Audit, Assurance and Compliance Report

This report discusses key stakeholder analysis of Wesfarmers Limited, whistleblowing and independence concepts for auditors, and lessons for auditors from the Enron scandal. It also examines audit quality and the requirement to address warnings stated in the statement made by Greg Medcraft.

Running head: REPORT 0
audit, assurance and compliance
DECEMBER 19, 2018
STUDENT DETAILS:

REPORT 1
Executive summary
The key Stakeholders of the company are entitled to data regarding the financial
performance and state of affairs of the listed companies, where they have made investment
and the approaches and strategies for the future growth. The auditors are required to be
aware while preparing the financial statements of the companies. The financial statements
of the company should be free from the material misstatement otherwise; it can harm the
reputation of the company. In this report, key stakeholder’s analysis of Wesfarmers limited,
whistleblowing concept and independence concept and learning for auditors is discussed
and examined.

REPORT 2
Contents
Introduction...............................................................................................................................3
Lesson for auditor from Enron scandal-.....................................................................................7
Concept of independence and whistleblowing in relation to auditors-....................................5
Audit quality and requirement to address the warning stated in the statement made by Greg
Medcraft-..................................................................................................................................10
Conclusion................................................................................................................................14

REPORT 3
Introduction
Enron is the big business let-down in history of USA, and representatives and controllers
have created the slide of hearings and inquiries. In the case, they are searching for
recommendation, which can help avoid same conditions in the upcoming period; audit
control is the practical place to start. In addition, this time the accounting industry can
search slight understanding for the objection. In the following parts lesson for the auditors
from Enron scandal, the concept of independence and the concept of whistleblowing in
respect of the auditors, Audit quality and requirement to address the warning stated in the
statement made by Greg Medcraft, and key stakeholders analysis of Wesfarmers limited is
discussed and critically examined.
Key stakeholders analysis of Wesfarmers Limited-
It is responsibility of auditor to prepare the plan and conduct audit to get the proper
guarantee regarding whether financial statements of company is free of material
misstatement, if by the reason of the errors and frauds. Though, main focus puts on the
deliberation of frauds of auditors in conducting the audit of the financial statements of
company, this is the duty of management to create and make the process and programs to
stop, prevent, and explore the frauds.
If material misstatement would not be properly detected, then interest of key stakeholders
will be affected. The audit risks involves the elements, which may be the reasons of the
material misstatement, errors or blunder in financial statements of the company. It is
related to the auditors of the company in the direct manner. These business risks are
related to the corporation itself, involving the stakeholders of the company. Whereas, these
risks are very dissimilar, if there are big business risks they can lead to high discovery of the

REPORT 4
audit risk. To make sure that the business risk is measured in the planning of audit, the top
down strategy is stimulated. It is required to make sure that the auditors have the
knowledge about the environment of the corporation before conducting the audit.
Further, there are certain types of stakeholders that face some kinds of risks due to material
misstatement. These are as below-
1. Management- in the case of management, the risks are resulted into the corporate
failure and the losses. The material misstatement can destroy the image of the
companies. It also led the risk of violation of the going concern concept of the
company.
2. Suppliers- the material misstatement of the financial reports of the company also
affects the decision of dealing the goods and services by the suppliers. In case of the
errors, frauds, blunders, wrong information or the mistakes, the relationship
between the company and stakeholders can be affected.
3. Customers- if the customer will not be attracted because of the material
misstatement in the financial statement, then it will not be in favour of business of
the company.
4. Other banks and financial institutions- since other banks and financial institutions are
challengers, there is the continuous supervision at the industry level as to which
entity is performing and how. Hence, the customers would shift to other entities and
these projects the risks of survival in the competitive market in the industry.
Henceforth, these are the investors and stakeholders that are influenced by the
misstatements occurring in the financial statements.

REPORT 5
The majority of matters like Enron case, in which the accurate information is not stated,
create the disbelief in the key stakeholders. The key stakeholders of the Wesfarmers
Limited consider the financial statements as value investing properties. In case of
material misstatement in the financial statement, the value can be decreased or badly
affected. If the key stakeholders of Wesfarmers limited like investors or customers will
get the improper or wrong information related to investment or any other relevant
information because of material misstatement, it may harm the image of company.
Thus, it is required by the auditors to prepare the financial statements without
misstatement.
Concept of independence and whistleblowing in relation to auditors-
The idea of Independence is essential to compliance with the principle of honesty and
fairness. This Code follows the conceptual framework, which needs the recognition and
examination of fears to independence so that any fears made are decreased to the
satisfactory level by of safeguards (Ralph, et. al, 2018). The section 290 of the Code
states independence needs for Audit and Review Engagement that are Assurance
Engagements where Member in Public Practice states the decision In the past economic
data. The independence contains the independence of mind. The independence also
contains the independence in appearance. The prevention of particulars and situations,
which are so important that the practical and informed third people will be expected to
give decision, considering all the particular realities and situations, that the members of
the firm or the members of audit team, honesty, independence, or practised
uncertainties have been contained.

REPORT 6
Further, the distinctive mark of the auditing is its approval of the liability to perform in
interest of the public. Consequently, the duty of member is not wholly to fulfil the
requirements of the clients and the workers individually (APESB, 2010). In context of
performing the public interest, the member should notice and conform to the code. In
the case where, the member is restricted from conforming with some parts of the code
by the rules and regulations, then it is required by the member to comply with each part
of the Code. The brief summary of the fields an auditor is required to be alert of and
apply proper replies to involve:
1. The situation related to interest conflict like-
o Common needs, involving the provisions of some non-audit service
o The proper relation of the auditors and the members of audit team with
audited company,
2. The auditor’s variation for the listed corporations. In some restricted situations, the
auditor rotation relief can be provided by ASIC
3. The auditors should be conscientious in recognising or examining fears to freedom or
implementing proper protections (O'Byrne and Daymon, 2014).
Moreover, it contains the moral issues and legal issues, whistleblowing in APES, and
legal needs as they consider to whistleblowing for member in businesses and in the
public practice. It is required by the members of CPA Australia that they should act
according with the laws, related norms, and the By-Laws (Jones, Comfort and
Hillier2014). Various hiring organisations have been developed the procedures regarding
how non-compliance by the hiring company must be raised within. These procedures

REPORT 7
and protocols can permit the cases to be noted secretly over chosen channel (Bayne,
Schepis and Purchase, 2017).
Lesson for auditor from Enron scandal-
The failure of Enron and the part of the auditor, Arthur Andersen & Company, have
stimulated the arguments in occupation, amongst supervisors and inside Congress over the
upcoming period of business. Stockholders, involving various own employees of Enron,
dispensed billions of dollars in Enron as it stated solid profit, only to see the stock decline to
closely nothing among suspicions about the dependability of financial statement of
company. There are various reasons of the failure of Enron. Among them are the conflict of
interest between role played by Arthur Andersen, as an auditor however, also as advisor of
company; the absence of consideration stated by the BOD members of the Enron to off-
book financial companies with which Enron made business; and the absence of faithfulness
by the management about the health of corporation and the business function. In certain
manners, the beliefs of Enron was the main reason of the failure. It is believed by the senior
executives, that Enron had to be good at all, it did and that they had to secure the images
and the reimbursement as the most popular administrators. When certain of the business
and dealing undertakings initiated to execute badly, they made effort to cover the personal
let-downs.
In United States of America, the Enron scandal is the very important commercial failure
since the failure of various bank loans and saving during year 1980. The Enron scandal states
the requirement for important reforms in the corporate governance and bookkeeping in the
USA, as well as for the close look at moral excellence of values of business commonly and of
business companies in USA. The auditing firm of Enron, Arthur Andersen, is searching

REPORT 8
progressively bad in the relating story. It has demanded it was surprised by the Enron failure
because the Enron had concealed certain particulars of the off-balance-sheet dealings
including private corporations. The External auditors comprehensively evaluate the financial
statements of the company every year to authenticate to stakeholders that general financial
statements show accurate financial statement of corporation (Bhattacharjee, Maletta and
Moreno, 2015).
It is analysed that these audit problems have found several periods in the commercial circle;
however, they have certainly not concerned critical apprehensions. In year 2000, the former
SEC chairman Arthur Levitt was not succeed in the movement to make the rules that will
have restricted auditors from performing as the advisors for the similar clients (Li, et. al,
2015). Faced with opposition from certain large accounting companies, the SEC dampened
the rule considerably. It is required by the Federal Securities law
that the accounting statements of openly operated companies be authenticated by the
independent auditor. The outside audit of Enron have taken great attention. When the
external audit does not stop companies from creating the financial errors, let alone
insolvency, the issues with latest audit of Enron let alone bankruptcy, issues with latest
audits of Enron can have contributed to rapid increment and severe decline in the price of
the stocks. Further, the internal audit is required to be used to create and observe the
financial control system of the company (LópezPuertas Lamy, Desender and Epure, 2017)‐ .
The main thing to be learned is that the external audits are supposed to review whether the
internal audit system of the company is proper to discover the frauds and the wrongdoings.
However, in the case where the internal system is made by the similar corporation
conducting external audit, there are rooms for apprehension.

REPORT 9
The outside depositors involving the financial entities can have misled regarding the net
earnings of the company (that was consequently reaffirmed) and the contingent liabilities
( and contingent liabilities (that were far higher than commonly
known). The auditor, Arthur Andersen, has acknowledged certain faults. Arthur
Andersen fired the partners in charge of audit of Enron on 15 January, 2002 and Enron
terminated Arthur Andersen on 17th January, 2002. The other problem is that whether
general consulting work for Enron can have conceded the decision in deciding the scope ,
duration and the level of audit processes and in questioning that revision be created to
financial statement that are the liability of administration of Enron. The questions have
raised in respect of the Andersen ending papers and mails related to the audits (Wright,
2016).
In latest period, the apprehensions have fixed regarding whether the auditors are truthfully
self-regulating of the client. Accounting firms have come to depend on more on advisory
work instead of on old-style audit for the revenue, raising questions regarding the capacity
to stand to the client if inappropriate accounting is doubted. Only company board can ask
the audit committees to review the future interest conflicts. The case of Enron must recover
the problem and win broad help for move to completely separate the contradictory role.
Throughout, the yearly audits executed by external auditor, independent auditor, check is
executed to ensure that the business is adopting the GAAP constantly. In case they are not,
then the business is required to state why they are not, and current foundation to state that
what they are doing is moral and proper in the particular condition. This leaves the area
open to understanding of what is proper for various conditions (Moore and Blyth, 2018). To
make sure the quality of audit, accountant usually depend on peer review made by one firm

REPORT 10
of others. Andersen was currently provided the clean bill of health by Deloitte & Touche
(Klettner, Clarke and Boersma, 2014).
Audit quality and requirement to address the warning stated in the statement made by Greg
Medcraft-
The auditors have key role in achieving the trust or faith of the investors and self-assurance
in the excellence of the financial report. In year 2017, in order to increase and continue the
audit quality, it is required to prepare financial report. The auditors have the serious part in
making sure that the investors of Australia may be self-assured and knowledgeable or well-
versed when taking the decisions related to the investment. The high-quality audit helps in
maintaining the financial report’s quality (Awadallah and El Said, 2018). The high quality
audit also makes able the depositors to be sure of independent evaluation of financial
report of the auditors. The audit quality is related to the qualities, which influence the
capacity of the auditors to get the basic objectives of audit. The audit quality is required to
get the proper guarantee that financial report as completely is free of substantial
misstatement. The auditors are required to make sure any insufficiencies discovered are
stated or addressed by the audit report of the company (Guénin-Paracini, Malsch and
Tremblay, 2014)
As per the section 307 of Corporations Act, this is liability of the auditor to create the
opinions in respect whether:
1. the audited and reviewed financial report complies with accounting standard and
provides the true and fair opinion of economic situation and presentation of
corporation;

REPORT 11
2. Auditors have been provided all data, explanations, support and help essential for
the conduct of the audits in the companies;
3. the corporations have maintained the financial records adequate to make able the
financial report to be made and get audited;
4. the corporations have maintained the records and listed needed by the Corporations
Act.
The section 307A of Corporations Act needs the auditors to adopt or use auditing standards
issued by Auditing and Assurance Standards Board in conducting audit and evaluation of
the financial report of the company. The audit examination programmes target to advance
the standards of the audit quality and independence of the auditors in the occupation. The
audit quality may be affected by the elements such as-
1. the skill and knowledge of the business of the auditor and the risk influencing the
financial report of the company
2. the external experience, internal experience and proficiency useful in audit
(involving the employment and teaching, the utilise of expert, and professional
information related to the industry)
3. how properly the audit engagements are administered and studied (involving the
audit firm quality review)
4. the system of liability of assignation partner of the audit firm and others in the firm
for audit quality, such as the influence on remuneration for bad inner quality reviews
finding (Rowe, et. al, 2014)

REPORT 12
Further, the role of administrators of the company and audit committee is created to help
the audit committee and the administrators in the role in helping excellence of an external
audit of the financial report of a company. The quality work and documentation by audited
companies to help the judgement on accounting approaches or procedures and estimations is
important part of procedure of financial reporting and may enable proper audit (Mubako and
O'Donnell, 2018). Audit quality is supported through the quality auditing standards. The
International Standards on Auditing are bases for the auditing standards, which are
applicable for audit of the financial report under Corporations Act (Sutherland, 2017). In the
year 2012 and early year 2013, it is written to the International Auditing and Assurance
Standards Board advising chances for improved guidance in the ISAs (Cao, Chychyla and
Stewart, 2015).
The suggestions involved improved direction in auditing standards on:
1. review of internal control
2. deciding the sample size
3. practical logical processes
4. group audit
5. use of the auditor in respect of interest in mutual arrangement and associate
6. The use of specialists and service companies (Adhikari and Kuruppu, 2018)
It is required to encourage the IAASB to address the matters, and enhance the directions in
the areas such as:
 quality reviews of audit files

REPORT 13
 auditing value of financial instrument
 substantive testing for important assertion for material balance and transaction type
 deciding materiality
 use of internal audit
IAASB presently has active assignments on quality control, group audit, use of expert,
accounting estimates (involving the values of financial instrument), or risks evaluation. The
audit quality is very important. The reason is that the investors rely upon and capacity of
auditors is judges at that time. It is duty of the auditors to make sure that in case of the
variances, the same should be stated in the audit report. According to the statement
provided by the Greg Medcraft poor auditing may be the vicious feature and result in the
financial crisis for the corporation (Stefaniak, Houston and Brandon, 2016). The opinion of
Greg Medcraft related to the quality auditing was connected with the fact that Australia
does not require matters like Enron case, which resulted in commercial failure because of
the dramatic shift in the auditing standards (ASIC, 2017). The one and only way to stop the
matter like Enron is that the auditors should do their job properly and with integrity. The
true financial information can develop the trust in the investors (Howell and Ray, 2015). As
per the ASIC sample of main audits by the KPMG, Deloitte, Ernst and Young and PWC, over
eighteen months to year 2016, twenty third per cent had not given proper declaration that
accounts were correct or without the misstatements. Often what they found was that there
was a deficiency of disbelief and commonly the deficiency of stimulating what was in front
of them (Gay and Simnett, 2015)

REPORT 14
Conclusion
As per the above analysis, it can be concluded that the controllers have not had demanding
reasons to follow the matters. However, the administrators at Enron and Arthur Andersen
did not set out to have the positive influence on the accounting or other industries. They
set out to create as much money for themselves as rapidly as possible. They were desired
to do whatever it took to create money. These inconsiderate actions and greediness
controlled both entities to an ultimate decline in insolvency. However, the accounting
industry responded by addressing the modifications, which will in long-run, increase itself
and economy where this presents.

REPORT 15
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REPORT 17
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