Audit, Assurance and Compliance of Harvey Norman Company

This report focuses on the auditor’s functions, responsibilities, undertaken work and auditor’s opinion and material subsequent events of selected Harvey Norman Company. It covers topics such as auditor's independence, provision of non-audit services, auditor remuneration, key audit matters, audit committee and audit charter, structure, functions and responsibilities of Harvey Norman Company, audit opinion, and difference between the responsibilities of management and auditor.

HI6026 Audit, Assurance and Compliance
Trimester 2 2018
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EXECUTIVE SUMMARY
Audit and assurance has been gaining momentum throughout the time to increase the
effectiveness and transparency of the financial statement prepared by company. The audit
process is used to analysis the whether company has been revealing the true and fair view of
the recorded assets and liabilities in its books of account. This report focuses on the auditor’s
functions, responsibilities, undertaken work and auditor’s opinion and material subsequent
events of selected Harvey Norman Company.
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Table of Contents
EXECUTIVE SUMMARY...........................................................................................................................2
INTRODUCTION.....................................................................................................................................4
AUDITOR’S INDEPENDENCE..........................................................................................................4
PROVISION OF NON-AUDIT SERVICES.........................................................................................5
AUDITER REMUNERATION.............................................................................................................5
KEY AUDIT MATTERS......................................................................................................................6
AUDIT COMMITTEE & AUDIT CHARTER.....................................................................................7
STRUCTURE....................................................................................................................................8
Functions and responsibilities of Harvey Norman Company.............................................................9
AUDIT OPINION.................................................................................................................................9
DIFFERENCE BETWEEN THE RESPONSIBILITIES OF MANAGEMENT AND AUDITOR.....10
Auditor’s responsibilities.................................................................................................................10
Director’s responsibilities................................................................................................................10
MATERIAL SUBSEQUENT EVENTS..............................................................................................10
CONCLUSION...................................................................................................................................11
REFERENCES....................................................................................................................................12
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INTRODUCTION
The international auditing and assurance board has issued several audit and assurance
rules and standards which need to be complied by the listed company to keep the business
more transparent to its stakeholders. The auditor The Ernst & Young has stated in its report
that company has disclosed all the material information in its note to disclosure. This report
assists in identifying the rules and accounting standards which company failed to comply.
The auditors of company are working in the fiduciary position towards its stakeholders.
Therefore, it is their responsibility to keep the financial and business information more
transparent towards the stakeholders. It is necessary to provide the proper and clear
information to the stakeholders if company wants to keep its business more transparent to
them. These requirements are for the enhancement of transparency and value of information
of auditor’s report. All the stakeholders are required to be informed through the annual report
of the company and the same would be audited by Auditors. All such information is related to
the auditors and the audit reports of the company. The Ernst & Young is the auditor of
company who has been implementing the audit and assurance program for evaluating
whether company has complied with the applicable international financial accounting
standards. These reports showcase how Enhanced Auditor Reporting is being embraced in
Australia to disclose the fair view of the assets and liabilities to the stakeholders
The auditor The Ernst & Young has given non-qualified audit report with some disclaimers.
These disclaimers are given to identify the failure of company to comply with the certain
rules and accounting standards (Harvey Norman Holdings Limited., (2016).
AUDITOR’S INDEPENDENCE
Harvey Norman Holding Company is listed company which is offering the retail
services to its clients. The auditor of Harvey Norman Holding Company is Ernst & Young
who has been auditing the financial statements of company so that it could identify errors and
frauds of the company. The Auditing standards of Australian Securities and Investment
Commission lay down certain principles in its different-different legislations for the
independence of the Auditors. Maintaining independence will create a relationship between
client and auditor. There are some areas where auditor should be aware and implement his
appropriate responses. These areas are in the form of some conflict of interest situations like
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specific relations of audit or auditor team and audited entity. There are few general
requirements like provision of non-audit services in which auditor should be aware of the
situation. He must be diligent in evaluating and identify the threats to independence and
apply appropriate safeguards. Audit need to submit a financial report in which he is required
to declare that there has been no contravention of auditor independence or the code of
conduct (Harvey Norman Holdings Limited., (2016).
Source: http://www.taxscan.in/qualifying-note-auditor-ground-treat-factual-finding-absurd-delhi-
hc/28418/
PROVISION OF NON-AUDIT SERVICES
All the audit and non-audit services provided by the auditors should be disclosed in
the audit report of company. These annual reports should contain all the information
regarding the remuneration that needs to be paid to the auditors, any non-audit services of the
entity, formation of the committees regarding audits with their audit charters, opinions of
auditors, the matters highlighted by the auditors. As per the annual report, auditors have
provided the tax compliance services and insurance services to company worth AUD $
205.32 million as non-audit services. The provision of the non-audit services are made to
increase the effectiveness of the reporting frameworks. This report will highlight the
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independence of the auditors, auditing functioning and their non-audit services. All the audit
functions and other material information which is to bifurcate the key audit matters and
responsibility of auditors (Harvey Norman Holdings Limited., (2016).The provision of the
offered non-audit services has been done in accordance with the Australian Auditing
Standards (Halligan, 2017). The non-audit services which are rendered to fully exploit the
potential of auditors and it do not undermine the principles of auditor’s independence set out
in code of ethics. This is just as a professional aid from the auditors on some non-audit
matters. Non-audit services such as tax compliance and others are legally complied with the
principles of APES 110 code of Ethics for Professional Accountants in relation to the
independence of the auditors (Tepalagul & lin, 2015).
AUDITER REMUNERATION
It is analyzed that the remuneration of the auditors includes payment made to auditors
for auditing and non-auditing services. Apart from offering the audit remuneration provides
to auditors, company has been offering remuneration to audit committee. The remuneration
that has to be paid to the auditors including the lead auditors which is comprised of his audit
services and non-audit services (Mishra & Malhotra, 2016). The below given table reflects
the remuneration paid to auditors for auditing and non-auditing services (Harvey Norman
Holdings Limited., 2016).
Auditors remuneration given to
Ernst & Young
JUNE 2017
($)
JUNE 2016
($)
% change
1. The audit services for
evaluating and assessing the
financial statement of company
195.56
million
170.45
million
14.39%
Tax and legal compliance
services offered to company for
set up strong harmonization in
its reporting frameworks.
207.75 191.45 7.67%
3. Other non-audit services 71.75 11.64 -38.21%
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offered to comply with the
provisional requirement
million million
KEY AUDIT MATTERS
This company has one audit committee in which 1/3rd of the auditors are independent
and having no material relation with company. The independence of company is shown in the
annual report of company to showcase that they have no relation with the company and they
work in the best interest of the stakeholders (Bell, Causholli, and Knechel, (2015). The
independence of Ernst & Young is one of the eligibility criteria for auditing the financial
statement of company. Auditors need to consistently disclose the independence with the
annual report. The certain key audit matters would be disclosed in the annual report of
company. The below given table reflects the key audit matters undertaken by the company in
its annual report. The decision is made in light of the undertaken audit procedure (Cohen, and
Simnett, 2014).
KEY AUDIT MATTER AUDIT PROCEDURE
PERFORMED
CLASSIFICATION OF
AUDIT PROCEDURE
1. Assessment to control the
audit
The auditors will analysis the
financial statement and by
using the audit risk model it
will evaluate the detention
risk, audit risk and control
risk which might face by
company in the preparation
of the financial statement.
Assertion test and
observation test would be
used
2. Recovery from the debtors This will set up certain Assertion test would be
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and provision of doubtful
debts
criteria which will be helpful
in setting up the limit and
certain limit which would be
used by the auditors to set up
the auditor’s compliance
program.
implemented.
3. Valuation the assets and
liabilities
Use of the impairment test
and evaluation of the
impairment loss computed by
company as per the AASB
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Analytical Procedures
Substantive test of details
AUDIT COMMITTEE & AUDIT CHARTER
Audit committee was established by the Chairman of Australian Securities and
Investment Commission in compliance with section 45 of the Public governance,
performance and Accountability Act 2013 and for commonwealth Entities in Section 17. The
role of the committee of Harvey Norman Company is to provide assurance to the Australian
Securities and Investment Commission’s chairman on the responsibilities relating to
financial, reporting of performance, oversight risk, management and internal control system
(DeFond, and Zhang, 2014). The committee of Harvey Norman Company is responsible for
the advisory functionaries and its formulation in a constructive and professional manner not
the executive management. Members of the committee are responsible to act in the best
interest of the entity by using their good judgement, skills and management. Members can
express their opinions openly and raise issues related to the committee. The Audit charter of
Harvey Norman Company is a blueprint of the committee’s operations. This charter is made
to mention the Harvey Norman Company need, objective and culture and fulfil them with its
operation. It is clear chart to show the role and responsibilities, structure, membership,
authority, process, composition and procedures which is approved by the board. A combined
audit and risk committees can be established for the smaller corporations in Harvey Norman
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Company. It gives the responsibility to oversee and monitor the functions of the company
(Bohm, Bollen & Hassink, 2016). Harvey Norman Company has both audit committee and
audit charter in its audit structure. The audit committee is made of the 1/3rd independent
auditors and rest are the internal auditors of company (Simnett, Carson, and Vanstraelen,
2016).
STRUCTURE
An audit committee is made up with all the board of directors in a delegated authority. It has
essential role to play for the transparency and integrity of the Harvey Norman Company. The
chart of the Audit committee helps in understands the role and responsibilities of the
committee members. The objectives of the company are mentioned in the charter of the
company. The fundamental component of good corporate governance is an independent audit
committee. The non-executive and executive auditors determine the structure of the audit
committee. Auditors of the Harvey Norman Company are responsible for the proper
harmonization between the domestic and international accounting standards. They are
responsible for the analysis of annual report of the company. Committees are made up on the
basis of its size and operations like a larger entity establishes more than one committee as risk
and compliance committee, health and safety committee, environment and audit committee
depend on the nature of the entity (Lisic et. Al., 2016).
The audit structure and committee formation of the Harvey Norman Company has been
determined on the basis of the corporation act and listing rules and regulation of company
(Louwers, et al. 2015).
Chairman of Harvey Norman Company- Graham Charles Paton
Solicitor of Company- Christopher Herbert Brown
Accountant of the Harvey Norman Company- Kenneth William Gunderson-
Functions and responsibilities of Harvey Norman Company
Audit committee has responsibility towards internal and external audit of the
corporations and some non-audit works also. In its internal work, there is financial reporting
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and internal risk and control management. In its financial task it reviews the financial issues
and reporting them to the higher authority. Reviewing the processes of management and
ensure its compliance with the laws and regulations. Review the external auditors and find
any difficulty encountered with it. It reviews the annual financial report of the company. It
assesses the internal process to determine and manage the key risk areas in the internal
process. They ensure that the company’s risk management system is complying with the
laws, standards and guidelines. They address the effectiveness of the internal control system,
performance management and risk management system with internal and external auditors. It
recommends and decides the appointment, removal and remuneration of the independent and
external auditors (Khelil, Hussainey & Noubbigh, 2016).
AUDIT OPINION
The financial statements and audit procedures are made according to the provisions of
Corporations Act 2001. The regulations are given by the Australian Standards and the
Corporations Regulations 2001 which are followed by the committee (Simnett & Huggins,
2014). As per the audit report given by auditors, company has received non-qualified audit
report which helps in identifying the fact that company has complied with the all the
applicable laws and regulations. Company has strong financial position and would have
sustainable business practice (Knechel, and Salterio, 2016).
DIFFERENCE BETWEEN THE RESPONSIBILITIES OF MANAGEMENT AND
AUDITOR
The management and auditors both are doing their separate tasks in company. The
management of company is to help accountants to prepare the financial statements of
company as per the applicable accounting standards and laws. It is the duty of the
management to ensure that there is enough control on the entity and it will have sustainable
business practice. The main reason of keeping the differences between the auditors and
accountant is based on the increasing effectiveness of the transparent view point of the
prepared financial statements (Chan, and Vasarhelyi, 2018).
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Auditor’s responsibilities
The auditors are engaged in identifying the fact that whether company has made any
discrepancies and issues in preparing the financial statement. They also act in the best interest
of the stakeholders as they stand in the fiduciary position towards the stakeholders not
company ((Harvey Norman Holdings Limited., (2015). The Auditor’s responsibility is to
identify the inherent, control and detention risk of the organization which might be faced by
company while formulating the financial statements.
Director’s responsibilities
The directors are the true drivers of company and all the employees and accountants
are accustomed to act in the best interest of stakeholders. It is their responsibilities to act in
the best interest of the organization and keep the business more sustainable in long run (Chen,
Srinidhi, Tsang, and Yu, 2016). Directors should also evaluate whether the resources of
company is being deployed in effective manner or not. He will be responsible to take all the
strategic decisions and keep the business more sustainable in long run.
MATERIAL SUBSEQUENT EVENTS
There are several material subsequent events shown in the annual report of company.
The sudden decrease in its profitability has also happened due to the negative market
condition. The strategic alliance to enhance its backward integration has also increased the
cost of capital for the initial time period which will lower down the return available to equity
shareholders. Company has also proposed its investment plan to increase its market operation
which will help it to increase the turnover and market share. It has also changed its auditor in
last year and hired E&Y as its auditor to audit its financial statements.
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CONCLUSION
The audit report of Harvey Norman has been showing that company has complied
with the applicable laws and regulations. However, as per the audit report, there is no
discrepancies have been made by company while formulating the financial statement and also
complied with the applicable laws. In context with the audit, the non-audit services which are
rendered to fully exploit the potential of auditors and it do not undermine the principles of
auditor’s independence set out in code of ethics which assists in keeping the transparent view
of the recorded books of account of company. The crux of this report is that auditors act in
the best interest and benefits of the stakeholders and shareholders so that they could use the
true and fair view of the financial statements to make their investment decision. Auditors
needs to analysis that financial statements should be prepared by following the proper
accounting standards and laws. Auditors should also be diligent in evaluating and identify the
threats to independence and apply appropriate safeguards. Furthermore, auditors also need to
disclose independence of the auditors, auditing functioning and their non-audit services
provided to company.
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REFERENCES
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Böhm, F., Bollen, L. H., & Hassink, H. F. (2016). Audit committee charter scope:
Determinants and effects on audit committee effort. International Journal of Auditing, 20(2),
119-132
Chan, D.Y. and Vasarhelyi, M.A., 2018. Innovation and practice of continuous auditing.
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Chen, L., Srinidhi, B., Tsang, A. and Yu, W., 2016. Audited financial reporting and voluntary
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DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of
Accounting and Economics, 58(2-3), pp.275-326.
Halligan, J. (2017). Reform design and performance in Australia and New Zealand.
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Harvey Norman Holdings Limited., (2015). Annual report. Available at
http://www.harveynormanholdings.com.au/reports-announcements-1/., Accessed on 19th June
2018
Harvey Norman Holdings Limited., (2016). Annual report. Available at
http://www.harveynormanholdings.com.au/reports-announcements-1/., Accessed on 19th June
2018
Harvey Norman Holdings Limited., (2017). Annual report. Available at
http://www.harveynormanholdings.com.au/reports-announcements-1/., Accessed on 19th June
2018
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Khelil, I., Hussainey, K., & Noubbigh, H. (2016). Audit committee–internal audit interaction
and moral courage. Managerial Auditing Journal, 31(4/5), 403-433.
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