Auditing Reports: A Critical Analysis

The audit reports of Wesfarmers and Telstra Group are similar in nature as they present the auditors' views on the effectiveness of the companies' financial statements, management's diligence, and disclosures. The reports state that the companies have prepared their statements according to international reporting frameworks and provided relevant investor information. The audit opinion is unqualified, indicating that the auditors were satisfied with the companies' financials. However, there are limitations to the audit report, including scope limitations, time constraints, detection risks, and auditor qualifications. The main responsibility of the auditors was to ensure proper bookkeeping, effective internal controls, risk identification, and suggesting improvements to management.

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Date: 03 October ,2017

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Contents
Question 1…………………………………………………………………………………….2
Question 2……………………………………………………………………………………..2
Question 3……………………………………………………………………………………..4
Question 4 ………………………………………………………………….………………..5
Question 5……………………………………………………………………………………..5
Question 6……………………………………………………………………………………..7
Question 7……………………………………………………………………………………..8
Refrences……………..…………………………………………………………................9
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1.The two companies that have been selected for this case study are Telstra Corporation Ltd and
Wesfarmers Limited. A brief overview of both the companies is given below.
Telstra Corporation Ltd is one of the biggest telecommunication Company in Australia. It
provides various mobile and dth services along with other entertainment products and pay television
services. The company has the highest market share in Australia and is now trying to spread its business
to other countries as well (Tysiac, 2017). It is fully privatized and the customer focus is the main aim of
the company. The company is listed on the Australian Stock Exchange and provides employment to large
number of people. There is large number of companies in their business, Telstra has the top position.
The second company is Wesfarmers limited. It is the biggest Australian Conglomerate that is situated in
Perth, Western Australia (Gartland, 2017). The major interest of the company lies in Australia and New
Zealand retail, fertilizers, chemical, safety products, coal mining and other industrial goods and
products. It is the largest Australian Company by revenue and provides employment to a large number
of people round the year. It is listed on the Australian Stock Exchange and also has the highest market
share in this type of industry and is now expanding to other parts of the world also. The company is
performing extremely well in comparison with the other companies that are operating in the same field
of operation (Mayntz, 2017).
2.The annual report of both the company was downloaded and analyzed. In case of Telstra it
was seen that the financial statements of the company was prepared as per the IFRS framework and in
compilation with the given accounting standards and principles. The books of the company are prepared
as per the Corporations Act 2001. The annual reports of the company are audited by the auditors and
they have given a clear report for the same (Belton, 2017). The financial statements of the company
have been prepared accordingly with all necessary disclosures given in the notes of account of the
company. The other company is Wesfarmers; the annual report of the company has been prepared as
per Australian Accounting Standards. The statements of the company have been prepared as per the
IFRS and have given the necessary notes with all the relevant disclosures and details. The books of the
company have been prepared complying with the necessary accounting standards and accounting
policies. The auditor has also given their clear report for the same (Tysiac, 2017). Thus we see that the
annual reports of the company have been prepared on the basis of the same accounting policies and
principles. This lends uniformity to both the statements and hence they can be easily compared with
each other.
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Coming to the performance of the companies in their respective industry on the basis of their
ratio analysis is given below.
Telstra
In case of Telstra it can be seen that the price earnings ratio of the company is very less in
comparison to the industry standards which implies that the overall earning of the company is less, and
the return to the shareholders is not satisfactory when compared with the industry. However the
dividend yield ratio is very good, thus it means that high amount of dividend is paid. Overall the price
sales ratio is constant with comparison with the industry and also the price cash flow ratio is more than
that of the company. However with relation to the industry it can be seen that the performance of the
company is constant, and satisfactory. However it can be seen that the company needs to improve its
overall price earnings ratio. The price book value of the company is almost same as the industry.
The other company is Wesfarmers Limited.
For this company it can be said that the price earnings ratio of the company is better than the
industry. The dividend yield of the company is very good of the company in comparison with the
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industry. This means that the company is paying high returns to the investors for the money that they
are investing in the company. The price sales and the price book ratio of the company is similar with
relation to the industry (Abbott & Kantor, 2017). The company just needs to improve their price book
value of the shares of the company. Overall it can be seen be that the company is doing well and also it
is performing way better then the standards of the industry and hence it is in a better position. The
investors will be attracted towards the company and will be interested in investing in the company and
will earn huge returns from the same. Thus it can be said that Wesfarmers is performing better in
comparison with the industry and in case of Telstra the performance of the company is not up to the
industry standards and they need to work on the same (Tysiac, 2017).
In comparison to each other it can be said that the annual report of Wesfarmers was more
detailed in comparison to Telstra. It includes more insight from the management of the company, the
chairman and the directors. The minor details related to the company are highlighted. The annual report
of the Telstra Company was 191 pages and of Wesfarmers were 144 pages. The financial statements of
the company are more or less similar; it consists of all the necessary disclosures (Alexander, 2016).
However there was lack of uniformity and hence it was not possible to make the comparison very easily.
However it can be said that in case of Telstra the report was more detailed then in case of Wesfarmers.
Both the companies belong to different industries, and they have different particulars and hence both
are different from each other in some or other ways.
3) The Wesfarmers is an Australian Conglomerate that is engaged in the variety of businesses
and thus they have wide objectives and diversified business ventures. The key business objectives
include expansion and entering into business areas where the company sees potential and also
expanding their business to other parts of the world, in which the company is not operating for the
present time (Belton, 2017). The two major inherent risks in this kind of industry is that too much of
diversification may not be useful for the parent company, often companies do not like getting merged
with other companies that are operating in different sectors of the industry. Also it is a tough task to
manage multiple kind of business effectively. Often the top executive who is working in this kind of
industry finds it difficult to manage diversified work because they do not have knowledge about all the
companies. If one company fails it takes great deal of time and energy to save them from flunking
(Bromwich & Scapens, 2016).
The Tesco Corporation is operating in the Telecommunication sector, the main objectives of the
company are to provide fast communication and internet services to the users of the company. The
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company also aims to use better technology that can help in breaking the barriers of the communication
among different parts of the world, and cheap data services can be made available to the people. The
major risks that are associated with the company is that entry and exit is very easy in this kind of
industry in the lower levels of the business (Dichev, 2017). Also it a lot depends on the spending power
of the people whether they want to use this kind of services of not. This is because many users do not
need telecommunication services as a necessity, so if there is recession in the country, the consuming
power of the company users will reduce. This will affect the overall development and growth of the
company. These are the few inherent risk that are associated with this kind of industries in which both
the companies are operating.
4) The key audit strategies and audit tests that has been taken by the auditors of the given
company are-
Audit procedures are the methods that have been applied by the auditors of the company to
judge whether the books of the company are showing a true and fair picture of the company are not.
There are different types of audit procedures that can be applied by the auditor. These processes are
designed by taking into consideration the industry in which the company is operating (Trieu, 2017). The
different procedures include analytical review, investigation, inquiry and observation and few others.
These are carried on extensively to see if there is any mistake in the annual reports of the company and
if the internal control of the management are in place or not. Risk identification and mitigation is also
one of the most important objectives of auditing. The different type of audit control includes valuation
testing, cut off testing, occurrence testing etc (Linden & Freeman, 2017). These are basically test of
control that has been designed to judge the effectiveness of the internal control of the company. It is
important that the auditors must design these tests in such a manner that all errors can be identified
and mitigated by the company.
5) The auditors of the both the company is Ernst and Young. It is one of the big four auditing
firms that has wide scale expertise in providing auditing and consulting services. The audit reports of the
company are more or less similar. The auditors have presented their views and opinions on the
effectiveness of the accounts of the company and whether or not the management of the company has
performed their work with utmost diligence and care (Werner, 2017). The audit report states that the
companies have prepared their statements as per the international reporting framework and have given
relevant disclosures that the investors might require. A clear report has been given from the auditors
and there is no modification in the same. The audit report of Wesfarmers consists of four parts that are
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the report on the financial statements of the company, the director’s responsibility for the audit report.
In this report the auditors have stated that the management of the company have been supportive
enough during the entire course of audit and has provided them with necessary details that the
company might need. The other parts of the report include auditor’s responsibility, a report on the
remuneration of the auditor, and also the auditor’s opinion on the same. The auditor has established
their independence with respect to the audit report of the company. The same is stated in the audit
report of the Telstra Group. The audit reports have been signed by the respective audit partners with a
attached stamp of the company on the same. Since the auditors of the companies are same, the audit
reports are more or less similar and an extract of the same is attached from the annual report of the
given companies.
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The audit opinion is the view point of the auditor on the financial reports of the company.
These reports are issued depending on the findings of the auditor. There are four different types of audit
report are unqualified, qualified, adverse and disclaimer of opinion. In case the auditor is satisfied with
the financials of the company then a qualified opinion is issued. In case the management is not
supportive enough then a disclaimer of opinion or adverse is issued. In case some changes are required
then unqualified opinion is issued. In the given audit reports of the company, the auditors have issued a
clear report stating that the financials of the company are free from all kind of errors and mistakes. It
states that the annual reports of the company are effective and are prepared as per the guidelines
required and contains all the information that might be required by the investors of the company.
6) The limitations of the audit report with respect to the users are given below-
 The scope of audit might be limited by the management. Sometimes the auditors need to work
as per the direction of the management of the company and express the opinion within the
same bracket that has been provided to them. This limits the audit scope and thus all the
important information that might affect the auditor might not be disclosed by them.
 The auditors of the company often face some time constraints that make it difficult for them to
effectively carry out the entire given audit procedures.
 There are few risks that might not be detected by the auditor. These are known as detection
risk. These may occur if the auditor fails to assert necessary level of care and competence while
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conducting the overall audit of the company. Thus strong internal control measures are required
so that such risks can be identified and mitigated.
 Auditors qualification and competence is also an important factor that might effect the overall
quality of audit and also raise a question on the effeciecny of the audit report. Thus it is
important to take care of the same so that the end users of the company gets the best result
7)The main responsibility of the auditors of the two company were-
 To check whether the books of the company are prepared properly and the financial
statements of the company are showing a true and fair view of the overall affairs of the
company and relevant disclosures are given that are helpful to the users of the
company.
 To check whether the management of the company have performed their work and
have installed effective internal control measures that might help in effective
management of the company and its affairs. Strong internal control measures helps in
easy identification of risk and mitigation of the same.
 One of the most important responsibility of the auditors of the company is to make sure
that risk prone areas are checked thoroughly so that any kind of risk that might be there
can be easily detected and removed. Risk identification can be done by applying
substantive and analytical audit procedures of auditing.
 Another important objective of the auditor is to suggest the management ways by
which they can improve their annual reports and can make it more useful for the users
who depend on it to take important decisions with respect to the overall company
affairs. These are the few important responsibilities of the auditors of the company. The
auditors must follow the code of ethics that has been issued and must apply proper
diligence and care while performing the audit. They must follow utmost professionalism
and their audit report must be free from any kind of biasness.
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Refrences
Abbott, M. & Kantor, A., 2017. Fair Value Measurement and Mandated Accounting Changes: The Case of
the Victorian Rail Track Corporation. Australian accounting Review.
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management
Accounting Research, Volume 31, pp. 1-9.
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Gartland, D., 2017. The importance of audit planning. Journal Of Accountancy.
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business
Ethics Quarterly, 27(3), pp. 353-379.
Mayntz, R., 2017. Networked Governance. s.l.:Springer.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda.
Decision Support Systems, Volume 93, pp. 111-124.
Tysiac, K., 2017. Rulemaking gives auditors a chance to provide more insight. Journal of Accountancy.
Tysiac, K., 2017. Tactics for driving quality in a single audit. Journal Of Accountancy.
Werner, M., 2017. Financial process mining - Accounting data structure dependent control flow
inference. International Journal of Accounting Information Systems, Volume 25, pp. 57-80.
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