Analysis of Key Audit Matters in Auditing and Assurance in Australia

This report provides an in-depth analysis of auditing and assurance practices in Australia, with a specific focus on ASA 701, which governs the communication of key audit matters in independent auditor's reports. The report examines the context of financial crises and the responsibilities of auditors in ensuring accurate financial reporting for companies listed on the ASX. It details the key audit matters, including impairment of goodwill, revenue recognition, and going concern assessments, along with the associated audit procedures. The report references ASA 315 for identifying and evaluating material misstatement risks and explores the importance of business risk in the audit plan. The analysis includes the evaluation of financial statements from various retail sector companies, such as Wesfarmers and Woolworths, and emphasizes the significance of internal controls. The report concludes with recommendations and a summary of the findings, offering insights into the practical application of auditing standards in the Australian financial landscape.

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and Assurance in Australia
Name of the Student
Name of the University
Author Note

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Executive summary
The present discussion deals with the illustration that directs the responsibilities of the
assessors of the corporation listed under the ASX to properly communicate key audit matters
according to the ASA 701. However, in the mechanism for determining the key audit matters,
the evaluators of the companies have the requirement to establish from the communicated
matters with the specific ones charged with liability of governance of the companies. The
standard of ASA 315 is referred to in the discussion for the identification and evaluation of
the risks of material misstatement with the help of understanding the particular business and
entity environment.

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Table of Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................4
Background................................................................................................................................4
The key audit matters that are disclosed in the annual report include the following:................6
-Impairment of particularly goodwill and other intangible assets: Audit procedures................7
Research on accounting strategies as well as policies:..............................................................8
Evaluation of financial announcement of selected corporations................................................8
Significance of assessment of audit risk....................................................................................8
The process in which it can be linked with the financial statement of the chosen Companies
under the ASX limited...............................................................................................................9
The importance of business risk in the Audit Plan....................................................................9
Processes that can be performed by an assessor in order to analyse the risk...........................10
Significant rise of internal control to a specific organisation and to the independent auditors
..................................................................................................................................................10
Material misstatement risk:......................................................................................................11
Going concern Considerations.................................................................................................12
Analysing business entities as well as business environment..................................................13
Recommendation and conclusion............................................................................................14
References................................................................................................................................14

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Introduction
As the title recommends the current report orients around evaluation of the newly
developed auditing standard that is to say, communicating key audit matters in particularly
independent assessors’ report. The current report explains in detail regarding the auditing rule
ASA 701 that proposes about regulations as regards communication of various key audit
matters principally in independent announcements of the assessors. The auditing directive
under consideration is the ASA 701 that specifies about “Communicating Key Audit Matters”
in the Independent Audit Report is primarily designed at the setting of international financial
crisis.
The current study takes into account operations of firms operating in the retail
segment. The firms include Wesfarmers, Woolworths, Jb hifi, Bapcor ltd, Speciality fashion
group, Webjet ltd, Whitehawk, Myer holding ltd, OROTONGROUP LIMITED and
TEMPLE & WEBSTER GROUP LTD.
Background
The present section accomplishes elaborate analysis of financial crisis and the
associated liability of the evaluators. The period of different monetary instability can
necessarily aid in understanding varied notions associated to crisis. Fundamentally, there is
manifestation of different challenges specifically from economic, political together with
social environment. Alzeban and Sawan (2015) suggests that worldwide economic crisis talks
about tension, disorder together with critical assessment that necessarily gets manifested in
the entire community. Therefore, financial crisis discusses about demonstration of diverse
financial crisis that again replicates distrusts in financial framework, considerable decline in
dealings of stock exchange along with disorders of the market transactions.

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The government as well as transnational institutions that operate in the retail segment
of Australia include Wesfarmers, Woolworths, Jb hifi, Bapcor ltd, Speciality fashion group,
Webjet ltd, Whitehawk, Myer holding ltd, Orotongroup Limited And Temple & Webster
Group Ltd. These firms endeavour to overcome adverse influence of worldwide crisis by
carrying out the mechanism of financial restructuring. Directives stipulated under the rule
ASA 701 mentions about auditing standard that necessarily talks about different requirements
and present applications, different explanatory materials concerning communication of key
matters of audit prepared as well as presented by evaluators in their independent report.
ASA 701 is a specific auditing standard that can be employed for entire procedure of
assessment of financial announcement of the firm Woolworths limited for the specified time
period. Financial statements of the firms take into replicates exhaustive set of pecuniary
announcements that employ ASA 701. Financial statements of these firms consider monetary
reporting of business entities on and after the period of December 15 of the year 2016.
Essentially, this specified directive can aid auditors in handling different
responsibilities of the auditors of the firms to properly convey key audit matters. In a bid to
undertake the procedure, assessors can take into consideration a variety of areas of material
misstatement in the financial statements of the firms. Risks are detected in the financial
announcements of the retail firms are as per regulation stipulated under ASA 315 (indicating
towards paragraph A19-A22). Intrinsically, this mechanism of ascertainment also contains
extensive judgement and decision of auditors in specific areas that include administrator’s
judgement, including different approximations of accounting detected as high approximation
uncertainty. Influence of audit of various important events or else business transactions
occurred during particular period of time. In essence, the assessor also has the necessity to
determine specific matters that were mentioned as per paragraph 9 of auditing standard in the

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evaluation report of the financial assertion of current period. Therefore, this can be referred to
as the key audit matters as presented in the paragraph A19 to A 11 as well as A 27 to A30).
Financial statement of retailing corporations indicate towards consolidated and
individual financial assertions on an annual basis that are presented according to International
Financial Reporting Standards (also referred to as IFRS), regulations of International
Accounting Standards Board (indicated as IASB). Also, financial assertions are stated by
Financial Reporting Standards Council, as per different necessities under Companies Act of
mainly South Africa, South African Institute of Chartered Accountants also simply indicated
as SAICA, requirements of the Companies Act mentioned under South Africa along with JSE
Limited Listing Rules. In particular, these are essentially the matters that can aid financiers
on observing maintenance of adherence to rules as regards financial arrangement, auditing as
well as assurance. For example, the annual report of Temple & Webster Group reflects the
audit as per Australian Auditing Standards.
The financial reports of the firms are presented as per Corporations Act of the year
2001. The standards are illustrated in the Auditor’s Responsibilities for the Audit of the
financial report. The yearly report of firms presents key audit matters that were of
considerable importance in audit report of the current year.
The key audit matters that are disclosed in the annual report include the following:
- Assessment of going concern: Audit procedures of the chosen firms analysed suppositions
presented in the budget and forecasts presented in the cash flow validated by the board. The
corporation considered historical accurateness of cash flow forecasting and takes into account
influence of a wide range of different sensitivities to the model of cash flow to evaluate
breakeven position (Messier Jr 2014). The selected companies taken into account evaluated
overall consistency of the suppositions counted in the going concern model of cash flow with

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assertions associated to upcoming plans as well as commitments contained in the yearly
report. Corporations taken into consideration assessed consistency of forecasts utilized by the
entire group in specifically the going concerns model of cash flow with assertions associated
to upcoming plans as well as commitments contained in the information presented in the
yearly assertions (Hay 2015). The assessors of these selected firms also reviewed overall
consistency of the forecasts utilized by the entire group in the going concern forecast and in
the impairment testing models and evaluated adequacy of going concern disclosures.
-Impairment of particularly goodwill and other intangible assets: Audit procedures
Audit procedures of the selected firms operating in the retail segment of Australia included
assessment of impairment of goodwill as well as other intangible assets as a key audit matter.
The entire selected set of firms operating in the retailing segment evaluated whether the
methodology utilized by the group satisfied the necessities of Australian Accounting
Standard (referring to AASB 136 for Impairment of Assets), counting appropriateness of
identified cash generating unit (CGU) (Trotman et al. 2015). The auditors also examined
whether the models utilized were mathematically fitting. The auditors of the firms also
consider processes of valuations that specialists carry out for assisting in the work carried out.
Again, the auditors also analysed consistency of the forecasts utilized by the entire group in
the going concern cash flow forecasts and in the testing models for impairment testing. The
company analysed the adequacy of overall disclosures counted in financial reports with
respect to carrying value of intangible assets as well as impairment testing.
-Revenue Recognition: Analysis of financial statements reveals the fact that revenue
transactions was registered appropriately in appropriate period counting examination of
whether the sales dealings were counted as deferred revenue. Audit processes consist of
sample revenue transactions during the specified period of time (Hay et al. 2014). The

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auditors examined whether revenue was registered in the appropriate period counting testing
whether sale transactions were counted as deferred revenue. The auditors examined whether
revenue recognition are implemented to the terms as well as conditions of the sale was
according to Australian Accounting Standard (also referred to as AASB 118 for revenue)
(Wong and Millington 2014). The auditors take into consideration adequacy of particularly
revenue recognition strategy disclosures contained in note.
Research on accounting strategies as well as policies:
The yearly report of retailing corporations elaborately illustrate about accounting
policies that in turn can be utilized by financiers for understanding financial condition of the
business. As mentioned in the annual report of the firm, the basis of preparation of
consolidated along with individual statements is the usage of historical cost along with bases
of going concern. Therefore, this can help in gaining insight regarding different modified
opinion according to rules of ASA 570 and material uncertainty linked to
incidents/circumstances that might possibly cast doubt on potential of the business concern to
continue operations as a going concern according to rules mentioned in ASA 570. Thus, this
can be referred to as “key audit matters” as this requires proper communication in the
statement of the auditor. This can assist them in comprehending potential of the corporation
to operate as a going concern.
Evaluation of financial announcement of selected corporations
Report prepared and presented by auditors of the business concerns per the viewpoints
of the assessors, both consolidated and individual financial pronouncements necessarily
reflects fair view.

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Significance of assessment of audit risk
The causes behind issuance of auditing standard ASA 315 by particularly Auditing
and Assurance Standards Board (also referred to as AUASB) is to help in identifying and
evaluating risks associated to material misstatements. This is undertaken by appropriate
comprehension of particular business entity and environment of the business. As mentioned
in the regulation stipulated under ASA 315, assessors of the firms have the necessity to
comprehend risks of business that necessarily points out towards risk ensuing from
significant conditions, specific incidents, circumstances, operational inactions that can
unfavourably influence potential of the entity to achieve objectives and employ strategies. In
essence, it is vital to analyse associated risks of procedures of audit for gaining distinct
understanding of the reporting entity together with the environment, including internal
control. This can help in identifying and evaluating risks linked to material misstatement
stemming from fraudulent actions, scams or errors (deliberate or else accidental) at the
financial account of the firm.
The process in which it can be linked with the financial statement of the chosen
Companies under the ASX limited
As the regulations stipulated by the ASA 315 (As Referred to Paragraph A 105
– A108) it has been identified about the assessment and identification of the risk of material
misstatement in the levels of financial report. This is collaborated with the material risk
misstatement also at the assertion level for diverse transaction classes, balances of account
and the disclosures of the corporation to deliver a foundation for primarily performing and
designing the processes of audit (Titman, Keown and Martin 2017). The auditor can make the
analysis, detect the risks, and find out whether they associate more to financial report.

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The importance of business risk in the Audit Plan
In terms of accounting scandals at present the accountability and role of the auditor
can be examined. In the chosen retail companies, the auditors must have a sound knowledge
of the organisation on the basis of risks together with exposures of the company makes them
ignore the impacts of aggressive accounting practice. Most importantly, in the context of the
type of collapses that acceptance of top down approach can be stressed in which the auditor
advances to gain knowledge of the business organisation, environment of the business in
which the firm operates, important business risks and the way this kind of risks translate into
risks of audit.
Processes that can be performed by an assessor in order to analyse the risk
The mechanisms that can be followed by an assessor in order to make the risk
assessment involves the following steps:
 To Identify the business risks related to the financial reporting objectives of the
business
 Risks importance approximation
 Evaluation of the overall occurrence possibility
 Decision regarding the activities to address the risks identified
According to AUS A24.1 of ASA 315, governance arrangement and ownership must be
present. The ones charged with liabilities of governance and the board of directors can make
the determination of the risk level ascertainment policies. Implementation and monitoring of
the effectual risk management systems can be designed by the senior management in order to
execute the policies as recommended by the board of directors. In addition to it, the non-
executive directors present on the board as well as independent compensation commission
can review the discretionary bonuses diverse incentive plans, counting commissions, profit

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sharing service and contracts of directors (Jones et al. 2017). Specifically internal audit
operation and audit committee and their role can enable in the independent appraisal function.
Significant rise of internal control to a specific organisation and to the independent
auditors
The auditor can obtain knowledge regarding the relevant industry divisions,
regulatory and other external surfaces with the framework financial reporting which are
applicable as per the (Ref: paragraph A 36 to A41). The auditor can also acquire a
comprehensive understanding as regarded to the internal control related to the audit process.
Although majority of the controls applicable to the process of audit can probably be related to
the financial reporting process. However, all controls types that relate to financial reporting
are not applicable to audit. Basically, as per the regulation as stipulated as per (ASA 315, ref
paragraph, A42 to A65), this is a matter of professional judgement of the auditor whether a
specific control, singly or in combination with different others is related to the process of
audit (Green, Taylor and Wu 2017). Primarily, the auditor can may comprehend the
environment control by obtaining a proper knowledge by evaluating whether administration
with the oversight of the ones charged with governance has maintained and generated an
environment of ethical behaviour and honesty.
Material misstatement risk:
Material misstatement risk can be referred to as risk that corporations the financial
assertions of a have been stated inappropriately to a certain material degree. However, the
risk can be assessed by the auditors at two different levels that includes control risk and
inherent risk at the assertion level. According to Knechel and Salterio (2016), the inherent
risk is the of company’s weakness of the financial misstatement statement owing to fault or
else fraud before considering the diverse controls. Similarly, the control risk can be

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considered as the material misstatement risk that cannot be evaded or else identified by
internal control of a particular reporting concern (Lisic et al.2016).
Standard of Auditing must comply with the International Standard on Auditing
Standard ISA 260 that includes the need for the communication of the ones charged with the
governance practices issued by the Assurance Standards Board and the International
Auditing. As specified by Gay and Simnett (2014), the board is entirely responsible for the
mechanism of the internal control for the entire group. It is vital to declare the result of the
risk management practices, along with the actions of the autonomous provider of assurance.
This helps in the process of financial control and can be considered to be vital audit matters.
The chosen ASX based companies’ annual report represents the fact that the directors
have audited the group’s budget and prediction of cash flow during 2017 and insurance
arrangements details of the whole group (Arens, et al., 2016). However, on the basis of the
review and the present financial condition backdrop and along with the current borrowing
facilities, directors of the organisation stay satisfied that the particular group is an appropriate
going concern and have sustained to presuppose going concern based on the course of
preparation and presentation of the Annual Financial Statements. This communication
technique of key audit matters therefore helps the management to come at appropriate
preparation and judgements as well financial statements preparation (Leung et al.2014).
Going concern Considerations
As per the directions of the Auditing Standard ASA 570 that indicates towards going
concern, there is requirement for the mentioning procedure for assessment of risk and the
activities that are related, assessment of the administration, phase beyond management
assessment, processes for supplementary inspection during detections of when events and