Enhanced Auditor Reporting: Analysis of Woolworths Annual Report

This assignment analyzes the effectiveness of enhanced auditor reporting by taking Woolworths as an example. It covers topics like independence requirements, non-audit services provided, key audit matters, audit committee, audit opinion, and material subsequent events.

Audit Assignment

1
By student name
Professor
University
Date: 2nd Sep 2018.
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Executive Summary
This purpose of this assignment is to throw light on the importance and effectiveness of
enhanced Auditor Reporting. To understand this concept better, we have answered a set of
questions, by taking Woolworths and its group of companies as an example. While analyzing the
annual report of the Company, and trying to find whether it has performed well on the
parameters of enhanced reporting, it becomes evident that the auditor’s report has managed to do
fairly well. The information provided facilitates better understanding, from the point of view of
all the stakeholders. I feel that no material information has been left out of the report.
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Contents
Introduction......................................................................................................................................3
Analysis...........................................................................................................................................5
Conclusion.......................................................................................................................................7
References......................................................................................................................................10
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Introduction:
The main aim of the assignment is to comment on the audit planning and all the requirements
that the auditor needs to take into consideration. The auditor needs to check the financial
statements and they should be free from all kind of misstatements. In this case the annual report
of WoolWorths company is downloaded to make throw light on important matter that are related
to the auditors in same way or the manner (Alexander, 2016). The main aim is to judge the audit
report and make that there is transparency in that.
Independence requirements
The principle of “independence” basically means that the audit is performed without being
under the undue influence of any party, including the company with which the audit engagement
takes place. The Auditor needs to exercise his own judgment and professional skills in arriving at
a conclusion (Arnott, et al., 2017). The audit opinion is formed on this conclusion and it should
be unbiased.
Analyzing the annual report of Woolworths, we come across the independence declaration given
by the partners of the auditor, Deloitte Touché Tohmatsu. Complying with the provisions of
Section 307C of the Corporations Act 2001, the Auditors expressly declare that there has been no
contravention of the Act with respect to the requirement of independence. Further, there is not
any deviation from the ethical code of professional conduct, as applicable to them.
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Non-audit services provided
Besides providing audit service, the auditor has also provided some non-audit related services to
the company. These services are in the nature of assistance in accounting and accounting related
matters, due diligence in financial matters, assurance services in the field of debt raisings,
regulatory reviews, tax compliance and other miscellaneous and sundry services. These are
mentioned clearly under the head auditor’s remuneration along with the amount paid for each of
these categories (Belton, 2017). Apart from these, services, both audit and non-audit are
provided to other entities of the group through the international associates of Deloitte Touché
Tohmatsu Australia.
Analysis of the Auditor’s remuneration
Particulars 2017 2016 Difference Percentage
Change
Remarks
Audit or Review of the
financial report
3254 2748 506 18.41 Increase
Regulatory and
Compliance Related
Services
129 239 -110 46.03 Decrease
Other Non-audit Related
Services
421 173 248 143.35 Increase
Tax compliance Services 108 113 -5 4.42 Decrease
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Total 3912 3273 639 19.52 Increase
The table shows that the overall audit remuneration has increased by 19.52 percent, whereas the
constituents show a mixed pattern. Payment for tax compliance services had decreased by 4.42%
which may be because of better tax compliance strategy of the company. The increase in non-
audit related matters, which saw an increase of 143.35 percent tells that matters involving
assistance and advisory service have seen, multiplied (Choy, 2018).
key audit matters, and audit procedures performed
Key audit matters are the matters that in the opinion of the auditor are of utmost important to the
financial statements. The key Audit mattes of Woolworths are discussed in brief in the fore
coming paragraphs.
 Carrying value of BIG W property, plant and equipment: The consolidated financial
statement includes property, plant and equipment of BIG W. These assets are carried on
the balance sheet at a value of $514.3 million. The auditor’s focused on this area because
the determination of the net recoverable value involved a lot of judgments, estimates and
forecasts on the part of the management. Resultantly there exists a certain level of a risk
that the carrying value of the property would not be able to recover the loss. The audit
procedure adopted to respond to this matter involved a mix of all types (Das, 2017).
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Understanding the methodologies involved test of details, whereas evaluating the
Group’s assumption and estimates was analytical in nature. Similarly, verifying the
mathematical accuracy of the cash flow models was a test of balances. Test of controls
was also carried out to understand the assessment of carrying values of the said assets.
 Inventory provisioning: the group under consideration follows a policy of carrying
inventory at an amount that is lower of the cost or net realizable value. As disclosed in
the financial statements, the group had inventories amounting to $4,080.4 million. Since
there are a lot of factors like historical trends obsolesce, sales assumptions, the auditor
put emphasis on assessing the fairness of the same (Erik & Jan, 2017). The audit
procedure adopted in this case is primarily test of controls. However, testing the value on
a sample is test of balances. Analytical procedures were adopted to review the historical
accuracy of making provisions.
 Accounting for rebates: Owing to the size of its business, the Group receives
considerable amount of incentives, discounts and rebates from its suppliers. The usual
practice of recording these items is to reduce the value of inventory or to lower the cost
of sales. The task of gauging the timing of Recognition of these items is highly intricate.
It requires a thorough understanding of the contracts and agreements between the two
parties and also an accurate source of data. It is because of these reasons that the
accounting of rebates forms a key audit matter (Farmer, 2018).
 IT Systems: The IT systems through the Group are multifaceted and there are varying
levels of integration between them. The assessment of the information technology system
therefore forms a vital component of the audit. If we look closely, all the other Ares of
audit are somehow dependent on the IT system (Goldmann, 2016). The audit procedure
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involved discussion with the management, at appropriate levels, an understanding the key
financial processes so that the dependence of the process of financial reporting on the IT
system can be established. Testing the design of the Key IT tools was a substantive test of
detail as well as a test of controls.
Audit Committee
Yes, the group does have an audit committee comprising of five members, including the
chairman, Michael Ullmer. All the members of the committee are non-executive directors,
namely, Gordon Cairns, Jillian Broadbent, Siobhan McKenna and Scott Perkins.
The company has a charter for the audit committee which aims to streamline the behavior, roles
and responsibilities, and duties of the members by setting out the actions or behavior that is
expected of them. The main point of the charter is summarized under the following categories.
 Objectives: The role of the committee is to assist and advise the Board about the
governance framework that is applicable on the company. The role also includes
recommendation with respect to risk management and internal control systems. Other
areas of assistance include compliance, accounting policies and practices, internal and
external audit functions, and the reporting of financial information (Grenier, 2017).
 Authority: Proper Authority is given to the committee to act within the framework
provided by this charter. They are also authorized to have access to the senior
management and the records of the company, without any restrictions being imposed on
them. The Committee is also allowed to have a meeting with the auditors, both external
and internal. This meeting need not be in the presence of a member from the
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management. It can also seek professional help from experts and external parties, as and
when required.
 Composition: The committee is to be formed by a minimum of three directors.
Independent directors should form the majority of the members. The members should
have the ability to read, understand and analyze the financial statements. They should
possess some expertise from the business world. The Chairman shall be an independent
director, who will be appointed by the Board from the Committee’s members.
Appointments and reappointments to the Committee will be determined by the Board
(Jefferson, 2017). The committee shall not have any executive director.
 Responsibilities:
The committee should Evaluate and supervise the crucial corporate policies, including the
Company’s Delegations of Authority.
It should periodically appraise the Company’s corporate governance framework and give
inputs to further strengthen it.
The committee should also recommend to the Board the names of the external auditors
for their selection, appointment and reappointment. It should also have a discussion with
the external auditor regarding the scope of the audit, the audit fees that the auditor wishes
to demand.
The committee shall also serve as a link to synchronize the internal as the external audit
programmers.
It shall also assess the quality and effectiveness of the audit. The committee shall, review
the performance of the auditor on a yearly basis (Kim, et al., 2017).
It shall discuss and resolve the concerns ascending out of the audit report.
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It shall also review the capability of the policies to anticipate and perceive risks.
Other areas of responsibilities are transactions with the related parties, continuous
discloser and internal audit (Charter Audit, Risk Management and Compliance
Committee, 2015).
Audit Opinion
According to the audit opinion, the financial statements and prepared and presented in a way that
represents a true and fair view of the affairs of the group. The financial report also obeys with the
Australian Accounting Standards and the Corporations Regulations 2001.
Directors’ and Management’s responsibilities
Directors’ and Management’s responsibilities
It is the responsibility of the management of the company to make sure that the books of the
company are prepared in such a manner that it gives a true and fair view and it is free from any
kind of misstatements. To prepare this report by adhering to the
Australian Accounting Standards and the Corporations Act 2001 is also the responsibility of the
directors. The directors need to make sure that proper internal controls of the company are in
place and the management is able to take care of that.
It is important that auditor should access the going concern ability of the firm. (Sithole, et al.,
2017).
Auditor’s Responsibilities
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The responsibility of the auditor is restricted to expressing an opinion on the financial reports,
after obtaining reasonable assurance that the reports reflect a true and fair view. The auditor’s
objectives is to obtain conclusive evidence that the financial report is not containing any
falsification of information. It is to be understood here that reasonable assurance is not a
guarantee; it is only an opinion which has been given after exercising professional skepticism
and judgment (Trieu, 2017).
Material subsequent events
The following events took place subsequent to year end in relation to the exit of the company
from Home Improvement Events.
 The Company entered into a Share Sale Agreement (SSA) with Home Consortium
whereby it agreed t to sell its 66.7% share of Hydrox. The SSA included various freehold
trading sites, leasehold sites, and Woolworth was responsile for these master sites.
 Further, Lowe’s shares in Hydrox were traded to a Trust on 4 August 2017; Home
Consortium was the beneficiary to this trust. The shares were sold for a consideration
$250.8 million, as agreed by the two parties. The JVA has been subsequently terminated.
Huge Capital losses after the balance sheet date were a consequence of the decision to sell
Hydrox. After the transaction with the Home Consortium becomes complete, it is estimated that
the capital losses would amount to $1.8 billion. It is believed that there will be adequate capital
gains available in the near future, against which these capital losses would eventually be
adjusted. Therefore the group has not recognized any deferred tax asset in its books (Annual
Report 2017, 2017).
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As an interested third party stakeholder, assessment of the effectiveness of the material
information reported by the Auditor :
The material information given by the Auditor of Woolworth’s Group would enable any
stakeholder to make wise and intelligent financial decision. As an interested third party, I feel
that the information provided in the report is highly effective, especially the information on key
audit matters. The information about subsequent events too gives a valuable insight into
understanding the affairs of the company in a better way. The significant segment wise
performance and disclosure of information, gives out material information as to how each
segment is actually performing (Werner, 2017). An analysis of the same enables me to actually
understand which segment is more profitable, and which is larger in terms of sales volume..
Financial Risk management, which was further divided into market risk, credit risk and liquidity
risk helps in decision making.
Material information which could be missing, under-reported and/or not fully explained or
disclosed in an effective way for the intended users.
The estimates and forecasts made for determining the carrying amount of certain assets,
like property, plant and equipment could have been explained in more detail. Similarly a
disclosure of the underlying assumptions about the provisioning of inventories would have been
insightful.
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Follow-up questions to the Auditor at Annual General Meeting
The audit report gives out all necessary and compulsory information. However there are certain
questions that I would like to ask the auditor. Those questions are listed below
 “Did you come across any matter related to whistleblower matters? If so, what did
the matter relate to, how was the internal investigation conducted and what was the
result of the investigation?”
 “Did you discuss any deficiency in the internal control system with the
management? If yes, what were those deficiencies and why are they not considered
material?”
Conclusion:
Based on these analysis it can be said that the overall audit report has been created in a
transparent manner and there are no errros that are apparent. The auditors of the company have
stated their opinion on all key matters and thus that is very useful for stakeholders.
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References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations.
Decision Support Systems, Volume 97, pp. 58-68.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
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Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis.
Ecological Economics, p. 145.
Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science
Studies, 2(2), pp. 10-17.
Erik, H. & Jan, B., 2017. Supply chain management and activity-based costing: Current status and
directions for the future. International Journal of Physical Distribution & Logistics Management, 47(8),
pp. 712-735.
Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of
Media Ethics, pp. 1-12.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, Volume 4, pp. 103-112.
Grenier, J., 2017. Encouraging Professional Skepticism in the Industry Specialization Era. Journal of
Business Ethics, 142(2), pp. 241-256.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland.
Technological Forecasting and Social Change, pp. 353-354.
Kim, M., Schmidgall, R. & Damitio, J., 2017. Key Managerial Accounting Skills for Lodging Industry
Managers: The Third Phase of a Repeated Cross-Sectional Study. International Journal of Hospitality &
Tourism Administration, , 18(1), pp. 23-40.
Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention
on learning accounting. Journal of Educational Psychology, 109(2), p. 220.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda.
Decision Support Systems, Volume 93, pp. 111-124.
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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