HI6026: Audit Compliance and Enhanced Reporting in Australia, 2018

This report analyzes audit and compliance standards in Wesfarmers, evaluating their annual report and Ernst & Young's audit. It examines auditor independence, non-audit services, auditor remuneration, and major audit matters like non-current asset impairment and discontinued operations. The report also discusses the roles of the audit commission, audit opinions, and the differences between management and auditor responsibilities. The analysis includes events attaining material value and material information evaluated by auditors. The report concludes by highlighting the importance of enhanced auditor reporting in ensuring the quality and transparency of financial statements, and that Desklib offers similar solved assignments for students.

Running head: AUDIT COMPLIANCE IN COMPANIES
Audit Compliance in Companies
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Executive Summary
In the recent years, the audit committees have considered implementing several effective
approaches in order to enhance their quality of the audit report. The paper will focus on
analyzing the audit and compliance standards followed in Wesfarmers through evaluating
the annual report of the company. Conversely, Ernst & Young have not considered the event
attaining material value as it is anticipated not to attain any material effect on the
company’s financial statements. It has also been gathered that in alignment with the yearly
statements of Wesfarmers Limited in the year 2018 it is also important that the auditors
Ernst and Young did not fail to encompass certain material factors or information attaining
material collationregarding the company’s financial reporting.

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Table of Contents
1. Introduction............................................................................................................................3
2. Auditors Independence Requirement Adherence.................................................................3
3. Non-Audit Services.................................................................................................................4
4. Renumeration of Auditors......................................................................................................4
5. Major Audit Factors................................................................................................................5
6. Audit Commission..................................................................................................................8
7. Audit Opinion.........................................................................................................................8
8. Management and Auditor Responsibilities Difference..........................................................9
9. Material Based Events..........................................................................................................10
10. Analysis of Material Information by Auditors....................................................................10
11. Lack of Material Information.............................................................................................11
12. Questions for Follow-Up....................................................................................................11
13. Conclusion..........................................................................................................................12
References................................................................................................................................13

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1. Introduction
Auditing can be explained as the process of evaluating along with investigating the
financial reports published by the companies for evaluating that such reports are devoid of
any material misstatements, frauds, errors and certain aspects. For this reason, the auditors
need to enhance the quality of its audit report by means of revealing material-based
information related with the company’s annual report(Chand, Patel & White, 2015). In
addition, the companies alsorequire to offer such information to all its stakeholders in a
format that will be simple for them to understand. In the recent years, the audit committees
have considered implementing several effective approaches in order to enhance their
quality of the audit report. Therefore, this is deemed important for the auditors to
considerincreased issues within the company’s financial statements which can facilitate
them in ensuring better quality of audit(Bond, Govendir& Wells, 2016). In accordance with
that, it is important to justify that the selected company “Wesfarmer Limited’s” audit
partner is Ernst and Young.
2. Auditors Independence Requirement Adherence
At the time of offering better audit services, all the auditing companies requires to
make sure that the important guidelines along with norms associated with auditor’s
independence. In other words, it must also be indicated that the auditors requirebeing
associated with the audit partner in which they offer certain better audit-based
operations(Perera& Chand, 2015). The directors associated with the company have
alsoindicated that Ernst and Young has abided by every important professional guidelines
and principles associated with auditing standards(Leung &Verriest, 2015). “Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional

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Accountants’’ and “Corporations Act 2001” are followed by the company in maintaining
effective reporting. These standards are implemented so that the auditor’s independence
can be sustained in a better manner.
3. Non-Audit Services
For Wesfarmers Company, its audit partner provided certain non-audit services that
encompass tax complianceservice along with certain other services. In tax-based services,
the Ernst and Young was paid $683,000 and $343,000 was offered to the audit firm for its
non-audit services. Conversely, Wesfarmers have also entertained that the needed
compliance for Ernst and Young with all the important standardsfor attaining certain non-
audit services. Rather than that, Wesfarmers have offered the auditor with certain type of
work which encompass the work review of auditor itself for undertaking certain
management decisions(Chapple, 2017). In addition, certain corporategovernance guidelines
as well as norms followed by means of offering certain non-audit services. Moreover, all the
factors indicate the auditor independence.
4. Renumeration of Auditors
The table indicated below facilitates in analyzing the audit service payments taking
into consideration the Australian along with cross-border network companies. Non-audit
services like tax compliance and some additional services are provided by Ernst and Young
to Wesfarmers. As gathered from the table above, it is observed that Wesfarmers has
decreased its audit service payment to its audit partner by 5.50% for the year 2018 in
comparison to the previous year(Howieson, 2017).

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Figure 1: Remuneration for Ernst and Young
(Source: Wesfarmers.com.au., 2018)
In addition, an identical trend has also been indicated for the non-audit services for
the reason that payment to the non-audit services has been decreased by 55.53% for Ernst
and Young in contrast to prior year. This situation also indicates that an overall payment
that is offered to the auditor has decreased in the year 2018 by 16.44% n comparison to the
previous year(Green, 2014).
5. Major Audit Factors
Based on the viewpoint presented by Ernst and Young, major audit matters are
considered to be considerable at the time of financial statements auditing. Relied on the
financial statements of the year 2018 for West farmers, four major audit matters are
recognized. Such factors are explained withdesirable audit techniques for its segmentation
and minimization(Wee, Tarca& Chang, 2014).
 Non-current asset impairment encompassing tangible assets within target- Based
on the auditor’s opinion it is necessary for the Wesfarmers to make sure that the

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recoverable amount based on the plant, property and equipment in consideration to
a considerable judgement. For this reason, it might lead to impairment within the
Target’s cash generatingunits (Zeff, Radcliffe &Gunz, 2014). Additionally, the
relevance of the company’s financial statements in accordance of the impairment
test, anticipations along with sensitivities those are employed by the audit Partner
“Ernst and Young”. This technique can also be categorized in the form of analytical
techniques.
 Suppliers Rebate- Supplier rebates are taken into consideration through acting as a
major audit matter because of the supplier rebate quantum realized at this period
along with the judgement is required being implemented through considering major
factors. Effective audit techniques are implemented by the audit patner of
Wesfarmers that which includes analysis of supplier rebates, internal control analysis
of the company and analysis of rebate contracts with conducting comparisons from
budget of previous year (Mita, Utama &Wulandari, 2018). Conversely, the audit
processesencompass sample testing related with supplier rebates, analyzing the
suppliers those have promotion-based credit, analyzing sample focused on materials
of new contracts, legal counsel enquiry along with the related business
representatives. For this reason, it turns out to be likely to segment like processes
like control tests, substantive detail evaluation and substantive balance along with
tests related with analyticalprocesses.
 Discontinued operation in the region of Curragh- In the recent year, Wesfarmers
Company has made increased attempts in getting rid of its coal mine within this
region that is worth$700 million (Van Akkeren&Tarr, 2014). The agreement includes
a process of analyzing sharing value associated with metallurgical coal cost in the

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future years. This is also recognized that the company has attained an increased
profit after tax of around $250 million from its discontinued operations within the
coal mine. This considers certain trading outcomes within the efficient disposal point
along with disposal gain. Moreover, this is the cause for which the audit of the
company has considered it as an important matter. In dealing with such matter,
Ernst and Young has realized the sale along with purchase agreements as well as
related documents in analyzing the calculation of disposal gain post-tax
(Wesfarmers.com.au., 2018). In addition, this has also evaluated certain considerable
inputs related with post-tax sales gain computation based on which this is
ascertained that there are non-recognized liability and asset values (Bugeja,
Czernkowski& Moran, 2015). The final step encompass association with the tax
specialists in taking into consideration the tax impacts of divestment and at last,
certain disclosures related with the company’s financial statements are considered.
 Burnings UK and Ireland (BUKI) discontinued operations- n the first half period of
the current year i.e. 2018, Buki has recognized an amount of $953 million as the
impairment charges while on 25th May’18, Wesfarmers has sold the business at a
very nominal price. In the financial statement of 2018, the company has recorded a
loss of $1.66 billion from such operations that has been discontinued which also
includes the impairment charges which has been realized in the initial half-year of
2018(Junior, Best & Cotter, 2014). Moreover, it also includes the trading result of
actual disposal point and the loss associated with the same. It is the very reason
which prompted Ernst & Young to consider it as the most crucial matter in FY2018.
In order to deal with this particular matter Ernst & Young has considered the
precision of the impairment cost along with the assumption as well as methodology

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analysis. In addition, growth rate including the terminal ones, inflation as well as
discount rate is reported within the annual report of Wesfarmers having commodity
prices anticipation.The auditor has also taken notice of the agreement associated
with the purchase and sale in order to evaluate the disposal gains after payment of
the taxes. Furthermore, it also assessed the inputs of the post-tax loss after the sale
and post the same, the derecognized assets and liability values are also ascertained.
In the next step, a tax specialist is brought into picture to consider the effect of the
tax after sale and then the disclosure of financial statement is considered.
6. Audit Commission
The annual report analysis of the company signified the company’s management has
maintained an audit and risk committee within Wesfarmers. The responsibilities fulfilled by
them includes maintaining efficiency of internal control in, analyzing usefulness of assets
through maintaining integrity of annual report information (Susela Devi& Helen Samujh,
2015). The committee of the organization is observed to include few important executive
directors including J.A. Westacott and D.L. Smith Gander. The committee also has a
responsibility of including efficiency of financial reporting, analysis and review of
commercial incomes that is necessary in “audit risk management”.
7. Audit Opinion
The auditor independence information offered by Wesfarmers indicated that the
organization prepared its remuneration section in adherence to “Section 300A of the
Corporations Act 2001”guidelines. In addition, based on the viewpoint of Ernst and Young,
the financial statements are prepared and represented in a way that every Australian
accounting standards-based reporting along with different norms are suitably followed by

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the Wesfarmers. For this reason, in such scenario, Ernst and Young issued an unqualified
audit viewpoint.
8. Management and Auditor Responsibilities Difference
Based on the recent yearly report of Wesfarmers, the responsibilities fulfilled by the
directors and management are different from that of the part of the auditor. This is
observed to be apparent at the time of developing and indicating effectiveness of the
financial statements. The directors along with the company’s management are needed to
entertain that the financial statements are developed for offering suitable overview
regarding the “2001 Corporations Act” along with the accounting standards existing within
Australia. In addition, the directors have the responsibility to analyses the ability of the
company to carry out functioning in increasing concern basis at the time of developing the
financial statements(Liu, 2015). On the other hand, the auditors attain some responsibilities
which is not aligned with the responsibilities of management and directors.
The auditors are associated in evaluating and analyzing the financial reports reported
by the companies for analyzing that such factors are devoid of the financial frauds, errors,
material statements along with others. Certain important responsibilities of the auditors
encompass recognizing along with analyzing the uncertainties related with material
misstatements andattaining suitable knowledge considering internal control (Santos, Ponte
&Mapurunga, 2014). This also facilitates in analyzing the analysis of accounting policies
along with indicating the suitability related with increasing concern base regarding
accounting employed by the directors. Conversely, the auditors are responsible for
evaluating the development along with financial statements presentation as well as
attaining enough examples focused on audit.

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9. Material Based Events
It is deemed important to indicate that two considerable events for Wesfarmers that
took place for the recent year. In such case Coles demerger is also carried out in the current
year in March (Bodle, Cybinski&Monem,2016). Conversely, Ernst & Young have not
considered the event attaining material value as it is anticipated not to attain any material
effect on the company’s financial statements. The Wes farmer Company’s board of directors
has announced totally aligned ordinary dividend of around 120 cents each share because of
which the overall amount of the yearly dividend to be offed to the stakeholders might be
223 cents for each share in the year 2018 and the dividend is yet is to be offered to the
shareholders (Ipino&Parbonetti, 2017).
10. Analysis of Material Information by Auditors
Relied on the perception of the third-party stakeholder, it is deemed important that
Ernst and Young has been increasingly effective in evaluating the material information of
Wesfarmers Limited relied on the financial statements. This is caused based on the auditing
ad reporting regulations mentioned within “APES 110, auditing standards of Australia as well
as Corporations Act 2001” (Perera, 2016). On the other hand, the auditors attain some
responsibilities which is not aligned with the responsibilities of management and directors.
In addition, it can also be indicated that the auditor has disclosed four major audit factors
within the financial statements along with decreasing their impacts as well. These factors
focus on the fact that Ernst and Young have been increasingly effective for dealing with
material information.

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11. Lack of Material Information
In alignment with the yearly statements of Wesfarmers Limited in the year 2018 it is
also important that the auditors Ernst and Young did not fail to encompass certain material
factors or information attaining material collationregarding the company’s financial
reporting. Every information is elaborated and represented in a better manner by the
Wesfarmers auditors concerned with the material factors which can have drat effect on the
operations of business (Kabir & Rahman, 2016). Wesfarmers have also entertained that the
needed compliance for Ernst and Young with all the important standards for attaining
certain non-audit services. Rather than that, Wesfarmers have offered the auditor with
certain type of work which encompass the work review of auditor itself for undertaking
certain management decisions. For this reason, it can also be indicated that there is lack of
under or partially reported along with material information within the Wesfarmers yearly
financial statements.
12. Questions for Follow-Up
At the duration of the general meeting within Wesfarmers Company, several
relevant questions might be asked to the shareholders of the company (Hardy, 2014). Such
questions are briefly explained in the following points:
 Is there existence of any auditor those are associated with financial reports auditing
within the company?
 What are the factors those are considered by the audit partner in carrying out
auditing process in companies?
 What are functions fulfilled by the companies audit services?