Auditing and Assurance Assignment on Woolworths Company

This report is an auditing and assurance assignment on Woolworths Company. It covers ASA 315, understanding the entity and its environment and assessing the risk of material misstatement. It also discusses the risks associated with expense accounts and how to minimize them.

WOolworthS Company
Auditing and Assurance
Assignment -D
Name of the Author

Table of Contents
INTRODUCTION.................................................................................................................................1
PART 1 AND 2.....................................................................................................................................1
ASA 315: UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT AND ASSESSING
THE RISK OF MATERIAL MISSTATEMENT..............................................................................1
PART 3..................................................................................................................................................5

INTRODUCTION
A company that operates in a society and is publicly traded is required to get its
accounts scrutinised periodically from time to time as required by the owners. For this
purpose, an auditor is appointed by the owners, i.e. shareholders, to audit and report on the
working of the company and tells about the true and fair state of affairs of financial position
and financial performance. Auditing is the process of independent examination and
evaluation of books of accounts, vouchers, entity’s control environment etc by an unbiased
person with a view to give an opinion over its truthfulness and fairness. In the ongoing report,
the company chosen is Woolworths Group. The company is a retail business giant and carries
on business throughout Australia and New Zealand. Their mission is to deliver the best
experience and quality to its customers. They have served successful business partners to
thousands of manufacturers and farmers.
PART 1 AND 2
ASA 315: UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT AND
ASSESSING THE RISK OF MATERIAL MISSTATEMENT
As per this auditing standard the auditor, before commencing any audit, is required to
understand the entity’s internal environment, which enables him to asses the level of risk of
material misstatement existent in entity (Woolworths Group Limited 2018). The main
responsibilities of the auditor apart from assessing the environment includes, discussing with
engagement team the susceptibility of material misstatement in entity’s financial reports,
understanding entity’s internal control components, identifying areas where substantive
procedures alone won’t be sufficient, communicating with those charged with governance the
observed weaknesses in internal control and outlining the documentation requirements
(Vîlsănoiua, and Buzenche (Matei), 2014).
Key assertions are another name given to audit assertions. These are basically the
implied or unambiguous claims and depictions that are being made by the management, who
are in case of every entity responsible for preparation and presentation of financial
statements. Through these claims, management tries to convince readers with the
appropriateness of different financial transactions, assets, liabilities and equity balances. The
assertions can be regarding presentations and disclosures also (Woolworths Group 2016).

Substantive test of detail: the case of applying substantive procedure arises when the auditor
doubts the internal control environment of an entity. These are done in order to eliminate the
risk that auditor suspects about certain assets or transactions or other areas. They may involve
analytical procedures and test of details. Analytical procedures involve forming relationships
and comparisons among different kind of financial and/or non-financial information of the
same and/or different entities. Whereas, the test of details includes performing tasks full of
efforts to gather audit evidence like, observation, reperformance, inspection, external
confirmations (The Institute of Chartered Accountants in England and Wales 2013).
1.
Asset
Account
2(a).
Explanation of why
the account is at
risk
2(b).
Key Assertion
2(c).
Substantive test of
detail
1. INVENTORIES:
AUD 4080.4 million
The inventory is said
to be valued at lower
of cost and net
realisable value.
There is a risk as to
whether the same
process had been
followed or not.
There are chances
that the value of
inventory may not
match with the
physical count of
inventory. There
may lie
overvaluation or
VALUATION: This
key assertion deals
with the value of
assets, liabilities and
equity balances. By
value, it refers to the
appropriateness of
the valuation done.
E.g. in this case the
inventory is valued
at cost, being lower
of cost and net
realisable value.
This valuation is as
per the Australian
accounting standard
AASB 102,
OBSERVATION:
this tool involves,
direct approach of an
auditor, wherein he
himself witnesses
the physical count of
inventory being
made. Therein he
perceives the kind of
documentation done
by the concern’s
employees of the
count made by them
and matches it with
the records
maintained by the
entity in its books of
account. By this he

undervaluation.
There may be risk
related to the control
environment of
entity, i.e. theft or
stealing of inventory
may have taken
place and there is no
awareness in the
entity’s control
environment
regarding that.
Risk may be
associated with the
accounts related to
inventory. The
inventory subledgers
might not match
with general ledgers
(Woolworths
Limited 2015).
“INVENTORIES”. is able to sustain the
inventory ledgers
also.
Other technique
could be inspection,
i.e. vouching and
verifying the bills of
purchase and supply
of inventory. The
inward and outward
bills can be vouched.
Their posting into
ledgers could also be
verified.
2. PROPERTY,
PLANT AND
EQUIPMENT: AUD
8,437.5 million
There is a risk that
the assets that have
been recorded in the
statement of
financial position do
not even exist with
the entity
EXISTENCE: the
key point lies in
checking whether
the assets which
have been shown by
the entity in this
statement of
PHYSICAL
VERIFICATION
AND
INSPECTION: to
eliminate the risk of
the assets being non-
existent on the

(Kristensen, 2015).
Chances of charging
wrong depreciation
amount are high.
Even all the assets
that are possessed by
the entity might not
have been reflected
in the books of
accounts.
Some assets might
have been recorded
in the books, whose
rights are not lying
with the company.
The valuation done
by Woolworths may
be done wrongly.
There are high risks
of undervaluation
and overvaluation.
financial position are
in the possession of
entity as at period
end. This amounts
for looking for the
existence of physical
property of the
assets (Woolworths
Limited 2015).
period end, the
auditor must resort
to physical
verification of
property, plant and
equipment. Under
this, the auditor
needs to physically
examine the
property present in
the company’s
premises to verify
whether they are the
same as mentioned
in the records of the
company. Questions
should be asked
regarding any
discrepancies
noticed and same
should be
documented for
future references
(Woolworths
Limited 2015).
The auditor must
call for written
confirmations from
external parties to
confirm the assets
kept as a security, if

that is so the case.
This above table reflects that company has been facing high in its business which could be
measured by using the Assertion test (Khorwatt, 2015).
PART 3
The ultimate and most superior motive of any business concern is to make profit.
However, profit making involves earning of income and deducting expenses out of the
earnings. This makes the expense accounts a high risk generating area. This is so because
window dressing profits is a common practice nowadays and that can happen both ways,
either by altering incomes high and expenses low or by altering incomes low and expenses
high. It all depends on what the organisation wants to picturize.
Expense account Explanation why a risk Key Assertion
1.ADMINISTRATION
EXPENSES: AUD 3175.7
million
Being a major expense area,
this account is exposed to
various risks. It might
happen that this transaction
is recorded with an intention
of fraud and the expense
recorded is not even related
to the entity. Some vague
cash theft is recorded with
the name of administration
expense (Hay, Stewart, and
Redmayne, 2017).
In order to minimise the
COMPLETENESS: This
expense accounts in value a
figure that nearly matches
with the inventory held by
Woolworths. The
management might have
made a claim regarding the
completeness of this
transaction. But its
necessary to ensure that
whether are the transaction
that involve expenditure on
account of administration
expense have been properly
accounted for in the books

profits with a view to
eliminate taxes, there are
chances of not recording all
the payments done for
administration expenses. A
few transactions might have
been eliminated.
Some human error is also
bound to have taken place,
as its impossible to protect.
High possibilities exist of
recording inaccurate
amounts, i.e. the transactions
might have been recorded
completely, but the amount
might not be accurate
(Deloitte, 2018).
There might exist the case of
overlapping financial years
and due to which some
transactions relating to
administration expense
might have been exposed to
the risk of being recognised
in a period other than the
accounting period of its
accrual (Auditing and
Assurance Standards Board
of accounts of Woolworths
and the tax effect have also
been considered for the
same (Grant Thornton
2017).
One thing that is required to
be kept in mind is keeping
the awareness while
checking for this claim that
the transaction recorded
does relate to Woolworths
only and is a valid
transaction. There is no
forgery in same (Financial
Times 2017).

2015).

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