Auditing and Assurance: Key Audit Matters, Remuneration, and Subsequent Events

Verified

Added on  2023/06/07

|18
|3294
|244
AI Summary
This article discusses the new introduction of Key Audit Matters in independent audit reports and the impact of non-audit services on auditor's remuneration. It also provides insights into material subsequent events and the assessment of Woolworths Limited from a third party's point of view. The article covers topics such as the audit committee, auditor's opinion and responsibility, and more.

Contribute Materials

Your contribution can guide someone’s learning journey. Share your documents today.
Document Page
AUDITING AND ASSURANCE

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
EXECUTIVE SUMMARY
Since 2016, a strong urge is being made for enhancing the quality of the financial reporting. A
new introduction has been made in the independent audit report called “ Key Audit Matters”
which are aimed at providing the key matters that are of significant importance and shouldn’t be
ignored by the intended users at any cost using “ Plain English”. The new audit reporting
requirements have been brought into effect in December, 2016 by nations like Australia and New
Zealand.
The new international and Australian reporting requirements will be the basis for financial
reporting that demands transparency about the operations of the company & responsibilities of
auditors as well the matters considered as of key importance by the auditors.
Thus, the dream of having an enhanced auditor reporting would be a reality very soon.
Document Page
Contents
INTRODUCTION...........................................................................................................................3
AUDITOR’S REMUNERATION...................................................................................................4
KEY AUDIT MATTERS................................................................................................................5
AUDIT COMMITTEE....................................................................................................................7
AUDITOR’S OPINION AND REPONSIBILITY..........................................................................9
MATERIAL SUBSEQUENT EVENTS.......................................................................................11
ASSESSMENT FROM A THIRD PARTY’S POINT OF VIEW................................................12
CONCLUSION..............................................................................................................................13
Bibliography..................................................................................................................................14
Document Page
INTRODUCTION
The reports of Woolworths Limited have been audited by one of the big four audit companies,
that is, Deloitte. At Deloitte, the ethical behavior and the professional conduct is of some serious
concern for everyone at whichever level they belong to. The strength of a role is determined by
one's actions. One of the most valuable parts of Deloitte is Integrity (Taillard, 2013). The ethical
values, the professionalism rules are not some mere philosophy but a powerful tool that acts as a
guide for all the professionals to take up the right actions and correct decisions, whatever the
situation may take place. The Code Of Ethics and Professional Conduct is guided by the Global
Principles of Business Conduct that sets a standardized framework for the professionals of
Deloitte who have to restrict themselves within that framework wherever in the world they might
be serving.
Having a reputed name worldwide and being so much committed to its principles, the auditor has
complied with the independence requirements. The auditor's independence declaration,
according to section 307C of the Corporations Act 2001, in the financial reports is an
authorization from Deloitte that being a lead audit partner, it declares to the best of its knowledge
and belief that there has been no violation of applicable professional conduct and independence
requirements of the auditor related to the audit of the company (Alvarez, 2013).

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
AUDITOR’S REMUNERATION
Non audit services are the services provided along with audit services. As stated in the Director's
statutory report, Deloitte Touche Tohmatsu has provided certain non audit services which in no
way has compromised with the auditor's independence requirements as stated in APES 110 Code
Of Ethics for Professional Accountants (Atkinson, 2012). Such non audit services do not involve
auditing the work of an auditor or making any decision in the capacity of the company or sharing
of rewards or risks on the behalf of the company.
The non audit services include assistance on various accounting matters, services of assurance
such as regulatory services, raising debts, due diligence and other petty services. The
remuneration for such non audit services are $504,000. Such services do not have an impact on
the statutory audit requirements (Siciliano, 2015).
As we can see from the table, the auditor’s remuneration has increased in comparison to previous
year (Strathern, 2010). However, the auditor has provided more non audit services for the
current year. Such non audit services have been in the nature of providing assistance related to
accounting & taxation matters and various other services already stated above (Cochran, 2017).
The major change in the auditor’s remuneration has been observed to non audit services.
AUDITOR'S REMUNERATION
Particulars 2017
($'000)
2016
($'000)
%
Change
Auditor of the parent entity : Deloitte Touche
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%
Total 3912 3273 19.52%
Other Auditors
Document Page
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%
Document Page
KEY AUDIT MATTERS
Key audit matters are of utter importance for the audit work for the current year and therefore,
the auditor states it in his independent report along with the audit procedures adopted for
analyzing such matters. The audit procedures adopted are usually are test of controls, substantive
test of details or analytical procedures (Donohue, 2015). The current report of Woolworths also
contains key audit matters that can be explained in the following way along with the audit
procedures adopted:
Particulars Description Substantive
Test of details
test of
controls analytical procedures
Home
Improvement
As disclosed in the
notes, there has
been improvement
in the exit of hotel
improvement
business. There is a
number of
concerns in this
matter such as
lowe's put option,
property cost
accounting, Home
Corsotium
transaction,
taxation matters of
masters inventory,
liquidation matters,
closure matters,
measuring onerus
leases, settlement
Checking of sale
agreement of Home
Timber and Hardware;
assessing the terms
and conditions of
liquidation; checking
of lease agreements
and contracts;
checking of carrying
value of assets and
liabilities.
Evaluating the
accuracy and
appropriatenes
s of the
accounting
method with
respect to sale
of Home
Timber and
Hardware,
evaluation of
put option of
Lowe,
consequences
of Home
Improvement
Exit,
appropriate
disclosures are
there or not.
Testing of
amounts of
revenue and
costs of the
liquidation
matters in
relation to terms
of appointment
of GA Australia
Pty Ltd.,
evaluation of
estimates or
judgements used
regarding assets
and liabilities;
comparison of
amounts
recorded against
historical trends
in relation to

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
of liabilities. The
matter included
significant
complexities,
estimates and
judgements for
measurement of
assets and
liabilities. And this
is why, the auditors
considered it to be
a key matter.
lease
agreements and
other contracts.
Inventory The Group has a
policy of valuing
inventory at cost or
net realisable
value. Currently, it
shows a value of
$4080.4 million. It
also considers any
obsolescence or
discrepancies,
forecasting of sales
assumptions,
historical trends .
The reason for
considering it as a
key matter whether
the valuation of
inventory has been
done as decided or
Understanding
the policy of
provisions of
inventory with
respect to
seasonality,
aged inventory,
selling on the
basis of rates;
reviewing
historical values
of provisions of
inventory ;
checking of
inventory
written off
during the year.
Testing of
internal
control over
the inventory
valuation;
Evaluation of
judgements
used or
assumptions
applied for
calculation of
inventory.
testing of amounts
through sampling ;
comparison of such
values with vendor's
prices and sales value ;
testing of shrink rate ;
obsolescence rate ;
testing of calculations
for checking of
mathematical accuracy.
Document Page
not.
Document Page
AUDIT COMMITTEE
Yes, there is an audit, risk, management & compliance committee composed of 5 people where
Michael Ullmer is the chairman of the committee and the rest four people are the members of the
committee. Four out of five members are independent non-executive directors.
The audit committee charter is the charter that governs the actions of an audit committee. The
audit committee is composed of at least three members where all the members should be
independent directors of the board and one person out of them should be made the chairperson of
the committee (Easton, 2010). For the fulfillment of audit committee requirements, members
shall be assumed as independent as long as they are satisfying the independence requirements.
Each of them should be a literate financially and none of them should be serving more than three
audit committee of public companies simultaneously until and unless the Board isn't approving
it.
The functions of an audit committee are :
Guiding board of directors to fulfill its responsibility in the best way towards potential
shareholders ;
Maintaining the integrity of the financial reports and other related documents of the
company ;
Having a responsibility towards maintaining an effective internal control over the
company reporting of financial statements ;
Assurance regarding compliances with various legal requirements and regarding
qualifications and independence of auditor's appointed ;
Having a sight on the internal audit department’s performance work of the independent
auditor.
The duty of the audit committee is as set up in the charter. It is the duty of the management of the
company to prepare and present the financial reports, applying appropriate accounting and
reporting standards, maintain ethical principles and maintaining a strong internal control over
operations of the company (Elaine, 2015).

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
The committee while fulfilling its responsibilities believes that the policies and procedures
adopted should be flexible enough to to change it so as to adjust it with the changing
circumstances. The committee is held responsible for taking appropriate steps for monitoring the
quality of the financial reporting, business threats, risks associated and ethical behavior of the
company. The committee is responsible for revising and evaluating the policies and programs of
the company related to risk management, assessment & controls (Fisher, 2012). It shall take an
part of formulating a plan of actions for auditing with the internal auditors, external auditors and
top management and should be involved in the preparation of budgets or compensation structures
Document Page
AUDITOR’S OPINION AND REPONSIBILITY
Audit opinion, being one of the most important parts of an audit report, is an expression of
opinion of an auditor on the financial reports which is considered as an reasonable assurance and
not a guarantee. Such an opinion is expressed after auditing the entire reports and having enough
audit evidences to base their opinion on.
In the financial reports of Woolworths Limited as at 25 June 2017, the opinion has been
expressed as unqualified. The auditors have audited the company along with its subsidiaries the
financial reports of such companies along with relevant notes to such reports, summary of
accounting standards adopted and declaration of directors (Fridson & Alvarez, 2012).
The unqualified opinion is expressed as that the Group 's financial report is fulfilling the needs of
the Corporation Act 2001 that the reports delivers a true and fair picture of the financial
performance and position as on 25 June, 2017. Also, the reports comply with all the norms and
standards as per Australian Accounting Standards as well as Corporations Regulations 2001.
The directors and management responsibilities includes presentation and preparation of financial
statements in accordance with Australian Accounting Standards and Corporations Act, 2001,
maintaining a strict internal control over such preparation so that the reports are capable enough
to deliver a true and fair status of the reports which can be considered as free from material
misstatements, errors and risks of fraud.
The other factors that the management is responsible to assess are its ability to continue as a
going concern, disclosures fulfillment, matters associated with going concern status, the intention
of the Group to liquidate or stop their operations.
The auditor's responsibilities have a far wider scope as their objective to derive reasonable
assurance regarding the reports and making sure that they are free of material misstatements or
errors or fraud and having enough audit evidences to express an audit opinion about the financial
reporting (Girard, 2014). The auditor is responsible for assessing the risk of material
misstatements, performing various audit procedures, examining the internal control within the
company, evaluating the appropriateness of accounting standards, maintaining a professional
Document Page
skepticism attitude, evaluation of relations with third parties and all such matters necessary to
conclude about the truthfulness and fairness of the financial reports.

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
MATERIAL SUBSEQUENT EVENTS
Material subsequent events refer to events taking place after the reporting date but before the
issue of financial statements. Yes, Woolworths also has subsequent events occurring after 25
June 2017 (Johnstone, 2014).
On 26 June 2017, an agreement took place called Share Sale Agreement (SSA) which required
the company to sell off is 66.7% share of Hydrox to Home Consortium provided that the Lowe's
shares are sold (Knubley, 2010). The agreement included 21 masters freehold development sites,
20 masters’ leasehold sites and 40 master’s freehold trading sites binding the Woolworths to
have three masters’ freehold sites and take up the responsibilities of the liabilities linked with 11
master’s leases.
On 4 August 2017, the shares of Lowe in Hydrox have been sold to a beneficiary called Trust
with Home Consortium in exchange for an agreed consideration of about $250.8 million. The
termination of JVA has been made subsequently .
Document Page
ASSESSMENT FROM A THIRD PARTY’S POINT OF VIEW
Considering Woolworths Limited to be one of the big companies in the retail sector, it enjoys a
status of oligopoly. It is believed to be holding 31 per cent of the market and is considered as one
of the major contributor of economy in Australia producing $53 billion approximately or 4.1% of
GDP more precisely.
Coming to the audit report of Woolworths audited by Deloitte, the financial statements have
been prepared in details with appropriate standards and corporate disclosures. The auditor has
provided his scope of auditing, clearly defining his responsibilities and how accountable the
reports are for delivering the truthfulness and fairness of the reports (Loughran, 2010).
The requirement of key audit matters for an enhanced qualitative audit report requires certain
matters to be stated in the independent audit report that were of significant nature and how such
matters has been addressed. Deloitte has conducted its audit work in the best possible manner
and has expressed the key audit matters along with the audit procedures adopted to address such
issues. The auditors have also provided services other than audit work like compliances
information, accounting & taxation related queries. Considering the audit report prepared in the
best possible manner and where the professionals have acted in their competent authority, we
believe that the material information provided are true and fair. And that the financial as well as
non financial information are effective and relevant and therefore, the report is both qualitative
and quantitative (McLaney & Adril, 2016).
Considering the preparation of financial statements, we saw 'branch expenses' costing
$10,671.40 million. However, we do not find the relevant justification for such high amounts.
The expenses could have been shown in the notes notifying what expenses are incurred and in
which branch. Somewhere, such presentation of branch expenses wasn't sufficient for acceptance
by the users (Parrino, 2013). Such expenses might be under reported or over reported and could
be sorted out only with the confirmation from the branch offices. Thus, such information could
have been expressed in a more effective manner or disclosed in a better way in the notes
(Shapiro, 2007).
Document Page
CONCLUSION
When the company's annual general meeting would be held, the questions that should be asked to
the auditor is better explanation of the Notes to Accounts 6.5 'Subsequent Events' where a proper
reasoning is required regarding its disclosure in the notes and not in the books. An explanation of
capital losses is required to be explained. Because the information mentions somewhere that
sufficient capital gains will be produced in the future that would absorb the huge capital losses.
However, the fact that profits will be produced is an estimation and therefore, the vision
regarding it would give a clear understanding.
Another question to be asked to the auditor is should be regarding 'other information' provided at
last in the independent auditor report where the auditor has explained whether they have
considered such information or not but didn't mention the nature of such information except that
they are not material for their report. However, what kind of information they have talked about
could be explained in the meeting and the intended users can get a better picture of such
information.
After all, transparency and quality are what an audit report desires for.

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
Bibliography
Alvarez, F. (2013). Financial statement analysis. Hoboken, N.J.: Wiley.
Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
Cochran, C. (2017). Internal auditing in plain English. Chico, California: Paton Professional.
Donohue, R. (2015). An introduction to-- cashflow analysis. Mission Viejo, CA: Regent School
Press.
Easton, P. (2010). Financial statement analysis & valuation. Cambridge, UK: Cambridge
Business Publishers.
Elaine, H. (2015). International financial statement analysis. Hoboken: John Wiley & Sons.
Fisher, J. (2012). Investment analysis for appraisers. Chicago, Ill.: Real Estate Education Co.
Fridson, M., & Alvarez, F. (2012). Financial Statement Analysis: A Practitioner's Guide. New
York: John Wiley & Sons.
Girard, S. L. (2014). Business finance basics. Pompton Plains, NJ: Career Press.
Johnstone, K. (2014). Auditing. Mason, OH: Cengage.
Knubley, R. (2010). Proposed Chnages to Lease Accounting. Journal of Property Investment &
Finance .
Loughran, M. (2010). Auditing For Dummies? Hoboken, NJ: John Wiley & Sons.
McLaney, E., & Adril, D. P. (2016). Accounting and Finance: An Introduction. United
Kingdom: Pearson.
Parrino, R. (2013). Fundamentals of Corporate Finance, 2nd Edition. Milton: John Wiley &
Sons.
Shapiro, A. C. (2007). Capital Budgeting and Investment Analysis. New Jersey: Wiley.
Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.
Document Page
Strathern, M. (2010). Audit cultures: anthropological studies in accountability, ethics and the
academy. London: Routledge.
Taillard, M. (2013). Corporate finance for dummies. Hoboken, N.J.: Wiley.
1 out of 18
circle_padding
hide_on_mobile
zoom_out_icon
[object Object]

Your All-in-One AI-Powered Toolkit for Academic Success.

Available 24*7 on WhatsApp / Email

[object Object]