................................................................................................................................................................... 7
Audit committee charter.............................................................................................................................................................................................................. 10
Audit opinion............................................................................................................................................................................................................................... 12
Management and auditor responsibilities..................................................................................................................................................................................... 13
Subsequent events....................................................................................................................................................................................................................... 14
True and fair view....................................................................................................................................................................................................................... 15
Conclusion................................................................................................................................................................................................................................... 16
Bibliography................................................................................................................................................................................................................................ 17
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Introduction
The top grossing companies in Australia are identified for their auditing and accounting skills which are based on the expert knowledge of
taxation and auditing or accounting principles. It has been observed that the Woolworth Limited which is audited by one of the biggest
companies which create audit reports called Deloitte have been earning huge revenues because of the clear analysis of all the accounts of the
organization (Alvarez, 2013). The major objective of the organization is to work on the basis of ethical principles and follow a professional code
of conduct so that it can stay to be the number one audit firm in the whole world. Every organization is concerned about the actions that are
undertaken by the professionals so that the integrity of the firm can be maintained (Cochran, 2017). In the managerial framework of Deloitte, it
has been noticed that the same code of ethics and professional conduct has been standardized for every professional working there which have
helped to build a proper work environment (Dayananda, Irons, Harrison, Herbohn, & Rowland, 2008).
The good reputation of the organization clearly states that all the rules and regulations are followed by the auditors so that independent
requirements are fulfilled. It has been clearly stated in the section 370C of Corporations Act, 2001 that a declaration about the acceptance of the
professional code of conduct has been followed by the organization or not. In the case of Woolworths limited it has been found that the audit
partner was having no problem with the professional conduct of the organization as there were no violations of any type of principles throughout
the audit work which had to standardize the professionalism of the company (Easton, 2010).
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Auditor’s remuneration
A considerable increase has been seen in the auditor’s remuneration in comparison to the previous year. The following table represents the
auditor’s remuneration for the services he has provided. A change of 143.35% was observed in the remuneration provided for non-audit services
and also a considerable increase of about 88.64%was observed in case of other auditors (Elaine, 2015). The non-audit services are also provided
by the auditing firm to the organization after keeping in mind that there is no breach or compromise in the independent requirements which are
stated in the APES 110 which states the code of ethics for professional accountants. It should be made sure that the auditor is not having any
portion of loss or profit from the non-audit services that have been provided by the auditors to the organization (Fridson & Alvarez, 2012).
The non-audit services generally include consultancy on matters related to the taxation, accounting and assurance services which can help the
firm to earn a little more revenue by making changes in managerial functioning. The remuneration provided for the services amounted to
$504,000 (Girard, 2014).
AUDITOR'S REMUNERATION
Particulars 2017
($'000) 2016 ($'000) % Change
Auditor of the parent entity : Deloitte Touché 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%
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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%
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Key audit matters
The key audit matters of an organization are the major drivers or objectives upon which the business of the organization is based. These matters
are generally given more concerned than any other factor so that substantial information can be obtained. Two of such matters are:
Particulars Description Substantive Test of details test of controls analytical procedures
Accounting for rebates It has been observed that
the organization have
received a lot of discount
and rebates on the value
of the inventory and cost
of sales from the other
companies which have
helped to reduce the
overall expense. It is very
hard to make an analysis
of these types of
discounts because of
which difficulty arises
and a lot of details are
needed to be assessed in
order to find out the
Checking each and every amount in
relation to the receivables, discount
received and other incentives
provided; evaluation should also be
made on any type of accounting
treatment made on these incentives
so that their source can be detected
(Ittelson, 2009).
To understand the
control of the
company for
analyzing any rebate
for incentives
(Johnstone, 2014).
Analysing the small
incomes and discounts that
have been received on
sampling procedures;
testing of sale report and its
comparison to the previous
year’s data (Loughran,
2010).
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sources from where the
data have been adopted.
They are of huge concern
to the organization
because they affect the
value of inventory and
also the cost of goodsIT system The information
technology systems that
have been adopted by the
organization are complex
in nature and have a
number of integration and
execution levels. The
information technology
systems are stated to be
the backbone of the
The discussion should be made by
the management over the control of
Information Technology system;
evaluation of the data that have
been acquired using the system
(Menifield, 2014).
Conducting tests on
the information
technology control;
exercise additional
controls in case of
problems; creating
review systems;
analyzing the
operating
effectiveness of these
-
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organization because of
which it is treated as a
key audit matter (Parrino,
systems.
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Audit committee charter
One of the biggest entrepreneurs in the retail sector of the Australian market was Woolworths Limited. Therefore it is very important for the
organization to provide an elaborated audit report. A 5 members committee was made by the organization in order to comply with the risk and
management strategies (Penman, 2012).
The audit committee charter is a governing body which helps the audit committee to perform their actions in the most efficient manner. It should
contain more than three members and all of them should be independent directors of the board out of which one board member is appointed as
chairperson. The members of the charter are generally not allowed to serve more than three audit committee is at the same time until the board
gives them the approval to do so (Seitz & Ellison, 2009).
The general functions that have performed by the audit committee are:
• The audit committee guides the director so that more profit can be earned by the organization which will further fulfil the needs of the
shareholders (Siciliano, 2015).
• It also helps the firm to maintain a financial report in both qualitative and quantitative forms.
• Assessment of the internal control mechanism of the organization.
• The relation of the auditors with respect to the various legal and regulatory requirements that are needed to be met by the organization.
• Helping the internal audit department and also conducting meetings with an independent auditor to provide them with information that is
necessary for them to execute the tasks.
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The Charter also establishes all the responsibilities that are needed to be carried out by the audit committee. It is the sole duty of the management
of the organization to use all the accounting standards for appropriate reporting of financial information’s so that a true and fair picture can be
depicted in the accounts. The management is also required to work in a professional manner so that it can operate and exercise control over the
environment of the organization. Different policies and procedures should be adopted which can be used to deal with the change in the corporate
structure of the organization. The management should also try and monitor the corporate reporting structure of the organization in terms of
quality, threats and any other risk that may harm the ethical personality of the organization (Simpson, 2012). The responsibility for making
several different procedures and policies for the company is also being assigned to the Charter. The active role is being played in the
organization by the charter in helping to conduct the audit process and also helping other departments of the firm to prepare budgets and other
cost functions (Skonieczny, 2012).
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Audit opinion
One of the most important aspects of the auditing report is the opinion of the auditor over the fairness of the financial statements of the
organization. Also, it should be noted that opinion is just an assurance and not a guarantee towards the success of an organization (Strathern,
2010).
It has been observed in the case of Woolworth that a proper financial report has been created in which all the aspects are true and fair in nature.
The reports that were audited by the auditors consisted of cash flow statements, equity statements, statement of profit and loss, comprehensive
income statement, consolidated statement of financial income and other relevant notes to accounts. The report provided by the auditor has helped
to summarise the accounts of the organization and also the application of the accounting principles and standards that have been declared by the
organization and its directors. The auditor has also ensured that the reports were in accordance to the Australian accounting standards and also
that there were no obligations created against the Corporation Regulation Act, 2001 (White, 2015).
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Management and auditor responsibilities
The basic function of the auditor is to analyze each and every aspect of the financial statements of the organization and prepare a report of it so
that it can be assessed by the shareholders and investors in order to carry out the process of decision making. The basic function of the
management of the organization is to prepare financial accounts in accordance with every rules and regulation with the use of true and fair
means. The reports should be made in accordance with the Australian accounting standards so that the risk of material misstatement and errors
can be decreased. The management should also try and test the abilities of the organization in relation to the going concern concept, corporate
disclosure and the effectiveness of the business operations carried out by it.
The auditor's responsibility is not only limited to providing reasonable assurance about the actions of the management but also it needs to assess
risk, make future Plans and convey an internal control mechanism to the organization. However, the major objective of the task conducted by the
auditor is to find any kind of material misstatement present in the financial statements of the organization. Any kind of fraud or other should be
accompanied by evidence that can conclude the opinion of the auditor. The auditing team is required to evaluate and examine the internal control
efficiency, the auditing standards accepted by the organization, the professional attitude of the management and any third party relations that
may cause the fairness and truthfulness of the financial statement to be hampered for completion of the corporate reporting task.
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Subsequent events
These events relate to the activities that happen after the preparation of the report but before finalizing the audit reports by signing them. The
materiality of the event decides whether it should be recorded in the reports or not. It has been observed in the case of Woolworths Limited that
there are been subsequent events which were very important to be represented in the reports of the accounts of the organization.
The company was going to enter into an agreement stated as “share sale agreement” after 26th June 2017. This was a much-elaborated
agreement which comprised more than 20 master leasehold sites, 21 master freehold development sites and more than 40 freehold trading sites
that would help to recover the liabilities of the organization.
Termination of JVA was also noticed subsequently. Another event took place on 4th August 2017 when some of the company’s shares worth
$250.8 million were transferred to a trust beneficiary.
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True and fair view
It has been clearly stated in the industrial report that Woolworths Limited is one of the most renowned companies in the retail sector with more
than 31 % of the market share and contributing 4.1 % of GDP to the Australian economy. In order to carry out the auditing process in an
enhanced manner, the company of tried to introduce various new factors divided under key audit matters. These key audit matters have helped
the auditors to judge the financial reports of the organization in a much-elaborated manner. All the changes that have been made in the key
auditing factors are needed to be conveyed to the investors and shareholders so that they can carry out the process of decision making in the
much-enhanced way. Therefore, it is very important for the organization to eliminate even the slightest risk or fraud measure that has been
observed in the financial accounts of the organization. By using the key audit matters, elaborated estimation of data can be carried out which can
further help to address the audit process.
Deloitte has been observed to work with the best and ethical techniques while preparing an audit report for the organization. The non-audit
service that was provided by the audit committee to the organization was also very useful and also it didn't coincide with the independent status
of the auditor. Hence, it can be stated that the audit process was carried out faithfully and the information presented was true and best of the
knowledge.
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Conclusion
After the clear analysis of all the financial statements of the organization and audit report, it was found that an unusual expense costing
$10,617.40 million was not disclosed and also no notes were made in relation to it. Because of the high value of the expense, audit report should
have contained information about it and also a note should have been made in its regard because of the nature and high percentage of expense.
This can be doubted as an act of under-reporting of information and in the efficiency of an organization in the disclosure of information in
relation to such expenses.
According to the laws, the auditor should be present in the General Meeting of the organization where he can be asked any type of queries
intended from the uses of shareholders of the organization. The query in relation to the Note Number 6.5 of “subsequent events” can be cleared
in such meetings. The capital losses that have been depicted in the report also need explanation. The reason behind the capital losses may be the
capital gains that are to be generated in the future that may compensate for present losses. Hence it is very important for the auditor to provide an
explanation for such an estimation of capital profits.
Overall, it can be stated that the reports have provided a true and fair picture of the organization's management and corporate governance
structure. The reports were transparent in nature which fulfils the desire of the organization and its shareholders. Further explanations and
discussions will only improve the quality of the reports and may remove doubts of the investors and shareholders.
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