Concept of Auditing Solved Assignment

Auditing

EXECUTIVE SUMMARY
This project report summarises the general concept of auditing and different key audit matters
that are identified by auditors while analysing the financial statements of the company. It also
consist information which is required to the different stakeholder such as investors, suppliers and
creditors to make investing and other decisions.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
INTRODUCTION...........................................................................................................................2
MAIN BODY...................................................................................................................................2
Wesfarmers overview..................................................................................................................2
Auditor Independence:................................................................................................................2
Non Audit services:.....................................................................................................................3
Auditor remuneration:.................................................................................................................4
Audit committee:.........................................................................................................................5
Audit opinion:.............................................................................................................................6
Key Audit Matter:.......................................................................................................................6
Different in roles of director and auditors:..................................................................................7
Subsequent events ......................................................................................................................8
Follow up question asked to auditor:..........................................................................................8
CONCLUSION ...............................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
The process of analysing and examining the financial records of an individual firm or an
organisation in order to check the accuracy of accounts is known as Auditing. This process also
ensure that reports are maintained accordance with accepted accounting rules, standard,
regulation (Adebisi, 2013). Auditing in an organisation may be external or internal which means,
external auditor comes to audit financial record within the firm and internal auditor examine the
performance of inner employ. Auditor are the person who analyse and review financial reports to
give the statements that are free from any type of fraud or error.
In this project, listed company on ASX chosen for this project is Wesfarmers. In this
project report various documents are discussed from these companies such as Auditor's
independence, auditor report, remuneration of auditor that help to calculate auditor authority.
This report also shows key audit matter and audit procedure to prevent these matter, audit
committee and audit opinion in these listed companies are shown.
MAIN BODY
Wesfarmers overview
Wesfarmers Ltd is one of the leading food company in Australia and new Zealand which
is Australian largest listed company on ASX. It has central office at west-central Australia.
Company have various business such as supermarkets, hard drink, hotel and also deals in
departmental store. It also provides services like home modify, office supplies industrial product
which are chemicals, fertilizers, safety product and coal. In few year it has become the most
employments offering company as from annual report it can be said that company has 223000
(approx) employee at its twenty five location (Coetzee and Lubbe, 2014). This company earn
huge total sales revenue of about $66,608,000,000 in year 2018 and majority of amount is from
supermarket. The two high authority of Wesfarmers is Mr Rob Scott the chief executive and Mr
Michael Chaney is the vice chairman.
Auditor Independence:
In Wesfarmers Ernst and young & DS lewen are two external auditor, they are
independent from all those stakeholder who have invested within the company. Independence
generally means honesty of auditor and objective to follow the audit function with a compnay.
They both are responsible to check financial information and present these accurate report to
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company shareholder (Dellaportas, Leung and Cooper, 2012). At the end of 2017 financial year
both auditor have made some declaration under section 324DAC of the company Act 2001 these
are maintained below:
 There is no dispute of auditor's independence in relation to the audit procedure (IAC Act
2001)
 There was no contravention with respect to code of professional demeanour in abstraction
to audit process.
Non Audit services:
These service referred to those professional work done by auditor during a financial year
which were not included in audit process. In general, all other services which are not involve in
the audit of a company's financial reports. These includes tax planning, budget preparation,
business adviser and other services such as price transfer, employee share scheme, transaction
assistance.
External auditor of Wesfarmers provide non audit services like Tax compliance and other
services. Tax services are related to taxation and compliance that are very important for every
organisation. Price transfer is related to the process through which goods and services are being
exchanged within an administration. Auditor provide this service due to which price are fixed
that help company to transfer its product and goods with other company. Auditor also provides
non audit service of transaction assistance that help Wesfarmers to build various powerful
effective strategy to face different challenges (Ismanto and Hassan, 2016). They also provide
employee share scheme to the employee of Wesfarmers, so these employee may have an option
to buy a sum of share at least price or free sometime. So, Ernst and Young provide and help
Wesfarmers in these services. To provide these services auditor charge fee for the from
company. Total amount of non audit service is $1026000 in which tax shows $683000 and other
services are $343000. It represent 12% of the total fees.
There are certain guidelines related to the auditor independence for non audit services
that are obligatory by Australian corporation act 2001 that are described below:
 These services do not involve review of auditor work in company decision making.
 Non audit services are part of company governance policies and operation that was also
followed by Wesfarmers that doesn't effect the working of Ernst & young.
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Auditor remuneration:
The total amount paid by company to their external or internal auditor for the services (audit)
they provide to them during a financial year. This amount shall be fixed by board in their general
meeting and provide proper break up of each part of fee to auditor (Kapoor and Brozzetti, 2012).
Ernst and young & DS lewen are two auditor appointed by Wesfarmers for an accounting year
2017. They are the one who review and audits company financial reports and represent the
accurate information to shareholder for these services they receive remuneration. Auditor
remuneration includes fees related to assurance services, non audit services and main audit
services. Remuneration structure of Wesfarmers is shown below:
From the annual report of Wesfarmers table of remuneration is shown. So it is concluded
that total fees paid by company to their auditor during financial year 2018 is approx $8571000
which was less than amount paid in 2017. The percentage also reduces of about 16.44% as
compare to total audit fee given in 2017 by Wesfarmers. Company provide fees for audit and
review of financial statements for Australia part of about $5761000 in 2018 that was $38000
more than those paid in 2017. Fees paid for audit services outside Australia is $812000 in 2018
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that was $110000 more than fee paid in 2017. Auditor remuneration also includes amount of
assurance services which has also decreased to $942000 in year 2018 as compared to $1272000
in 2017. Company also pay amount of $218000 for non audit services in 2017 but no amount is
paid in 2018. All this deduction help Wesfarmers to reduce its total spending on audit service by
5.05% and percentage change in non audit services in 55.53%
Audit committee:
Every organisation form an audit committee in order to control and track its financial
records. These group of member comes together to control audit activity within an organisation
(Audit committee, 2017). In Wesfarmers committee consists of nine member, eight from them
are non executives director's. They are experience, knowledgable and expert persons who
analyse and measure the accounting report to know the current position of company. Various
roles performed by these audit committee member are:
 This committee guide board to manage all the group and their working system that
includes internal control, financial risk management and non fiscal risk management.
 Non-executive director's deals with moral communicator of various product such as
retail network.
 Member of committee analyse and measure the group process within company that
ensure the accuracy of financial statements and reporting.
 They administrate the cyber safety of group's and department that also includes protection
of data.
 Manage third party security management and evolve escalation process for any audit risk.
 Committee control different abidance related to accounting system and also check
judicial requirement for audit process.
 This committee focus on retail decrement and control the reporting procedures in various
department of company.
 They monitor and shows the Wesfarmers tax statement program within Australia and
overseas part.
 Committee also help board to review the process of control of commercial income by the
retail group that help them to identify the income related to the accounting standard.
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Audit opinion:
The opinion or decision by individual auditor involved in the process of auditing of
financial statements of a company that is helpful to create accurate accounting statement is
known as Audit opinion (Knechel and Shefchik, 2014). Accountant gives overview about the
records and rules followed for creating financial statements. They also give sentiment regarding
the accuracy of financial statements as it displays the organisation current conditions and
position. After reviewing and analysing financial report of current accounting year of
Wesfarmers both external auditor gives diverse opinion. From the annual report it can be said
that:
 They convey that financial manager set up an faithful compact income statements and
balance sheet as per the Australian corporation Act, 2001.
 These financial report shows the fair and true adjustments of every transaction happen
within Wesfarmers during financial year.
Key Audit Matter:
These matter are defined as the most importance in the audit of the financial records of
the current year of a company. It is significant to identify these audit matter and discussed with
company board and authority so proper procedure can be develop (Mahzan and Yan, 2014).
During financial year Ernst and young identify various key audit matter in Wesfarmers and
develop significant audit procedures. From annual report of Wesfarmers Some of important audit
matter are discussed underneath:
 Damage of intangible assets -First and main key audit matter of company is the
Damage of non current assets such as intangible or current assets. According to auditors
it is important to determine and provide judgement for various intangible assets such as
redeemable amounts of property, plant and building, goodwill, and all other
unidentifiable assets hold by company.
Procedure- Auditor adopts a way to resolve this matter by doing proper impalements test
and develop judgement of the premise and method used in evaluate process, predict about cash
flow, discount rate, other market grounds of industry earning, growth rate etc. disclosures of
financial report must be considered sufficiency regarding the impairment testing approach.
Auditor also concerned valuation expertise to calculate the following key points that was
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important as a part of impairment test such as predict exchange rate premiss, long-term explosion
last growth rate etc.
 Supplier rebate- Another key audit matter identified by Wesfarmers is supplier rebates
that is important for auditor. As these rebates are received by the company from their
supplier which is associated with their retail operations. Auditor found these as the part of
quantum of commercial income so judgement are required to be passed in relation to
various factors such as, individual rebate, time of recognition, value of inventory in final
statements and measurement of hold in respect to Australian accounting standard.
Procedure- Auditor adopts the procedure such as developing understanding to the nature
of every product and type of mercantile income. They perform comparing of different rebate
arrangements against the preceding year and budget that includes analysing of ageing profiles.
Auditor also build material variance to identify these rebate and obtained supportive grounds.
They also test a sample of provider rebates to encouraging certification and also analysed these
supplier with important content credits, other hold and agreed balance to supporting certification.
Auditor examine a sample of material fresh contract both before and after the scale date and
assessed whether the handling adopted by the departments was good enough (Mebratu, 2015).
They also inquired of judicial lawyer as to existence of other rebate contract with unique terms
and condition. At last they develop business creation of different product category commodity,
supply chain manager and secure staff as non standard agreements.
 Discontinued operation- Another key audit factor identified by auditor of Wesfarmers is
Discontinued operation that means company has agreed to sell its coal mine that includes
all share execution involved to coal prices.
Procedure- Auditor of Wesfarmers has obtained a process of assessing buy and sale
agreements of the company. They have calculated the key inputs of the post tax gain on sales.
Member of audit group has considered tax impact of the disinvestment including external advice.
 Discontinued of operation in overseas- Last key audit matter identify by the auditor is
operation discontinued of Bunning UK and Ireland as this has been paid by the company
due to its impairment (Ruhnke and Schmidt, 2014). In the report Auditor has established
a $1.66 billion Loss this could effect in the loss of disposal and trading result also.
Procedure- Auditor of company has calculated the key inputs that includes discount rate,
market growth etc. Audit process for this issue are assessing financial statements revealing that
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also includes classification of both continued and discontinued operation. The group work on
sales and purchase agreements in order to understand the provision of sales that help in the
calculation of the post tax on disposal.
Different in roles of director and auditors:
Responsibilities of management director always differ from roles of auditor in financial
reporting. Some of the following are described such as;
 Manager provides financial statements to directors, creditor and other shareholder
whereas auditor check the accuracy of these financial reports.
 Manager review those information to ensure the maternal inconsistencies and
misstatement of facts and figures while auditor follow OM paragraph for revision of
other information that is important for management (O’Regan, 2017).
 Legal auditor are required to make statements in their auditor report, if company has
adequate IFC system in place of operating effectiveness of such control.
 Dictators are responsible to the statements that was made by internal financial control and
follow IFCs that are adequate and effective, where as auditor perform internal and
external audit function.
 Duty of manager is to make sure that all statements are involved in annual report, while
auditor follow certain rules and laws while auditing of those annual report.
Subsequent events
Those events that occurs after the financial reporting period within an organisation but
arise before issuance of annual statements are called subsequent events. By analysing annual
report of Wesfarmers, it can be notice that company declare dividends. Company declared total
divided $1,361 million which has to be paid by the date 28 sept. 2017. This information is
presented in the footnote of annual report as it was not shown in the 30june2018 financial
statements.
Information provided to stakeholder.
There may be investor, supplier, creditor who are stakeholder for the company. They
required exact material information from auditor about the company such as, profitability of
operation, ratios and various important budgets like sales. This help them to know about the
position of company.
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Missing material information
From the annual report of Wesfarmers it can be seen that both external auditor have states
every information related to the company in their final report. So there is no material information
which is missing or they miss to represent in company annual report.
Follow up question asked to auditor:
Shareholder ask various question from auditor in annual general meeting to exactly
known about the financial position of company. There are various question asked by shareholder
from auditor such as:
Q1) All proper resources are taken to the audit or not?
Q2) Reports prepared are free from misstatements or fraud?
Q3) Audit team does have experienced person with them or not ?
CONCLUSION
In this project report it is concluded that auditing is important process as it help to get the
accurate information about company. From annual report of Wesfarmers it is easy to say that
financial statement of company are prepared and checked by auditor according to international
accounting standard. Auditor examine the report and identify various key audit matter and
develop procedure for the audit matter. Auditor have to play various important role within a
company to record and perform audit function. From the annual report of company relevant
subsequent event are discussed in this project.
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REFERENCES
Books an Journals:
Adebisi, J. F., 2013. Quality Assurance in Auditing: A Recent Development in Professional
Practice.
Coetzee, P. and Lubbe, D., 2014. Improving the efficiency and effectiveness of risk‐based
internal audit engagements. International Journal of Auditing. 18(2). pp.115-125.
Dellaportas, S., Leung, P. and Cooper, B. J., 2012. Observations on audit committee
characteristics. Managerial Auditing Journal. 27(4).
Ismanto, S. and Hassan, C. H., 2016. A Clinical Audit for Compliance on the Innovated
Radiographic Technique at a Radiologic Unit. ASEAN Journal on Science and Technology for
Development. 33(1). pp.1-9.
Kapoor, G. and Brozzetti, M., 2012. The transformation of internal auditing. The CPA Journal.
82(8). p.32.
Knechel, W. R. and Shefchik, L. B., 2014. Audit quality. In The Routledge Companion to
Auditing (pp. 152-169). Routledge.
Mahzan, N. and Yan, C. M., 2014. Harnessing the benefits of corporate governance and internal
audit: advice to SME. Procedia-Social and Behavioral Sciences. 115. pp.156-165.
Mebratu, A. A., 2015. Internal Audit function and its challenges in public sector governance:
Empirical evidence from Amhara National Regional State, Ethiopia. AshEse Journal of
Economics. 1(1). pp.001-012.
O’Regan, G., 2017. Software Quality Assurance. In Concise Guide to Software Engineering (pp.
131-138). Springer, Cham.
Ruhnke, K. and Schmidt, M., 2014. The audit expectation gap: existence, causes, and the impact
of changes. Accounting and Business research. 44(5). pp.572-601.
Online
Audit committee. 2017 [online] Available through: <https://taxguru.in/company-law/audit-
committee-section-177-companies-act2013.html>
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