Auditing Theory and Practice

This report emphasizes the use of principles of auditing in the Cocacola Amatil. The managerial functions of the organization have been studied according to their size corporate governance principles and various audit matters have been studied in order to finalize the report which has complied with the needful requirements of the system.

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Auditing Theory and Practice

Cocacola Amati
Executive summary
It is very important for the auditors to work in an efficient manner because they are the
main people behind the true and fair statements that are being provided to the investors for
assessment of an organization's financial condition. The major objectives of the auditor are
to determine the true and fair financial statements of an organization which can be used by
investors to make investing decisions. The information conveyed by the auditor is very
important as it will decide whether the organization was faithful towards shareholders and
investors or not. Hence, the audit report affects the goodwill of the company in both
positive and negative aspects. This report theory emphasizes the use of principles of
auditing in the Wesfarmers Limited. The managerial functions of the organization have been
studied according to their size corporate governance principles and various audit matters
have been studied in order to finalize the report which has complied with the needful
requirements of the system. Non-audit services and auditor’s remuneration are also
highlighted for the audit committee so that subsequent material events and missing
information can be found out.
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Contents
Introduction...........................................................................................................................................3
Relation with the independent requirements.......................................................................................3
Non-audit services.................................................................................................................................3
Key audit matters..................................................................................................................................4
Audit Committee...................................................................................................................................4
Audit Opinion........................................................................................................................................4
The contrast between the management and the auditor’s responsibilities..........................................5
Material subsequent events..................................................................................................................5
Material information reported by the Auditor......................................................................................6
The efficiency of the information that was disclosed by auditors.........................................................8
Underreporting/missing or information................................................................................................8
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10
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Introduction
After the clear analysis of the organization’s performance, it has been observed that a lot of
internal control mechanism should be fixed and also auditors must try to find out any type
of material misstatement that is present in the financial statements of the company. The
company Cocacola Amatil have been observed to provide the shareholders with true and
fair financial information. The main reason behind this true information was the audit
functioning process that was acquired by the organization. The company has also tried to
work under the regulations of Corporations Act 2001, which have helped the auditors a lot
in order to verify and research the financial data of the organization.
Relation with the independent requirements
It was observed that the organization was able to work within the guidelines and necessary
requirements were also made by the organization which has helped did to rule the market.
The accounting standards are properly maintained and executed by the organization which
has proved to be profitable for the company. There was no such independent requirement
which was not fulfilled by the organization. This was also clearly depicted in the financial
statements of the company that was being analyzed by the auditor. These reports were
completely ethical and were based on the Corporations Act 2001 which ensures the
truthfulness and fair value of the performance of the company. Any other requirement that
was needed to be fulfilled was also being looked after in order to satisfy true and fair means
of the financial accounts of the organization.
Non-audit services
It has been observed that the audit company of the organization has helped the
organization a lot in suggesting ethical and legal obligations that are required for the non-
audit services. The organization has also made an assessment of the Risk Management
Committee so that an effective decision-making process can be finalized over the non-audit
services that are provided to the organization. The non-audit services that have been
provided to the company have been clearly disclosed in the audit report of the organization
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so that the information can be conveyed to the shareholders about this act. It should also be
kept in mind that various standards stated in the Corporations Act 2001 should be used in
order to make decisions (Cocacola Amatil, 2017)
Key audit matters
The value of different intangible assets as at 31st December 2017 was $929.3 million. Also,
the goodwill amounted to $147.5 million with the trademark value of $13.8 Million and
other Assets comprising of $2.5 million which were collectively held in the balance sheet as
a total of $1093.1 million. All these assets comprised of more than 18% of the total balance
sheet assets (Cocacola Amatil, 2017). It has also been clearly stated in the financial
statements that all the impairment charges for intangible assets and other assets should be
clearly rectified and noted with the help of cash generating units. Proper estimation and
assumption of data should be made in relation to the future cash flows so that the
organizational goals can be satisfied.
Audit process also includes the determination of different cash generating units which are
used in the impairment model to finalize the carrying value of the Assets and liabilities. The
mathematical accuracy of the cash flow model is also very important as it involves the
consistency of relevant data that will be provided to the board and the investors so that
proper future forecast and cash flow objectives can be analyzed.
Audit Committee
A proper analysis has been made by the audit committee of the Cocacola Amatin relation to
the non-audit services that have been acquired in order to improve their objectivity and
integrity. The organization has made data analysis in order to ensure that no harm has been
caused to the corporate governance structure of the organization in relation to the
implementation of non-audit services (Cocacola Amatil, 2017). It should also be clearly
noted by the organization that questioning the integrity of an auditor is not a respectable
behaviour.
Audit Opinion
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An unqualified opinion was provided by the auditors. The report that was created by the
auditors with respect to the financial accounts of Wesfarmers Limited was not at all valid.
No information was conveyed by the report because of which the investors were not able to
take appropriate decisions. It is the sole duty of an auditor to efficiently analyze each and
every financial statement of the organization in relation to the statutory requirements.
Hence, it was observed that the auditors were not able to portray the audit reports in a
significant manner which has confused the uses of the accounts in making their decisions
and evaluating the revenue of the organization (Cocacola Amatil, 2017).
On the bright side, it can be seen that the auditors have tried to present explanations for all
the processes that have been undertaken by the organization in relation to the audit
matters which will be of great use to the investors and the shareholders in making decisions.
The contrast between the management and the auditor’s responsibilities
The major responsibility of the auditor is to give his opinions on the financial statements of
the organization that is generally managed by the finance managers are the top level
management. The auditor is given the job of correctly analyzing all the financial statements
of the organization so that true and fair data can be provided to the shareholders for
estimation of their Investments (Cocacola Amatil, 2017). Any type of corruption present in
the data should be detected by the auditor and presented for authenticity in front of the
organization so that an ethical and fair data can be provided to the customers and the
investors. The basic function of the management of an organization in the accounting sector
is to organize and implement control functions that may help the business in the process of
recording and processing of transactions which will further help them to present accurate
financial statements (Gay & Simnet, 2015). A direct control has been provided to the
management of the organizations so that realization of assets and liabilities can be
conducted in a proper way. The auditor in all these contexts is only provided with the data
in order to review them and check for any illegal or unethical measures present in the
control mechanisms.
Material subsequent events
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It has been clearly disclosed in the financial statement that the recognition of revenue in
relation to the sales will be done after making a clear assessment over the risk and rewards
of the ownership of goods that have been passed to the customer and the total revenue
have been measured on a reliable basis. The total revenue of the organization is derived on
the basis of the rebates and the promotional allowances that have been owed by the firm to
the customers on the basis of the contract agreement made between them. The process of
recognition and measurement of rebates and promotional allowances is very important for
the organization as it helps both the parties to claim their part of the amounts (Cocacola
Amatil, 2017). It is very important for the investors to analyze the total revenue of the
organization which makes it significant for the audit process to convey the actual amount to
the investors (Geoffrey et. al, 2016).
The audit procedures of the organization included appropriateness of the group accounting
policies in relation to the revenue recognition of the organization on the basis of rebates
and promotional allowances that were provided to them. The firm has also presented a
comprehensive income statement which can be used to evaluate and test the group
processes for the control of the organization in relation to the relevance of the promotional
allowances (Hoffelder, 2012).
Material information reported by the Auditor
The overall analysis has stated that the auditors were not able to represent all the necessary
information in their audit report because of which proper disclosure was not made in the
financial accounts of the organization. Labelling was not done in a proper manner because
of which material influence was seen in the audit report and the financial statements of the
organization because of its decision-making process of the users were hampered. Still, the
auditors have tried to present footnotes which can be used to make a quick review of the
information provided in the audit report. The effectiveness of the audit report was not
clearly attested. Therefore, it was really hard for the users to depend on the audit report
because of the inefficient methods used to prepare the report (Kaplan, 2011).
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• It is a known fact that no auditor will admit the affair that has been undertaken by him
for the review of financial documents.
Hence it has been stated very important for the management of the organization to
truthfully construct the financial statements of the organization with respect to the
accounting principles. The auditor's duty is limited tell providing opinions on the financial
statements of the organization. It was observed in the Cocacola Amatil that the auditor was
not able to conduct the audit process efficiently. This may have also resulted in negligence
of any kind of frauds or errors that may have been present in the financial statements of the
organization. Therefore, it has been clearly stated that the responsibilities of Management
and auditors are completely different in nature.
The financial statements of the company already constitute of many adequately detailed
information that will be useful for providing notes to the shareholders. However, there may
have been reports which have been kept hidden by the company in order to improvise their
reputation in the market (Lapsley, 2012).
The data about the consolidated groups of the company haven't been highlighted clearly. It
is very important for the organization to reveal all information whether it is small or big in
nature so that it can be analyzed by the investors before making any kind of decisions. The
company has tried to mention many substantial factors which may pose a risk to the
corporate governance structure of the organization which may further help the
shareholders to make adequate and appropriate investment decisions.
Further, it was also observed that the auditors disclosing inappropriate daughters of the
company which may lead to arising an issue in future. This inappropriate data may have
affected the minds of investors because of which the organization's financial support was
disturbed. Several changes were seen in the goodwill of the organization because of the
disclosure of unwanted information. Hence, it can be stated that the auditor may have used
many appropriate data which would have helped to take appropriate decisions by
understanding the performance of the company.
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The efficiency of the information that was disclosed by auditors
The annual report that has been presented by the BHP Billiton cannot state any type of
loopholes which are present in the information disclosed by the auditors and whether it was
materially correct or not. The information provided in the statement for not transparent
because of which they became inefficient. This may have happened because of the fact that
the company was only giving its prime attention on selective matters because of which
efficiency of the statements was hampered (Livne, 2015). The major points that are needed
to be assessed by the investors in order to evaluate a financial statement were not provided
properly because of which proper decision making on the part of users was not possible.
The auditor's attempted to explain and enable the users with the information provided in
the financial statements of the organization. It is very essential for an auditor to record each
and every asset and liability that have been undertaken by the company, whereas is in BHP
Billiton’s case obstacles were found in regard to the information disclosed about the assets
of the organization which may have led to the improper decision making of investors.
Hence, it was observed that many search essential information’s did not properly disclose
because of which proper decision making on the part of users was not being carried out
(Matthew, 2015). This may also lead the users to the part of loss because of which day may
face hindrances in future. Therefore, it is the sole duty of the auditor in order to provide the
users with the best possible financial data which can be assessed by them in order to make
investment decisions that thoroughly analyzed.
Underreporting/missing or information
Many important factors and information are that why needed to be disclosed by the auditor
was kept hidden. The absence of this material information has not only questioned the
integrity of the organization but also hampered the goodwill because of the mishap in the
audit reports. The reputation of the company was questioned after the analysis of missing
footnotes in the financial statements of the organization.
The presence of the note and a footnote that is attached to the auditing report was
appreciated but the company should just not have missed disclosing the material
information in the audit report. It was observed that was farmers Limited have failed to fulfil
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their duty of providing the users with true and ethical financial data which can be used to
carry out the decision making process (Baldwin, 2010). The elaborated disclosures in
relation to the financials of the company help the users to make appropriate decisions for
investment purposes. Many of the material information factors in relation to risk, corporate
governance, sustainability, etc. were mentioned in the audit report of the organization
which can be used by the users in order to fulfil their task of decision making.
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Conclusion
After the clear analysis of the above-mentioned report, it can be stated that the audit
procedure is very important for each and every organization for the purpose of improving
the reputation of the organization. In the case of Wesfarmers Limited, the company was
conducting a very large business because of which the role of the auditor in the financial
management was very immense. After the clear analysis of the report, it can be stated that
the audit process was carried out in effectiveness thereby providing the users with
appropriate information
Questions
 Has the auditor meet all the compliance requirements?
 How the matter related to material events were observed and addressed?
 How has the management faced the compliance needs?
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References
Baldwin, S. (2010) Doing a content audit or inventory. Pearson Press.
Cocacola Amatil. (2017) Coca Cola Amatil 2017 annual report & accounts. Available from:
https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-
Report-2017.ashx [ Accessed 18 September 2018]
Gay, G. and Simnet, R. (2015) Auditing and Assurance Services. McGraw Hill
Geoffrey D. B, Joleen K, K. Kelli S. and David A. W. (2016) Attracting Applicants for In-House
and Outsourced Internal Audit Positions: Views from External Auditors. Accounting
Horizons. [online] 30(1), pp. 143-156. Available from https://doi.org/10.2308/acch-51309
[Accessed 18 September 2018 ]
Hoffelder, K. (2012) New Audit Standard Encourages More Talking. Harvard Press.
Kaplan, R.S. (2011) Accounting scholarship that advances professional knowledge and
practice. The Accounting Review [online]. 86(2), pp. 367–383. Available from
https://doi.org/10.2308/accr.00000031
Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative
Research in Accounting & Management. [online]. 9(3), pp. 291-292. Available from
https://doi.org/10.1111/1468-0408.00081
Livne, G. (2015) Threats to Auditor Independence and Possible Remedies. [online] Available
from: http://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-
independence-and-possible-remedies?full [Accessed 18 September 2018]
Matthew, S. E. (2015) Does Internal Audit Function Quality Deter Management
Misconduct?. The Accounting Review. [online]. 90(2), pp. 495-527. Available from
https://doi.org/10.2308/accr-50871 [Accessed 18 September 2018]
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