ACC707: Auditing and Assurance Services Report on Retail Industry

This report offers an in-depth analysis of auditing and assurance services within the retail industry, with a specific focus on ASA 701 and its implications. The report examines key audit matters, as highlighted in the independent auditor's reports of several prominent Australian companies, including Woolworths, Coles Supermarket, and Wesfarmers. The study delves into the significance of ASA 701, which provides guidelines for enhancing the quality and nature of auditing reports, and explores how these standards are applied in practice. The report identifies critical areas of auditing, such as onerous lease provisions, IT systems, commercial income, impairment of non-current assets, and inventory management. By analyzing these elements, the report offers insights into how companies manage financial reporting, assess risks, and ensure transparency in their financial statements. The inclusion of real-world examples from the annual reports of these companies provides practical context and demonstrates the application of auditing standards in the retail sector. The report concludes by summarizing the importance of auditing and assurance services in maintaining the integrity and reliability of financial information, and the role of ASA 701 in improving the overall auditing process.

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and Assurance Services
Name of the Student
Name of the University
Author’s Note

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Executive Summary
This current report has focused on the auditing and assurance services of the companies that falls
under the industry of retail. In this study, the significance of ASA 701 have been discussed along
with the key audit matters in the independent auditors report. ASA 701 mainly confirms the
recent enhancements that are required to be developed with the relations and nature of auditing
report which are mainly developed by the International Auditing and Assurance Board. The
latest annual report of the companies have been extracted that points out the report of
independent auditor and that have been analysed for evaluating the efficacy of audit matters.

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Table of Contents
Introduction......................................................................................................................................3
Auditing standard 701......................................................................................................................3
Important features of ASA 701........................................................................................................5
Retail industry..................................................................................................................................6
Woolworths..................................................................................................................................6
Coles Supermarket.......................................................................................................................7
Wesfarmers..................................................................................................................................8
Adairs limited..............................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................12

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Introduction
Auditing and assurance are important for an organisation as it verifies the internal control
of an organisation and that have to be associated with the procedures which have to be included
with key audit matters. The areas of the auditing that are associated with the organisation mainly
points out the performances that are required to be associated with the company and other
affecting factors. Critical areas are required to be identified which requires certain improvements
and their performance are to be included with the procedures for evaluating the frauds and
backlogs records of the company. In this study, retail industry of Australia have been considered
which mainly includes some of the company that are listed in ASX. Moreover, auditing standard
701 have been considered which points out the key audit matters in the independent auditors
report. The companies that have been listed includes the effective auditing standard that are
mainly highlighted in their independent auditors report.
Auditing standard 701
The standard of auditing are the certain policies or the benchmark that are required to be
followed for performing certain auditing procedures by the auditor. International Standards of
Auditing mainly provides the professional standards that points out the standards which would
be used an organisation on certain circumstances. In this study, auditing standard 701 have been
considered which mainly highlights the key audit matters in the independent auditors report
(Prasad and Chand 2017). ISA 701 has been replaced by ASA 701 which pretty much does the
same job and deals with independent report of the auditor. The quality of the report is required to
be maintained by the appointed auditor of the company as the report of the auditors is the only
thing which is noticeable by the investors of the company. The application of this particular
standard of auditing is applicable for both of the statements of finances along with report from

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the auditors for a certain period of time. The auditor is require to follow the law of the standards
and have to be included with the financial statement of the companies (Carson, Fargher and
Zhang 2016). The size of the company and the auditing standard that are applicable to their
companies are also to be included with the company.
The overall application of the auditing standard 701 is to highlight the key audit matters
that are directly related to the company and points out on the independent auditor’s report of the
selected organisation. The overall applicability of the financial statements of the industries is also
required to be used for supporting the overall accounts and that have to be included with the
overall report that are mentioned in the annual reports (Woodhead et al. 2016). The standard of
auditing primarily communicates with the report of the auditor along with its key audit matters
which also provides more transparency of the process of auditing in the industries. Some of the
features of the standards have been highlighted in the report along with the standards (Masdor
and Shamsuddin 2018). Mandating the communication procedures with the report includes the
auditor of the listed company. The design of the report are required to be associated with the key
audit matters along with highlighting the various entities that cope up with decision making.
Determining the way by which the auditor plans the report by which it would be
published in the annual report of the respective company. The area of the risks are also required
to be considered which requires more judgement along with involving the overall effect of
significant matters that are going to be reported by the auditor (Cohen and Simnett 2015). The
situations that are related to the reporting entity are mainly points out the different documents
which have to be included with the annual report of the organisations. The standard of auditing
basically communicates with the key audit matters and that have to be associated with the
process of auditing along with more transparency (Farooq and De Villiers 2017). The overall

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matter of audit are directly associated with the change in the governance and determines things
that are required to be considered by the appointed auditor of the company.
The risks that are associated with the company and their material misstatement mainly
highlights the statement of finances that would be useful for checking the usefulness of the
business. The material misstatement in the company also includes certain amount of loss that
would be incurred by the companies and which would also affect their financial statement
(Simnett, Carson and Vanstraelen 2016). The appointed auditor of the company involves the
managerial decision and applies the auditing standard in the statement of financials of the
business which also provides benefits. The risk of the companies are required to be highlighted
by the companies and those have to be eliminated with the standard of auditing. It also help in
identifying the uncertainty which might led the company to certain amount of financial loss
(Simpson, Aboagye-Otchere and Lovi 2016). The effect of auditing also includes some important
events within the overall period of auditing.
Important features of ASA 701
The important features of ASA 701 have been highlighted in the below part and those are
required to be considered within the overall process of auditing. The appointed auditor of the
company requires the key audit matters for communicating with the report of the auditor along
with the annual report of the companies (Knechel 2016). This particular standard make the
choice of the auditor where to decide with the key audit matters of the company or not.
Moreover, it also determines the governance that are associated with the companies that have to
be associated with the annual report of the companies (Byrnes et al. 2018). The modification of
the financial statement of the company are required to be included with the opinion that includes
the ASA 705 along with description of the key audit matters of the appointed auditor.

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Retail industry
The industry that is chosen is the retail industry and the annual report of the companies
have been considered for gaining knowledge that how the company are analysing their reports in
their key audit matters. All of the analysis that has been mentioned are based on the annual report
of the companies for the year ending 2019. The following are the companies that has been
considered for highlighting their key audit matters in the independent auditors report.
Woolworths
The audit matters that have been observed from the annual report of the company are
pointed below along with certain opinion from the annual reports.
Onerous lease provision and asset impairment in the BIG W business
BIG W business mainly incurred a certain amount of loss along with tax that includes
significant item of $ 85 million (Woolworthsgroup.com.au 2019). The impairment of the assets
includes the carrying value which are mainly based on the discounted price of future flow of
cash. The significance of the loss that are incurred by the inherent judgement which are related to
the application of the future trading results (Dai and Vasarhelyi 2016). The gross margin of the
company includes the recoverable amount which are about to be associated with the accounting
standard that have been applied for maintaining the financial statement of the company.
Information Technology system
The system of information technology in the company are positioned in a complex group
which varies at the very initial level (Woolworthsgroup.com.au 2019). The overall system are
critical in nature and that have to be associated with the ongoing operations and financial
reporting is required to be performed with the results of the assessment (Saputra 2015). It also

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act as the key components of the risk assessment which have to be associated with the overall
process of internal auditing. The management of the company have the discussion with the
consideration with the key financial process and those have to be resulted with system of
information technology. The controls of the relevant financial reporting system also points out
the compensation controls that are substantive in nature.
Coles Supermarket
The audit matters that have been observed from the annual report of the company are
pointed below along with certain opinion from the annual reports.
Commercial Income
The commercial income of the company mainly includes the discounts as well as the
rebates which have to be received by the group from the suppliers. It has been recognised with
the consolidated statement of financial statement and the each agreement of rebate along with
nature and substance of arrangement have also to be mentioned in the report (Colesgroup.com.au
2019). Some of the samples from the suppliers are required to be selected which would
positively provide with the materials of commercial income. The performance of the comparison
is required to be assessed with the financials and that have to be included with the measurement
of rebates and the procurement process.
Impairment of non-current assets which includes intangible assets
The amount that can be recovered from the company are required to be included with the
property plant and equipment that are directly associated with the business of the company
(Colesgroup.com.au 2019). The process of impairment assessment are complex in nature and
that have to be included with the assumptions and the estimates that have provided positive step

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towards the performance of the organisation in their future years (Marques Santos and Santos
2016). The involvement of the valuation specialist also includes the appropriateness of the key
points that includes the rate of the discount and growth rate that are terminal in nature.
Inventory existence
As per the annual report of the company, it consist of $ 1964.7 million as inventories
which have to be included with the balances and those have to be associated with the financial
position of the business (Colesgroup.com.au 2019). The diverse location around the country that
is Australia also highlights the distribution centres and the stores which have to be associated
with the business. The selected samples of the stores is to be observed and assess the inventories
within the year and that have to be determined with the centres of distribution (Peters and Romi
2015). The daily counts that occurs is required to be associated with the store sand the
distribution centres within the current financial year.
Wesfarmers
The audit matters that have been observed from the annual report of the company are
pointed below along with certain opinion from the annual reports.
Impairment of non-current assets
The process of determination of the assets in the company mainly includes the
recoverable amounts which have to be associated with plants and equipment that directly
highlights the amount of profit within the business. The good of the company and other
intangible assets of Wesfarmers includes the significant judgement that are required by the group
along with triggering the Australian standard of accounting (Wesfarmers.com.au 2019). The
range of assumptions and other form of aspects is also impacted by the future aspects which have

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to be assumed with the estimates of future performance along with the market condition. During
the current financial year, material impairment also includes the reversal process that highlights
the disclosures in the financial statement that are prepared at the end of the year (Earley 2015).
Addressing the key audit matters is also another key aspect which have to be associated with the
emphasis and includes the comparative study and valuation from the market evidences.
Suppliers rebate
The amount of rebate that are received from the suppliers also includes the in the process
of operation of the retail industry. The determination of the key audit matters includes the
valuable rebates that have to be used with certain number of factors (Carson, Fargher and Zhang
2016). Time of recognition, individual rebate and accurate recognition is also associated with the
process of controls that have to be measured with the inventories. The key audit matters that are
required to be included with rebates of the suppliers includes the process of understanding along
with assessing the significant agreements within the relevance controls (Moffitt, Rozario and
Vasarhelyi 2018). The performance of comparison includes different arrangements which have
to be associated with the process of budgeting and that have to be highlighted by the auditor in
independent audit reports. Moreover, the enquiry of business requirement is also to be included
for better representation of the categories that are associated with the business.
Adairs limited
The audit matters that have been observed from the annual report of the company are
pointed below along with certain opinion from the annual reports.
Carrying values of the intangible assets

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According to the financial report of the company, it holds around 53 % of the total assets
that has already been represented by the goodwill and from the historical business combinations
(Investors.adairs.com.au 2019). The name of the brand have been tested by the impairment
facility in each year and the recoverable amount of the assets have to be determined with the
basic discounted flow of cash. The estimates and judgements of the amount is required to be
achieved with the forecasts that underlies the assessment (Woodhead et al. 2016). Assessing the
application of the key audit matters is to be highlighted from the process of valuation and the
assumptions is also to be considered from actual financial performance and budgeted financial
performance.
Carrying values of the inventories
The company consist of around $ 42.782 million as inventories and represents around 20
% of the total amount of assets (Investors.adairs.com.au 2019). The cost of inventories is
required to be determined with the factors that affects the other factors such as the exchange rates
and cost of the insurances. Changes in the consumer behaviour includes their demand that might
change with the cost of allocation and the inventories that are associated with the business.
Recording of inventory also plays an important role for lowering the overall amount of cost and
the net realisable value is also to be determined (Masdor and Shamsuddin 2018). The process of
identifying the specific inventories is associated with the inventory turnover of the business.
Conclusion
The above study can be concluded that the process of auditing and assurance is important
for each organisation that has produces financial statement. The study also points out the analysis
of the key audit matters in the report from the independent auditor that are provided in the annual

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report of the company. The overall application of the auditing standard 701 is to highlight the
key audit matters that are directly related to the company and points out on the independent
auditor’s report of the selected organisation. The risk of the companies are required to be
highlighted by the companies and those have to be eliminated with the standard of auditing. The
significance of the loss that are incurred by the inherent judgement which are related to the
application of the future trading results. It has been recognised with the consolidated statement of
financial statement and the each agreement of rebate along with nature and substance of
arrangement have also to be mentioned in the report. Moreover, the retail industry points out the
efficacy of the audit matters from the annual report of the companies.