Audit, Assurance and Compliance in Wesfarmers Limited

This report analyses the audit report of Wesfarmers Limited and discusses key audit matters, non-audit services, auditor's remuneration, audit committee, material subsequent events, and more.

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, assurance and compliance
Name of the student
Name of the university
Author note

2IntroductionIntroduction
Table of Contents
Introduction...........................................................................................................................................4
Independent auditor’s report................................................................................................................4
Non-audit services performed by the auditor.......................................................................................5
Auditor’s remuneration.........................................................................................................................6
key audit matters:..................................................................................................................................6
Impairment of non currant assets which includes intangible assets in the Target:...............................7
The rebates of the suppliers:.................................................................................................................7
Discussion of obsolete operations pertaining to Curragh......................................................................8
Discussion of obsolete operations pertaining to Bunnings UK and Ireland (BUKI):...............................8
Audit committee:...................................................................................................................................9
Audit opinion:......................................................................................................................................10
Responsibility segregation among auditor and management.............................................................10
Material subsequent events:...............................................................................................................11
Examining the material evidence pertaining to the auditors...............................................................11
Absence of material evidences............................................................................................................12
Question to be considered for follow-up.............................................................................................12
Conclusion...........................................................................................................................................13
References...........................................................................................................................................14

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Executive summary
The report states the context of Wesfarmers Limited where detailed study of the audit
report has been conducted which has taken into account the currant report of the
Wesfarmers of 2018. It has also shown that the auditor, Ernst & Young have included all the
material aspects which consists of material collision on the financial reporting of the
concerned organization. all the information have been revealed and explained by the
auditor of Wesfarmers which takes into account the material factors.

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Introduction
Auditing can be termed as analysing the monetary reports that are published by the
organizations in order to make sure that the reports does not contain any kind of frauds,
misstatements of materials or mistakes. Therefore, it is the duty of the auditors to provide a
good quality which is relevant to the information relating to the financial statements. The
auditors should also provide information to the stakeholders in such a language which will
be not difficult to understand. In the present situation, the audit committee have done
many things in order to make good quality audit report. Therefore, the auditors should take
into account the issues which is present in the financial statements which will also make a
better quality audit (Wesfarmers.com.au. 2018.). The following report emphasizes on the
currant report of the Wesfarmers Limited which linked with large number of aspects of
audit of the financial reports. In this case the audit partner here is Ernst and Young.
Independent auditor’s report
Before the production of audit service, the auditing firms present should maintain all
the rules and regulations which are related to the independence of the auditor. The auditors
therefore, are required to be linked with the audit client while providing audit operations.
The section of the latest report of Wesfarmers of the year 2018, Ernst & Young states that it
did not have any agreement in association with the Corporations Act 2001, when the audit
operations is to be provided (Zhou, Simnett and Hoang 2018). The directors of Wesfarmers
stated that the auditor Ernst & Young had maintained all the important professional
principles which are related to the standards of auditing. Some of which relates to the
guidelines of “ Accounting Professional and Ethical Standards Board’s APES 110 Code of
Ethics for Professional Accountants” and “ Corporations Act 2001”. The above mentioned

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things are need to be followed so that the auditor’s independence can be properly
maintained.
Non-audit services performed by the auditor
There are mainly two different types of audit which are based on the latest report of
Wesfarmers in the currant year. The two types of services include services related to the
compliance of tax and the other different services. In order to perform tax compliance
service, the auditor is been provided with an amount of $683,000 and for the other service
it has been provided with $343,000. Therefore, the non audit service fees of the
Wesfarmers have been $1,026,000 in the currant year which is 12.01% of the audit fees
which is incurred in the year 2018 (Wesfarmers.com.au. 2018.). Although, all the necessary
compliances for Ernst &Young have been ensured by Wesfarmers while obtaining the non
audit services which indicates that the auditor has not comprised as per the regulations
mentioned in Corporations Act 2001. The auditors were also not provided any amount of
work that may involve the review of the work by Wesfarmers while taking any kind of
management decisions. While doing the non audit services, different kinds of guidelines
and governance norms have been followed which implies that there is a presence of
independence of the auditor.

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Auditor’s remuneration
(Source: Wesfarmers.com.au. 2018.)
The table above shthe services related to non audit comprises of tax compliance
service and other services as well. ows the audit service payments that both the Australians
and the cross border network firms takes into account. The above table shows that the
Wesfarmers has decreased the audit service payments to the Ernst &Young by 5.05% in the
currant year which denotes that lower audit have been obtained by Wesfarmers and the
non audit services in 2018. Because of such declination, the total amount paid to the auditor
went down by 16.44%.
key audit matters:
key audit matters can be stated as the important aspects during the time of auditing the
monetary statements. The annual report of 2018 states that four key audit matters can be
identified which are describes in order to minimise:

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Impairment of non currant assets which includes intangible
assets in the Target:
The Wesfarmers are required to establish the amount of property that can be
recovered along with equipment and plants, goodwill and assets that are intangible in the
light of significant judgement. It has been observed by the auditors that Target has an
amount that can be recovered which is more than the carrying amount which would result
in impairment of the cash generating unit of Target. In order to deal with this matter, the
auditor has looked into the assumptions and the methodologies which are associated with
the cash generating unit, growth rate as well as estimating the cash flows. Along with that
the adequacy of the monetary statements which relates to the impairment test, sensitivities
and assumptions are also used by the auditors which can be stated as analytical procedures.
The rebates of the suppliers:
The rebates of the suppliers are those which the Wesfarmers have obtained from
the suppliers which are related to the operations of the retail. The rebates of the suppliers
considers a key audit matter because of the supplier rebate quantam that id realised in the
period and the perception is required to be exercised by taking into account few factors. In
order to deal with this kind of issue , Ernst & Young has taken into account t the audit
procedures. In addition to this, these practices are also depicted to include the testing
standard for providing supplier rebates and ensuring suppliers have a promotional credit for
analyzing the sample is associated with new contracts for the materials. These practices are
also necessary for assessing the inquisitive legal counsel pertaining to the business
representatives. Therefore, it is important to categorize the procedures such as control tests
with a considerable level of detail among the substantive balance required for analytical test
of procedure (Council 2014).

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Discussion of obsolete operations pertaining to Curragh
Wesfarmers had agreed for disposing the coal mines of Curragh in return of $700
million in 2018. This agreement was conducive in promoting the mechanism of sharing value
related to the future prices of metallurgical coal. Moreover, it is also discerned that
organisation has taken into consideration PAT of $ 250 million associated with discontinued
operation from the mine (Krishnan and Wang 2014). There are also several considerations
based on trading outcome which are related to disposing the gains, which form as the main
reason for why E&Y has regarded it in their KAM. The supervision of this matter taken into
account with sale agreement and purchases which are to be referred with the
documentation which are required for computing and evaluating the gains from post-tax
disposal (PTDG). Secondly, it is also identified various inputs from PTDG calculation
pertaining to which it is able to make sure that the liability and asset values are the
recognized. The next important step has considered the engagement of tax specialists in
identifying the tax impacts associated with the investment and various types of financial
statement disclosures which are also discussed to Curragh (Baatwah, Salleh and Ahmad
2015).
Discussion of obsolete operations pertaining to Bunnings UK and
Ireland (BUKI):
In the first half of 2018, there are several instances which has led to the recognition
related to impairment charge for BUKI amounting to $953 million. On 25th May 2018
Wesfarmers to the decision of divesting their operations for a nominal price. The financial

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statement published by the company in 2018 showed that Wesfarmers had incurred a loss
of 1.66 billion from discontinued operations. This has considered the impairment charge
which were realised during the beginning of six-month period as a result of trade outcome.
This was also effective at the time of disposal point and during disposal loss. This needs to
be also considered as the important rationale for why such a case was included by E&Y in
their KAM (Aobdia, Siddiqui and Vinelli 2016).
In order to handle such a situation of KAM, E&Y had tried to assess the precision of
impairment testing. It realized this with the application of several assumptions and
methodologies. The significant inputs were considered with assumptions pertaining to
commodity prices, discount rates, growth rates and rate of inflation (Amin, Krishnan and
Yang 2014). In addition to this, it was also understood by the auditor that the sale
agreement and purchases related with the documents they required for evaluation and
computation of disposal gains from tax. Secondly, it was also assessed that the inputs
pertaining to post-tax sales loss computations had confirmed the derecognition of liability
and asset values. The next important step was seen with engaging the tax specialists for
identifying the effects of taxation and divestment. This was finally stated under the
disclosures made in the financial statement (Drayson, Cranston and Krosch 2015).

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Audit committee:
The last annual report published by Wesfarmers Limited had identified that
management related to the organization has formed a risk and audit committee and also
stated about its role in carrying out and monitoring of several types of procedures leading to
internal control and protection of the assets thereby confirming the integrity among
financial reporting standards. The aforementioned committee is recognised with two non-
executive directors- J.A. Westacott and D.L. Smith Gander. The important expanses for the
evaluation of the committee has regarded constituting of compliance with financial
reporting, integrity and reviewing the influential dynamics on the commercial incomes. The
framework is also seen to be playing a pivotal role for conducting a risk management plan
and incorporating the same into audit (Simnett and Huggins 2014).
Audit opinion:
The evidence is on audit opinion is recognised under the independent report
published by the auditors of Wesfarmers Ltd in 2018. The various disclosures of this report
have stated about conforming to the guidelines as prescribed under “Section 300A of the
Corporations Act 2001”. In addition to this, the opinion of E&Y has been also built a state
about development of financial reporting in such a manner which will be conducive for
regulating the AAS and other regulations which comply to Wesfarmers. Therefore, in the
given case it is seen that E&Y has passed an unqualified audit opinion on the company
(Drayson, Cranston and Krosch 2015).
Responsibility segregation among auditor and management
The information given in the latest financial report of Wesfarmers have shown the
differing responsibilities of auditor and management. This is mainly seen with financial

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statements. The directors along with the managers are needed to ensure that the financial
reports are able to portray accurate picture of compliance with the regulations under
Australian accounting standards and Corporations Act 2001. More importantly, the
accountability of the directors is also essential to know about the ability of an organisation
to operate as per the going concern criteria. Moreover, there are other responsibilities
which are not similar to each other (Simnett, Carson and Vanstraelen 2016).
It is the responsibility of the auditors for assessing and investigating the financial
reports. These include confirming whether the reports are free of errors, frauds and
material misstatements. In addition to this, some of the other responsibilities of the
auditors are concerned with risk evaluation which are relevant with obtaining adequate
information on the internal control procedures and catalyzing the effectivity of accounting
policies which will be able to appropriately address the going concern criteria. These forms
the main accounting base for the directors. However, directors are not depicted to carry
such rules. The auditors are also accountable presentation of financial statements (Simnett
and Huggins 2015).
Material subsequent events:
It is worth mentioning that there are two main events which are considered by
Wesfarmers in 2018. Firstly, it is important to depict the demerger with Coles in March
2018. Despite of such a decision by the management E&Y has not included this event under
material value as there is not a significant impact of materiality in the financial statement of
Wesfarmers. The executive directors of Wesfarmers have also declared about fully franked
ordinary dividend amounting to 120c for each share. Due to this, the total amount
pertaining to the final dividend which was to be paid to the shareholders amounted to 223c

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on 27th September 2018. This amount of dividend is yet to be distributed among the
shareholders (Drayson, Cranston and Krosch 2015).
Examining the material evidence pertaining to the auditors
As opined by the third-party stakeholders, it is evident that E&Y is having an efficient
role in terms of interpreting material information of Wesfarmers Ltd in its latest publication
of financial reports. Moreover, the appropriateness of adherence is understood with the
compliance of Corporations Act 2001 and APES 110 standards (Kass 2017). Furthermore, it
can be stated that auditors have identified four KAM from the financial statement and taken
several ramifications which led to minimizing the impacts as well. These considerations
clearly identified that E&Y was efficient in handling of material evidence (Knechel and
Salterio 2016).
Absence of material evidences
The thorough perusal of several excerpts of the annual report for Wesfarmers Ltd
published in 2018 shows that it’s auditor E&Y has not failed to consider any material
evidences or aspects which may take the form of material collision in the financial
statements. Moreover, every aspect of evidences was disclosed and inspected appropriately
by the auditors thereby stating about the factors associated to materiality which could have
adverse implication on the business (Australia and Australia 2015).
Question to be considered for follow-up
There may be numerous questions raised by the shareholders of Wesfarmers at the
time of annual general meeting. Some of the questions are listed as follows:
what are the initial motivations for carrying out the audit process?

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 How will you verify the level of materiality in three KAM as stated in the annual
report?
 What are the opportunities pertaining to external audit services?
 What is the role of other auditors who may be involved in examining of financial
reports of the company?
Conclusion
The discourse of the study has been conducive in the eviction of several audit
services which are provided by the audit firms and conform about the guidelines pertaining
to the independence of the auditors. In the recent publication of financial statement
published by Wesfarmers Ltd it is evident that the company has appointed a team of audit
risk committee for monitoring and protecting of several types of internal control procedures
which will ensure overall fairness and integrity of financial reporting. In addition to this, the
directors and managers have also confirmed whether the financial statements are in
compliance to the Australian accounting standards and Corporations Act 2001.
Furthermore, the learnings from the study have stated about the accountability of the
directors in ensuring operations of the company as per going concern criteria.

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