Auditing Principles in Coca Cola Amatil: Significance and Corporate Governance

This report highlights the importance of auditing principles in Coca Cola Amatil Ltd. It discusses the company's corporate governance principles, key audit matters, non-audit services, and material subsequent events. The report also evaluates the effectiveness of information disclosed by auditors and the distinction between management and auditor's duties. The auditors' failure to disclose material information and under-reporting of information are also discussed.

Coca cola Amatil
Executive summary
Auditors play a very important role in the identification of material risks in the financial
statements so that it can be determined whether the financials of the company depict a true
and fair view of its performance. Further, stakeholders can take effective decisions based on
the audit report and audit opinion offered by the auditors. In other words, users can decide
whether the financials are true to the best of knowledge of directors and management. This
report has highlighted the significance of auditing principles in Coca cola Amatil Ltd. The
company’s corporate governance principles have been highlighted through this report. For
such purpose, its key audit matters and non-audit services have been reflected for better
understanding. In addition, material subsequent events and whether the company has reported
material information effectively or not can also be sought through this report.
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Contents
Introduction...........................................................................................................................................2
Association with the independent requirements..................................................................................3
Non-audit services.................................................................................................................................3
Key audit matters..................................................................................................................................3
Audit committee....................................................................................................................................4
Audit opinion.........................................................................................................................................4
Distinction betwixt management and auditor’s duties..........................................................................5
Material subsequent events..................................................................................................................5
Material details reported by auditors....................................................................................................6
Effectiveness of information disclosed by auditors...............................................................................7
Missing or under-reporting of information...........................................................................................7
Conclusion.............................................................................................................................................8
References...........................................................................................................................................10
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Coca cola Amatil
Introduction
From the financial performance of Coca cola Amatil, it must be noted that the company must
undertake proper internal control measures so that it can outperform its competitors in the
market. Besides, the role of auditors is the prime requirement in this case as they can assist in
identification of material risks in the financial statements so that the organization is
safeguarded from future complications and danger. Based on the annual report, the auditors
have asserted that the company has reflected a true and fair view of its performance and that
includes proper disclosures on non-audit services, key audit matters, and remuneration
segments (Cocacola Amatil, 2017). This can be proved by the fact that the company has
effectively adhered to the requirements of Corporations Act that sheds light on such matter.
Overall, this report can assist in depicting the auditing measures adopted by the company that
further highlights the significance of audit processes in the current scenario.
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Association with the independent requirements
From the company’s annual report, it can be observed that it has functioned in a way that can
address the requirements of all crucial rules and regulations, and that has allowed it to thrive
in the industry. In addition, the company’s accounting standards have been effectively
fulfilled that sheds light on the focus asserted by it towards such compliances. Moreover,
there was no independent needs that was not addressed by the company. This was also
highlighted in the annual report of the company and the auditors have approved of the same.
Nevertheless, the compliance with Corporations Act 2001 makes it clear that the company
has portrayed a true and fair view of its financial performance to the users.
Non-audit services
The company’s audit team has provided some non-audit services in addition to the auditing of
financial statements. For example, they have assisted in offering in advising legal and ethical
issues that must be addressed in relation to non-audit services. The company has also
assessed its committee of risk management to ensure that an efficient decision-making
measure is facilitated. Nevertheless, the non-audit services that have been offered to the
organization have been effectively reflected in the audit report so that the users can ascertain
what type of services have been offered by the auditors to the company on a whole. Overall,
it must be noted that the compliance with regulatory norms like Corporations Act 2001 can
assist in determining whether the audit and non-audit services are truly disclosed or not
(Cocacola Amatil, 2017).
Key audit matters
The intangible assets value of the company in the current scenario reported at $929.3 million.
Moreover, its goodwill reported at $147.5 million and its value of trademark reported at
$13.8 million. Furthermore, other assets of the company consisted of $2.5 million value that
were held together in its financials and as a result, reported a total of $1093.1 million.
Moreover, all such assets consisted of more than eighteen percent of the net assets prevalent
in the balance sheet (Cocacola Amatil, 2017).
It is also clearly visible in the company’s financials that all the expenses of impairment in
relation to intangible assets including other assets must be effectively corrected and noted
with the assistance of CGU (cash generating units). Assumption and estimation of
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information must also be made in association with the cash flows of future so that the
objectives and motives can be efficiently satisfied. Nevertheless, the audit procedure of the
company also comprises of ascertainment of various cash generating units that can be utilized
in the model of impairment to finalize the assets and liabilities’ carrying values (Elder,
Beasley & Arens, 2010). Moreover, the mathematical appropriateness of the framework of
cash flow is also relevant because it comprises of effectiveness of significant information that
will be offered to the investors and board so that there is accurate forecast of future and
analysis of motives of cash flow can be facilitated as well.
Audit committee
The audit committee of the company has framed an effective analysis in relation to the non-
audit services that have been offered by the auditors so that their integrity and objectivity can
be enhanced. Further, the company has also made proper data evaluation so that it can be
assured whether any destruction to the efficiency of corporate governance has occurred
owing to the adoption or facilitation of non-audit services (Gay & Simnet, 2015).
Nevertheless, it must be properly accounted that interrogating the effectiveness and honesty
of auditor cannot be regarded as an appropriate act on the part of the company.
Audit opinion
The auditors of the company have offered an unqualified opinion in relation to the financial
statements. However, the report framed by the auditors cannot be regarded as valid or
appropriate in nature. The reason behind this can be attributed to the fact that no proper
details were disclosed that cannot assist the users in their decision-making process. Hence, it
is the primary duty of auditors to evaluate every aspect of financial statements of a company
so that no material aspect is disregarded and truthfulness of financial performance can be
attained (Cocacola Amatil, 2017). Therefore, it can be noted that the auditors failed to depict
the audit reports properly and that can create confusion and complications on the part of users
in their effective decision-making processes.
In contrast to this, it is also notable that the auditors have intended to represent proper
descriptions for all procedures that have been performed by the company in association with
the audit measures that can be helpful for the users in their decision-making processes.
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Distinction betwixt management and auditor’s duties
The prime duty of an auditor is to facilitate audit of the company’s financial statements so
that an audit opinion can be framed whether the details are true and fair or not. Furthermore,
such financials are managed and prepared by the management and thereafter, audited by the
auditors (Mock et. al, 2013). Moreover, the auditor is offered the responsibility of effectively
evaluating the company’s financials so that users can make proper decisions based on the
same. Besides, any kind of flaw or error that is prevalent in the financials must be identified
by auditors and thereafter, represented for authenticity so that a fair information can be
offered to the investors and customers (Cocacola Amatil, 2017). The primary responsibility
of management is to implement and organize functions of control within the organization that
can assist the business in processing and recording of transactions that can further assist in
reflecting effective financial statements. Nevertheless, a direct control has also been offered
to the management so that liabilities and assets’ realization can be facilitated properly.
However, the auditors is only provided with the information so that he can review them and
verify whether risks are prevalent or not (Geoffrey, Joleen & David, 2016).
Material subsequent events
It has been effectively disclosed in the financials of the company that the revenue recognition
in association with the sales will be conducted after an efficient evaluation over the
ownership of rewards and risk of goods that have been passed to consumers and the net
revenue has been measured on a dependent basis (Hoffelder, 2012). Further, the net revenue
is attained based on promotional allowances and rebates that are owned by the company to
the consumers as per the contractual agreements framed betwixt them. Nonetheless, the
procedure or measurement or recognition of these promotional and rebate allowances is very
crucial for the company because it assists both parties to claim their own values. Further, it is
relevant for investors to evaluate the net organizational revenue that makes it beneficial for
the audit procedure to convey the exact value to investors (Coram, Mock, Turner & Gray,
2011). In addition, the procedures of audit of the company also comprised of effectiveness of
its accounting policies and estimates in association with its revenue recognition principle
based on promotional allowances and rebates that were offered. The company has also
depicted a comprehensive statement of income that can be utilized to assess the control
processes prevailing within it (Matthew, 2015).
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Material details reported by auditors
The aggregate evaluation of the company’s audit report has represented that the auditors have
been incapable of depicting all crucial details that has facilitated in the absence of significant
details from the company’s financial statements. Furthermore, proper labelling was failed to
be performed owing to material influence in the audit report and the overall financials that
altogether affected the decision-making process of users. However, still they have attempted
in presenting various footnotes that can be referred by users in their decision-making
processes (Cocacola Amatil, 2017). Overall, it is complicated for the users of financial
statements to rely on the audit report because of the prevalence of inappropriate methods
utilized to prepared the report.
It is a matter of fact that no auditor can acknowledge the activities that has been facilitated by
them for conducting the audit of financials. Therefore, it is relevant for the management to
construct the financials based on sound principles. Moreover, the auditor’s duty is restricted
to offering suggestions on the financials. In relation to Coca cola Amatil, it can be noted that
the auditor remained incapable of undertaking the audit process properly. This might have
generated errors or flaws in the financials of the company and hence, the management and
auditor’s duties are distinct in nature (Kaplan, 2011). The company’s financials comprise of
various information that can be beneficial for offering notes to the users. In contrast to this,
there are reports that have been concealed by the company to enhance their image in the
industry. The information about company’s consolidated groups have also not been reflected
effectively and thus, it is crucial for the company to reflect all details properly so that it can
be evaluated by investors in their decision-making processes (Cocacola Amatil, 2017).
Various significant factors have been highlighted by the company even though these can
generate a negative impact in the financial performance. This was done to allow users make
proper decisions based on such information (Lapsley, 2012).
Overall, the auditors have been negligent in disclosing proper information regarding many
segments that can create future complications. Besides, various variations could be visible in
the company’s goodwill owing to the disclosure of undesired information (Carcello, 2012).
Therefore, it can be stated that auditors might have utilized effective information that could
have assisted them in taking proper decisions by evaluating the company’s performance.
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Effectiveness of information disclosed by auditors
The annual report of Coca cola cannot represent any gaps that are prevalent in the details
disclosed through the auditors and whether they are materially appropriate or not. Further, the
information offered in the statements are not transparent that deteriorates their effectiveness.
The reason behind this is because the company had exerted significant focus on selective
issues and discarded many relevant topics. Nonetheless, the prime issues that must be
evaluated by investors to assess financial information are not disclosed properly owing to
which decision-making ability of users can be hampered on a whole (Blay et. al, 2011).
Moreover, endeavour on the part of auditors to enable and assist users with the offered
information in the organization’s financials can be seen (Livne, 2012). However, it is very
crucial for them to record every liability and asset that have been conducted by the company
but in the case of Coca cola, various issues were prevalent in relation to the details disclosed
by the auditors. This can altogether hamper the decision-making ability of users that is a
negative indicator. Therefore, it can be observed that various significant details were missing
from the information disclosed by the auditors (Baldwin, 2010). This can result in misguiding
users that can create future issues for the entire company on a whole. Hence, it is crucial for
the auditors to offer the users with the best feasible information that can be evaluated by them
to make investment decisions.
Missing or under-reporting of information
Many information and factors are present that represents why the auditors have been
negligent in the disclosure of material information. The absence of such significant details
has not interrogated the organization’s integrity but also deteriorated its reputation in the
industry (Manoharan, 2011). Moreover, the company’s goodwill was interrogated after the
evaluation of missing footnotes in their financial statements. The presence of footnotes and
notes in the financial statements that is annexed to the auditing report has been appreciated
but the organization must not have missed disclosure of material information in the report.
Therefore, the company has failed to address the obligation of offering users with ethical and
true financial information that can be used in decision-making process (Kalpan & Williams,
2013). The descriptive disclosures in association with the company’s financials assist the
users in making effective decisions for investment. Much of the factors of significant details
in association with corporate governance, risk, etc were reflected in the audit report that can
be further used in decision-making processes.
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Conclusion
In the light of previously mentioned evaluation, it can be noted that the audit processes of the
company have been adequately reflected. Furthermore, the prime motive of Coca cola to
address the needs of users have been taken into due consideration. Even though there is some
ineffectiveness in the auditor’s information highlighted in the audit report, yet it cannot be
concluded that the users cannot make decisions based on the same. Overall, it can be
recommended that the audit procedure undertaken by the company was efficient, thereby
offering the users with material information. In addition, the company must undertake
remedial measures to get rid of some issues so that its future can be safeguarded for overall
effectiveness.
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Questions that can be asked to the auditors
There are various questions that can be asked to the auditors so that the entire auditing
profession can refer the same for overall effectiveness. These questions are as follows:
a. Have all the compliance requirements been adequately addressed by the auditor?
b. Describe the processes by which the management has been able to encounter the
compliance requirements?
c. How has the matters associated to material subsequent events were taken into due
consideration and identified on a whole?
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a Communication of Risk. Auditing: A Journal of Practice & Theory, 30 (2): 77- 102.
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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 21 September 2018]
Carcello, J. (2012). What do investors want from the standard audit report? CPA Journal 82
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Education, New Jersey: USA
Gay, G., and Simnet, R. (2015). Auditing and Assurance Services. McGraw Hill
Geoffrey D. B., Joleen K., K. K.S., and David A. W. (2016). Attracting Applicants for In-
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Hoffelder, K. (2012). New Audit Standard Encourages More Talking. Harvard Press.
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