Audit & Assurance: Materiality, Analytical Procedures & Remuneration

This report presents a comprehensive analysis of audit and assurance principles, divided into three key sections. The first section focuses on the case study of Cloud 9 Pty Ltd, detailing audit planning considerations for W&S Partners and calculating overall materiality based on net assets. The second part describes the analytical procedures applied to Cloud 9 Pty Ltd's financial statements, highlighting potential risk areas related to accounts receivable, property assets, and marketing expenditures. It also suggests steps to mitigate these risks. Finally, the report concludes with an examination of executive remuneration structures in ASX-listed companies within the retail industry, specifically Wesfarmers, Woolworths, and Caltex, discussing base salaries and compensation practices in light of corporate governance provisions and the Corporations Act 2001. Desklib offers a variety of solved assignments and study resources for students.

Running head: AUDIT AND ASSURANCE
Audit and Assurance
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1AUDIT AND ASSURANCE
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Part A.....................................................................................................................................4
Materiality..........................................................................................................................4
Part B......................................................................................................................................5
Analytical Procedure..........................................................................................................5
Part C......................................................................................................................................7
Remuneration.....................................................................................................................7
Compensation.....................................................................................................................8
Reference..................................................................................................................................10
Appendix:.................................................................................................................................11

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Executive Summary:
The report is divided into three parts. The first and the second part is based on the case study
of Cloud 9 Pty. Ltd. The report is commenced on the audit planning for the audit firm W&S
Partners. The report gives the calculation of overall materiality including stating the reason
for it. In the second part analytical procedure is described. Lastly, the report is concluded on
the remuneration structure of the listed companies. For this three companies that are listed in
the ASX exchange are Wesfarmers, Woolworth and Caltex ltd are from retail industry.

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Introduction
Auditing is the process or quality procedure to inspect or examinee in order to ensure
that the company has met the compliance requirement. To provide fair and true view opinion
auditor shall inspect the records of accounts, sales invoice any other statutory requirements
that has to be met by the company. Auditing is conducted by the independent auditor or team
of auditor those are qualified as chartered accountant. To put down his or her opinion on
verification of inspection of done on the basis of books of accounts and the monetary
statement auditor authentically check the support documents very well.

4AUDIT AND ASSURANCE
Discussion
Part A
Cloud 9 Pty Ltd was founded by R.A. McLellan at Sydney in the year 1980. The
company belonged to manufacturing as well as retailing industry. The company dealt in
manufacturing as well as retailing of special type of basketball shoes. The company was a
parent and had its subsidiary company in Brazil, Canada, Germany and China also. Through
providing comfort and durability shoes to the public of the countries it served it succeeded in
building up its reputation. The company had rhymed the comfort of its shoes with its name.
The tagline of the company was “ Our shoes was so comfortable, its feel like we are working
on cloud 9”. Recently the company is a wholesaler of athletic shoes to its priority consumers.
In the year 2014, the company had manufactured its new product line named as Walk on
Cloud. The company purchases its stock in Us Dollar.
Materiality
The conception of materiality is narrowly related to the auditor’s attention of the side
by side of audit risk. The process of setting the level of risk while performing audit is based
on the inspection of the materials that is being misstated or is not been corrected by the
internal control system of the auditor`s clients. As soon as auditor identifies or assess the
materiality in the fiscal statements, auditor is required to plan for materiality. The materiality
amount should be higher than the performance materiality. Planning materiality must be
larger than performance materiality. The reason is because materiality sum belongs to fiscal
statement and performance materiality is the misstatement that is subjected to occur in the
statement. The materiality is calculated on the base of certain qualitative factors. There is a
basic threshold limit for calculating the materiality.

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Overall materiality is the opinion base for an auditor as because that helps auditor to
points out the importance factor that is presented in the statement as on whole. To the point
that manipulates the decision of an investor. It is assessed as portion of the preparation of the
audit as well as return to and reviewed all over the audit procedure. Usually, it will be
considered by applying a proportion to a selected standard such as Profit before Tax or net
assets. The auditor essentially prove decision in choosing the overall materiality level.
The overall materiality calculated for Cloud 9 Pty. Ltd is on Net asset because the
revenue earned by the company is basically from the asset of the company. The overall
materiality resulted to $ 1,61,77,562.50 (Appendix-1)
Part B
Analytical Procedure
To review the financial statement of the company the frequently used too is ratio
analysis that is known as the analytical tool. The tool signifies the health of the financials of
the company. Same tool is used to review the financial health of Cloud 9 Pty Ltd. In this part
the risk that is involved with company is well discussed. In the case study some areas are
found to be under error zone as well as at risk. The steps to eliminate or decrease the error
that is found in the report is being discussed below.
Account
Head
Evaluation/ Analysis Auditing Risks Steps for Eliminating Risks
Accounts
Receivables
The quantity due to the
business by the clienteles
and consumers of the
corporation. The sum
The corporation
contract as well
as goods are
retailed
The business risk of the
company is high the auditor
need to carefully reevaluate
the amount of sales and the

6AUDIT AND ASSURANCE
characterize the sum for
which imbursement is so far
to be acknowledged by the
business. The Days of
Accounts Receivable for the
company is about 116.64
days.
underneath the
credit auctions
method to its
consumers. The
business risk of
the corporation is
high in this
regard.
amount of debtors it is able to
realize. The auditor requires
to cautiously identify
dissimilar modules of the
explanation and arrange for
materiality concerning the
similar.
Property
Assets
The ratio for return on
property assets indicates the
competence in the
consumption of the assets
of the corporation. The ratio
for the company in the year
2016 is about 0.3% that has
revealed expansion on or
after the previous year data
of about -0.87%
The important
risk related with
such kind of asset
group is
concerning the
assessment of
assets and
appropriately
identifying of
assets.
The significant step tangled in
this kind of reviewing would
be to decrease the auditing
difficulty by starting a mutual
economic head and recording
classification. The auditor
essentially also exploit all the
leased assets of the firm that
is categorized as functional
leases. The capitalization of
the similar would give an
accurate and reasonable
opinion of the accounts.
Marketing
Expenditures
The marketing expenditure
is the entire marketing
outlays for the Cloud 9. The
ratio as well as the
The risk related
through such
expenditure
would be
The stages to decrease the risk
related with such kind of
expenditure is to measure the
record for the expenditures

7AUDIT AND ASSURANCE
advantage would be
premeditated by the output
the expenditure is
producing in the procedure
of proceeds.
concerning
appropriate
sorting as well as
recording of
expenditures by
the company.
done and investigate whether
the expenditures owed does
not become unsettled by the
business.
Part C
Remuneration
The remuneration of business directors as well as executives is a subject that has concerned
significant attention from stakeholders, commercial groups along with the extensive public.
Fears have been elevated over unnecessary compensation put into practise, principally as we
expression nearly unparalleled chaos in world-wide monetary including equity markets. The
present global monetary calamity has emphasised the position of confirming that
remuneration correspondences are suitably organised and do not recompense extreme risk
taking otherwise encourage business insatiability. The crunch has also highlighted the
essential to keep a healthy controlling outline that encourages photograph as well as
answerability on remuneration performs, and improved aligns the benefits of stockholders
and the public with the presentation along with payment structures of Australia’s corporate
directors as well as executive.

8AUDIT AND ASSURANCE
Wesfarmers Woolworth Caltex
$2,000,000.00
$2,100,000.00
$2,200,000.00
$2,300,000.00
$2,400,000.00
$2,500,000.00
$2,600,000.00
Base Salary
Figure1: Salary structure of Wesfarmers, Woolworth and Caltex.
(Source: annual report)
Executives of the three companies mentioned above are in retail industry paid in cash and
bonus. In agreement to the section of 300A of the Corporations Act 2001.
Compensation
There are double main regions matter to corporate governance provisions that is
executive remuneration disclosure along with the payments at the dissolution level. The
Corporations Act essentials that the annual director’s statement include a remuneration
report, communicated in additional part. As per submission to the Corporations Act that are
related Corporations Regulations 2001, determination-manufacture conclusion payments are
protected at a entirety equivalent to twelve months of a director’s base income, from end to
end any closure reimbursement supplementary than the cap obliging stockholder
authorization. The Corporations Act situations that the managements of a business are to be
compensated on the terms as definite by the resolution. It is obligatory for the corporation to
reveal the payment sum paid when memberships cast 5 percent of vote in the common
meeting or there are hundred member existent in the meeting. In relation to Community

9AUDIT AND ASSURANCE
Company further than rational imbursement of compensation shareholders authorization is
desirable. The compensation of Woolworths is on basis of self-insurance were concerning the
provision of identity-covered risk that is connected to the approximation of obligation that is
connected to the employees counting the entitlements and recompense of accountability
(Woolworthsgroup.com.au. 2019) An arduous bond is an settlement in this agreement the
predictable value of conference the accountabilities below the arrangement beyond the
financial benefit expectable to be recognised under it. The inevitable beneath a settlement
duplicate the least possible net custody of retreating from the arrangement hat is the inferior
of the value of filling it besides either recompense or penalties rising from dissatisfaction to
achieve it (Woolworthsgroup.com.au. 2019).

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Reference
(2019). Microsites.caltex.com.au. Retrieved 27 January 2019, from
http://microsites.caltex.com.au/annualreports/2017/documents/17168_CALTEX_AS
X.pdf
(2019). Wesfarmers.com.au. Retrieved 27 January 2019, from
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-
annual-report.pdf?sfvrsn=0
(2019). Woolworthsgroup.com.au. Retrieved 27 January 2019, from
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf
Australia.gov.au. (2019). Australian Accounting Standards Board | australia.gov.au. [online]
Available at: https://www.australia.gov.au/directories/australia/aasb [Accessed 26 Jan.
2019].
Houston, R.W., Peters, M.F. & Pratt, J.H., 1999. The audit risk model, business risk and
audit-planning decisions. The Accounting Review, 74(3), pp.281-298.
Icac.nsw.gov.au. (2019). [online] Available at: https://www.icac.nsw.gov.au/images/Ricco
%20Public%20Website/Exhibit%20R97.pdf [Accessed 26 Jan. 2019].
Icaew.com. (2019). [online] Available at:
https://www.icaew.com/-/media/corporate/files/technical/iaa/materiality-in-the-audit-
of-financial-statements.ashx [Accessed 25 Jan. 2019].
Johnstone, K., Gramling, A. & Rittenberg, L.E., 2013. Auditing: a risk-based approach to
conducting a quality audit. Cengage learning.
Knechel, W.R.& Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.

11AUDIT AND ASSURANCE
Appendix:
1. Materiality
Materiality Planning
Base threshold $
Total Asset 0.5 $ 1,61,77,562.50
2. Ratio
Ratio Analysis
Particulars 2016 2015
Liquid Ratio
Current Ratio 0.53 1.69
Quick Ratio 0.41 1.30
Profitability Ratio
Gross Profit Margin 0.57 0.57
Efficiency Ratio
Receivables Turnover 116.64 95.66
Return on asset 0.03 -0.87

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Pariculars 2016 2015
Revenue 5,01,05,503.00$ 6,05,72,216.00₹
Cost of goods sod 2,15,01,484.00$ 2,63,01,509.00₹
Gross Profit 2,86,04,019.00$ 3,42,70,707.00₹
Expenses:-
Accountant fees 4,00,247.00$ 4,89,598.00₹
Advertisment- Print 22,63,587.00$ 32,09,280.00₹
Advertisment- tv 12,00,374.00$ 14,68,348.00₹
Advertising- Sponsership 20,06,788.00$ 24,54,786.00₹
Bank interest 89,675.00$ 1,06,756.00₹
salaries 63,95,361.00$ 78,23,072.00₹
rent expense Warehouse 37,22,228.00$ 45,53,184.00₹
rent expense store 2,09,368.00$ 2,56,437.00₹
Distrubition Expense 26,01,503.00$ 31,82,266.00₹
Telephone 1,25,202.00$ 1,53,153.00₹
Trade show 4,12,173.00$ 5,04,187.00₹
Bad Debt Expense 95,232.00$ 1,16,492.00₹
Entertainment 3,34,406.00$ 4,09,059.00₹
Rent & rates 3,88,881.00$ 4,75,695.00₹
Insurance Expense 25,71,450.00$ 3,14,55,504.00₹
Recuritment 4,43,303.00$ 5,42,266.00₹
other accured expense 38,23,536.00$ 32,25,449.00₹
Income tax expense 6,20,384.00$ 7,58,880.00₹
Total expenses 2,77,03,698.00$ 6,11,84,412.00₹
NET profit (Net Income) 9,00,321.00$ -2,69,13,705.00₹
Income statement

13AUDIT AND ASSURANCE
BALANCE SHEET 2016 2015
Cash 5,04,398.00$ 8,01,641.00$
Trade Receivables 1,60,12,201.00$ 1,58,74,289.00$
Inventory 54,22,255.00$ 58,30,382.00$
Financial Asset 13,84,483.00$ 19,83,795.00$
Prepaymets and other assets 5,76,620.00$ 6,20,022.00$
Total Current Asset 2,38,99,957.00$ 2,51,10,129.00$
PPE 43,36,035.00$ 27,60,646.00$
Leasehold 38,78,843.00$ 27,46,460.00$
Deferred tax assets 2,40,290.00$ 2,58,377.00$
Total Non- Current asset 84,55,168.00$ 57,65,483.00$
Total Asset 3,23,55,125.00$ 3,08,75,612.00$
payables 4,32,47,690.00$ 94,51,763.00$
Intersest bearing liabilities 13,40,899.00$ 45,49,007.00$
Current tax liabilities 2,83,466.00$ 2,67,421.00$
Provision 5,65,373.00$
Total Current liabilities 4,48,72,055.00$ 1,48,33,564.00$
deferred Tax liabilities 3,52,231.00$ 3,32,293.00$
Interest bearing liabilities 6,28,699.00$ 9,00,000.00$
Provisions 11,10,744.00$ 1,06,513.00$
Total Non- current liabilities 20,91,674.00$ 13,38,806.00$
Total Liabilities 4,69,63,729.00$ 1,61,72,370.00$
Share Capital 54,48,026.00$ 54,48,026.00$
Reserve 5,40,660.00$ 4,46,826.00$
Retained Earnings 97,02,043.00$ 97,02,043.00$
Total Equity 1,56,90,729.00$ 1,55,96,895.00$
Equity
Assets
Current assets
Non- Current Asset
Current Liabilities
Non- Current Liabilties
3. Caltex salary

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4. Structure of Woolworth
5. Compensation
A) Wesfarmers

15AUDIT AND ASSURANCE
B) Woolworth
C) Caltex