Auditing Theory and Practice Report - Wesfarmers Financial Analysis

This report provides a comprehensive analysis of the auditing process, focusing on its impact on the financial users of the company, specifically Wesfarmers. It begins with an executive summary highlighting the report's objectives, which include evaluating the auditing process and its effects on financial users, alongside a detailed examination of Wesfarmers. The report delves into the company's overview, operations, industry, and associated business risks, such as competitor pressures, changing customer preferences, economic conditions, interest rate fluctuations, and data security concerns. An analytical review of Wesfarmers' financial ratios, including debt-equity and current ratios, is presented, along with an assessment of the company's net profit margin and the implications for financial users. The report also examines Wesfarmers' corporate governance practices, emphasizing its strategic focus and policies. The conclusion summarizes the auditing processes, emphasizing their role in providing insights into a company's financial performance and the importance of disclosing risks within the annual report. The report highlights the company's retail industry operations, business risks, potential material misstatements, and analytical review of key financial ratios, along with the corporate governance policies.

Running head: Auditing Theory and Practice
Auditing Theory and Practice
Name of the Student
Name of the University
Author Note

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Auditing Theory and Practice
Executive Summary
The aim of the report is to evaluate the auditing process and how it affected the financial user
of the company. It also includes details of company Wesfarmers. The report shows about the
risk associated with the company and how it is been affecting the financial account of the
company, it even have analytical review of the company and detail of the corporate
governance report of the company.

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Auditing Theory and Practice
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Overview of the company......................................................................................................3
Operations Carry by the Company.........................................................................................3
Company Industry..................................................................................................................4
Business risk in the company.................................................................................................4
Analytical Review of the Company.......................................................................................7
Conclusion..................................................................................................................................9
Reference..................................................................................................................................11
Appendix..................................................................................................................................13

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Auditing Theory and Practice

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Auditing Theory and Practice
Introduction
Financial statements which are issued by the company are termed as information of
the financial position of the company. It provides all the details about how the company is
performing in the industry so it should be made with accordance with standard of accounting
(Armstrong et al., 2015). If the company make it with regards to the accounting standard than
only the financial user will able to compare the company financial statement to different
company and able to judge how the company is been performing in the market and whether
the user should invest in the company or not (Crowther & Seifi 2018). It is not necessary that
the company have disclosed all the material fact to the user so to know all the material fact
and how the company have made the financial statement so it been checked by the process of
auditing which is been carried by the auditor of the company. The auditors carry many
processes so that it able to know whether the financial statements are made with the regards
of the standard or not (DeFond & Zhang 2014). It also carry some process in regards with the
internal control of the company so that it able to know how the management is able to make
their internal problem solution and how they are able to minimize the risk in the internal
control of the company.
Discussion
Overview of the company
It is based upon the Wesfarmers. Wesfarmers is an Australian Based company. The
company was founded in 1914, have it’s headquarter in Perth, Western Australia. It is based
upon conglomerate industry and also has many subsidiaries in different sector of business.
Operations Carry by the Company
Wesfarmers are the largest company in Australia. It hold many subsidiaries company
which carry their business operation in many other market. It carry many types of operation

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Auditing Theory and Practice
as it has so many companies as it is one of the largest supermarket of the country and also
deal with operation of improving the home so it help people to get increase in their standard
of living. It is diversify its business unit into much section as fertilizers, energy and chemicals
(Du Plessis, Hargovan & Harris 2018). It able to get more amount of revenue from the
different section of the company.
Company Industry
The industry in which the company works is Retail Industry as they have super
market in all over the country so it basically do transaction directly to the customers. As it is
been also seen that the company have take over Coles Ltd so it also help them to get an edge
in the market and help them to provide there service to more number of the customers
(Edmans 2014). As it got so many market in the country so it able to serve all type of the
customers and also the company is able to earn much amount of revenue from the same.
Business risk in the company
Business risk Justifications Account Affected by
the risk
Material
Misstatement
Competitors in the
Industry
Competitors are one
of the biggest threat
which the company
has as it directly
affect the financial
position of the
company as if there
will be high number
of competitors than
the company will not
Net profit will be
affected by the
competitors as the
company is not able
to get the sufficient
amount of sale of as
a result of this the
overall profit of the
company will
decrease and it may
The material
misstatement which
can be occur in this
account is that if the
company have to
increase the
confidence of the
financial user so it
can show an increase
in the profit so that it

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Auditing Theory and Practice
able to get the
required amount of
the business and it
will make the
company to suffer
from uncertainty
situation (Furnham &
Gunter 2015).
have to lose the
position it holds in
the market (Griffiths
2016).
will able to get
financial user to
invest the company.
Changes in the trend
of customer choice
Customers are the
reason from which
the company is able
to get the revenue so
the customer change
their demand or shift
their demand so it
will affect the sales
of the company so it
is been consider as
business risk in the
company (Hall
2015).
The account which is
been affected by this
is the revenue
account of the
company. As it will
not able to get the
required sales as the
customer have
shifted the demand
so the company is not
able to get proper
business in the
market (He, Zeadally
& Wu 2015).
The company can
able to show a excess
a revenue so it can do
the material
misstatement as it
can able to increase
the revenue amount
so it help them to
show the financial
statement as good to
the company.
Changes in
Economic conditions
If the customer have
limited customer
purchasing power so
The amount which is
been affected is that
it unable to incurred
The company can
show high amount of
sales and also it can

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Auditing Theory and Practice
it will not able to do
much spend upon the
company products as
so it will consider as
a business risk as the
company should not
able to get much
amount of business
in the market (Jizi et
al., 2014).
much amount of
expenses as it is not
able to get sufficient
amount of business
so the company will
not able to control
their expense and
incurred loss.
happen that the
company is can also
show an decrease in
the expenses so like
this the company can
able to do material
misstatement in the
accounts.
Changes in the rate
of borrowings
interest
This is been consider
as business risk as
the company is been
financed by the
money which they
borrow from
different institution
so if the company
have increase in the
rate than the
company will
directly get affected
by it (Knechel &
Salterio 2016).
The account which
will be affected is the
borrowing cost and
also it will affect the
profit as if the cost is
been increased than
the company profit
will automatically
decrease so it can
able to affect both
accounts (McCahery,
Sautner & Starks
2016).
The company can
able to show the
borrowing cost so
that it will able to
reduce the profit of
the company and as a
result it will able to
save the tax amount
of the company, so
this way company
can able to do
material
misstatement.
It security and data As the company is The company As it include the

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Auditing Theory and Practice
base having all the data in
regards of that if it
lost the data then it
will directly affect
the company
financial position so
it is been consider as
a business risk
(Power & Gendron
2015).
goodwill is been
affected as if the
company is not able
to keep secure its
data than the
company will lose all
the detail and as a
result of it the
competitors may use
the information in
against the company
position (Tricker &
Tricker 2015).
goodwill so the
company can show
an excess in the
goodwill amount and
as a result it may
affect the financial
user decision in
regards of the
company goodwill.
Analytical Review of the Company
Ratio Justification Assertions Effect on Users

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Auditing Theory and Practice
Debt-Equity Ratio There is a decrease in
the debt-equity ratio
as in 2017 it was 0.24
and in 2018 it is 0.18
so this should be
analysis the reason of
such decrease in the
ratio
(Wesfarmers.com.au
2019).
Classification:
The auditor should
verify that the
company have done
the recording of the
transaction of only
business related
activities and no
other activities have
been included in the
same.
The user usually
check the company
ratio to judge their
performance so if the
company have done
matieral
misstatement in the
ratio than it will be
fraud to the user as
the users will not
able to take proper
decision.
Current Ratio As per the
calculation it can be
seen that the
company is not
having proper ratio
as it is been reduce in
the current year so
the reason of such
reduction should be
checked by the
auditor as it is been
the liquidity ratio of
the company.
Completeness
There should be no
error of the company
while recording the
transaction as the
company should have
recorded all the
events related to the
company current
asset and short-term
liability (Yermack
2017).
The company ratio is
low it means it is
having less ratio so it
may happen the
company may loss
the financial user
confidence and as a
result it may not able
to get much amount
of investment form
the public.

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Auditing Theory and Practice
Net Profit margin The company is not
able to increase its
profit which can be
seen from the
calculation that it
have some
percentage in both
years so this is been
consider a risk
situation.
Completeness
The company have
recorded all the
transaction properly
or not must be
checked and also the
accuracy should also
be checked by the
auditor of the
company.
The company is not
having any increase
in the profit so it can
affect the user as it
may be find that the
user does not want to
carry business with
the company.
Corporate Governance in the Company
The company is having an corporate governance policy and which can be seen in the
financial report of the company. The company is actively taking part in all the requirement
which are been given related to the corporate governance of the company. The company have
wide range of practice in regards of the corporate governance as it gives it focus upon the
creation of strategy related to underperformance in regards of the shareholder of the
company. It also focus upon the increase in the portfolio as per the shareholder return. To be
have all the power in the subsidiary company it also have appoint new director of the
company Coles Ltd (Wesfarmers.com.au 2019). It made policy form which it able to monitor
the group operation related to the financial statement of the company.

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Auditing Theory and Practice
Conclusion
It is concluded as the process of auditing that is carried on the company financial
statement. This process help the auditor to know the details of the company and help to know
how the company is performing in the business. It carry many process in the company so that
it will able to get sufficient amount of information on which it can able to give its opinion
upon the financial statement of the company. The auditor should disclose all the information
which it risky in regards of the company so it should record in the annual report of the
company.
The report show about company Wesfarmers. The company is been based in Australia
a deal in retail industry. It shows about the company business risk and how it can able to
effect the financial statement of the company. It also shows the material misstatement in the
company. The report also show about the analytical review of the company and what are the
risk which are associated with the ratio of the company. It also show about the corporate
governance of the company and how they able to fulfil the needs of the corporate governance.
It show any analysis of the policy and report which the company have maintained in regards
of the corporate governance of the company.