Comprehensive Auditing and Assurance Report: Coca-Cola Amatil Analysis

This report provides an executive summary and detailed analysis of the auditing and assurance of Coca-Cola Amatil's financial statements, focusing on the application of Australian Auditing Standards (ASA) including ASA 315, ASA 570, and ASA 701. The report, based on the audit conducted by Ernst & Young, evaluates the risks of substantial mismanagement, assessing business and sustainability risks, market risks, liquidity risks, and credit risks. It examines the auditors' assessment of areas associated with the risk of substantial mismanagement, including impairment of assets, carrying value of intangible assets, and accounting for discounts. Furthermore, it discusses the impact of important transactions and events affecting the company's ability to remain a successful entity, culminating in recommendations and conclusions regarding the audit findings. The report highlights key audit matters and provides a comprehensive overview of the financial audit process, offering valuable insights into the company's financial health and risk management strategies.

Running head: Auditing & Assurance
Auditing & Assurance

Auditing & Assurance 1
Executive Summary
The Auditing Standards guide the auditors regarding the application of the audit steps and
processes to accomplish the auditing goals. They are the benchmarks against which the results
of audit are analyzed. The auditing guidelines assist the auditors to evaluate the authenticity of
the financial reports.
The Australian Auditing Standards Board (AASB) state the necessities and the accountabilities
of the auditor while undertaking the audit of the financial statements. Some of the guidelines
prescribed by AASB in this regard are ASA315, ASA 570 and ASA 701. According to ASA
315, it is the accountability of the auditor to recognize and evaluate the substantial risk of
mismanagement in the financial reports. To fulfill this objective, they should comprehend the
environment of the entity and its internal control.
Another Australian Auditing Standard ASA 570 pertains to the accountability of the auditors to
analyze whether the entity would be able to sustain in the future as a successful concern .It is
evaluated in the context of ASA 315, whether the entity would be able to manage the risk and
survive as a successful concern.
The newly introduced Auditing Standard ASA 701 implies the communication of the key audit
matters in the independent auditor’s report by the auditors. The purpose is to provide the
information with greater transparency to the stakeholders of the entity.
So, in this report, the financial statements of Coca – Cola Amatil are analyzed against the given
auditing principles by Ernst & Young. The conclusions of their evaluation are also stated hereby.

Auditing & Assurance 2
Table of Contents
Executive Summary.....................................................................................................................................1
Introduction to Australian Auditing Standards............................................................................................3
About the Company.....................................................................................................................................3
Introduction of the auditors.........................................................................................................................3
Evaluation of the risk associated with Substantial Mismanagement............................................................3
Auditor’s Assessment regarding the areas associated with the risk of substantial mismanagement as per
ASA570...................................................................................................................................................5
The impact on the audit of important transactions which occurred during the period..................................6
Events affecting the company’s capability to remain as a successful entity................................................6
Recommendations/ Conclusion...................................................................................................................7
References...................................................................................................................................................8

Auditing & Assurance 3
Introduction to Australian Auditing Standards
ASA 315, ASA 570 and ASA 701 are some of the auditing standards introduced by the AUASB
to enable the auditors to recognize and evaluate the probable risks of material mismanagement
occurring in the organization. ASA 315 deals with the ‘Identification and Assessing the Risks of
Material Mismanagement through Understanding the Entity and Its Environment.’ It bestows the
responsibility of risk assessing and identification of substantial mismanagement to the auditors
by comprehending the entity, its environment and its internal control measures.
ASA 570 deals with the accountability of the auditors regarding the evaluated risks as per section
315.The auditors have to report the risks regarding the operation of the entity as a successful
concern in the future and their analysis in the Independent Auditor’s Report.
ASA 701 states that the auditor should communicate the key audit matters relevant to the
identification of risk as per section 315 and 570 in the auditor’s report. It guides the auditors
regarding the content covered and its format in the auditor’s report (Auditing and Assurance
Standards Board, 2016).
In this report, the auditing standards would be applied to the financial report of Coca-Cola
Amatil and the conclusions would be stated by Ernst & Young.
About the Company
Coca-Cola Amatil is a public limited company with its headquarters at New South Wales,
Australia. It is one of the largest providers of the non-alcoholic beverages in the Asia-Pacific
region. It is amongst the five main Coca-Cola bottlers. It supplies its products in six countries-
Australia, New Zealand, Papua New Guinea, Indonesia, Samua and Fiji. Its revenue was AS $
5.12 Billion and profit was AS$ 79.9 Million in 2014(Coca- Cola Amatil, 2018).
Introduction of the auditors
The audit of Coca-Cola Amatil for the years 2015 and 2016 was conducted by E& Y. It is a
multinational profession services firm, the headquarters of which are situated in London,
England. It is amongst the largest professional consultancy firms in the world and one of the ‘Big
Four’ accounting firms. It has 2, 31,000 employees in 150countries worldwide. It is the provider
of consultancy services including tax, assurance, legal and financial audit to the companies (E &
Y, 2018).
Evaluation of the risk associated with Substantial Mismanagement
According to ASA 315, it is the accountability of the auditors to identify and assess the risks of
substantial mismanagement in the financial reports of the organization, through analyzing its
internal environment and control (Auditing and Assurance Standards Board, 2013). The relevant
matters in this regard are:

Auditing & Assurance 4
1. Business and Sustainability Risks: There are certain market, financial, operational and
socio political threats to the organization which could affect its future prospects. Some of
them are:
(a) Macro –Economic Factors affecting competition and demand: The consumer spending habits
relating to food and beverages in Australia and New Zealand is challenge for the company.
Due to lack of liquidity in the local Papua New Guinea currency market, the company is
facing threat in its survival.
(b) Decline in the Sparkling soft drinks business: The customers are aware of their health and
wellness concerns, so there has been a downfall in the soft drinks business in Australia, New
Zealand and Indonesia.
(c) Additional compliance and imposition of the taxes: Certain additional compliance such as
proposed container deposit scheme and the sugar and plastic taxes have emerged in the
recent times. The policies on the consumption of beverage products and the focus on litter
and obesity issues have led to the risks concerned with the regulatory compliances.
(d) Threats of natural disasters and cybercrime: The organization is exposed to the threats of
natural disasters like flood, fire and earthquakes. So, the organization is prone to business
risks in this regard.
(e) Occupational, Health and Safety risks: The workers in the organization are prone to serious
injury through industrial and traffic accidents because of the nature of the business
(Awadallah & El-Said, 2018) .
2. Market risks: The market risks such as foreign currency exchange risks, interest rate risks and
commodity price risks are faced by the organization. It is facing the risks regarding the financial
assets and liabilities, particularly the cash and cash equivalents, term deposits, bonds, loans and
bank overdrafts. The firm is prone to the primary risk exposures in relation to the fluctuations in
the prices of raw materials. The firm is facing the risk of substantial mismanagement as the
management can manipulate the statistics of the foreign currency transactions and the exposures
in this regard, in the financial reports.
3. Liquidity risks: The risks relating to the failure of the organization to meet the financial
obligations as and when they arise is termed as Liquidity risk. There is a risk of substantial
mismanagement as the management can project the exaggerated value of the financial assets
which are set aside for liquidation as and when the need arises.
4. Credit risk: The risk that the creditors or borrowers may fail to fulfill their commitments, arising
in the financial loss to the company is termed as Credit risk. There is a risk of material
mismanagement as the management can mismanage the amount of exposure which it has set for
each financial institution.
5. Translation risk: It arises when the organization prepares the financial statements of the branch in
the home currency. So, in this case the foreign operation’s financial statements are converted into
Australian Dollars utilizing the applicable foreign rates for the particular period. As a result,
fluctuations in the foreign exchange rates can influence the organization’s net assets, profit and
other income. It may result in mishandling of the statistics related to the exchange rates by the
management (Ernst & Young, 2013).
6. Impairment of SPC assets: The impairment of the assets of SPC amounted to $ 4.9 Million in
2015 while it amounted to $217.3 Million as at 31st December, 2016.Due to the amount of
impairment and its calculations in assessing the recoverable amount of the SPC assets, the
auditors considered it to be as a risk of material mismanagement (Financial Reporting Council,
2016).

Auditing & Assurance 5
7. Carrying value of intangible assets: As in 2015, the intangible assets amounted to $908.7 Million
comprising 18.8 % of the total assets. In 2016, they amounted to $1077.4 Million comprising of
16.7 % of the total assets. The auditors assessed the accounting estimates, specially the
assumptions about the future and considered it to be a matter of material risks.
8. Accounting for discounts and promotional allowances: The identification of discounts and
allowances includes judgment and assumptions, especially the expected claim of each
consumer .So, this matter was considered by the auditors as a matter of substantial
mismanagement.
9. The profit made by the company in 2015 was $ 403.4 Million while in 2016 it was $ 257.3
Million .It decreased by $146.1 Million. The property, plant and machinery amounted to $
2019.9 Million in 2015 while it was $ 1948.9 Million in 2016.So, it decreased by $ 71Million.
The stock amounted to $ 733.9 Million in 2015 while it was $ 676.4 Million in 2016, so it
decreased by $ 57.5 Million. The equity and net debt of the company amounted to $ 3556.1
Million in 2015 while it amounted to $ 3403.1 Million in 2016.With regards to this trend, there is
a huge possibility of making losses and cash outflow to the company.
The share price of Coca- Cola Amatil is AUS$ 8.19 as on 20th January, 2018. The downfall in the
profitability can be due to changing consumer preferences and opting of healthier beverage
options. The share price is expected to decrease by 16.94 % in the future, so there can be a huge
loss to the company in this regard (Coca- Cola Amatil, 2016).
Auditor’s Assessment regarding the areas associated with the risk of substantial
mismanagement as per ASA570.
1. The auditors assessed the business risks as per ASA 570 and found that the management has
adopted certain measures to mitigate them. They include innovations in the products, adoption of
cost –out measures and policies regarding stakeholder awareness .With regards to Occupational
health and safety risks, the management continually reviews its framework and invests in
initiatives to mitigate it. The cyber threat and risk of natural disasters is mitigated by
investigation on a regular basis to check the adequacy of all the procedures (KPMG, 2013).
2. To mitigate the foreign and interest rate risks, the company hedges the dealings related to the
future estimated cost of goods sold related transactions up to four years. The commodity price
risk is mitigated by entering into futures, swaps and option contracts.
3. The liquidity risk is mitigated through adoption of the liquidity policy relating to the least level
of committed facilities in relation to net debt .The company also maintains sufficient funds and
financial assets which are readily convertible into cash to reduce the effect of risk.
4. To mitigate the credit risk, the company restricts the limit of credit exposure to each financial
institution.
5. With regards to translation risk, the company hedges the risk by entering into derivative
contracts.
6. Impairment of SPC Assets: The auditors analyzed the estimates and calculations used to assess
the impairment of assets .Also, they evaluated the rational of the net realizable value of stock by
contrasting the statistics of stock to sales forecast (E & Y, 2014).
7. Carrying value of intangible assets: The auditors analyzed the calculations of the value of assets
as per AASB 136 .Also; they judged the accuracy of the disclosures made in the financial
reports.
8. Accounting for discounts and promotional allowances: The auditors tested the procedures and
policies made by the company for the calculations of discounts and allowances (Kerr, 2013).

Auditing & Assurance 6
The impact on the audit of important transactions which occurred during the period
According to ASA 701(Para 9), the auditors should focus on the matters relating to governance
and evaluate the areas of higher risk of material misstatements in accordance with ASA
315(Auditing and Assurance Standards Board, 2015). In the context of Coca-Cola Amatil, the
impact of the important audit transactions is as follows:
1. With regards to the business risk, the company can have loss in terms of competition with the
firms selling healthier beverages.
2. Where the local market of Papua New Guinea is suffering from liquidity crises, the entity can
face the risk of credit.
3. The non- compliance with the newly introduced or proposed legislations can lead to legal actions
against the company.
4. Most importantly, the risks due to the natural disasters and cyber threat can be a danger to the
company’s existence or pose a major threat to its commercial activities.
5. The market risk can pose a threat to the company’s commercial activities as the company deals
in foreign currency transactions.
6. The company can face liquidity crises due to its failure to liquidate the financial assets to meet its
commitments (CPA Australia, 2013).
7. The entity can face financial losses due to the failure of counterparty to meet its obligations.
8. In the case of translation risk, the entity can face the threat of mismanagement of the calculations
in the projection of the statistics in the financial reports.
9. With regards to impairment of assets, there is a risk of mismanagement in the recoverable
amounts and their accounting of each class of SPC’s assets.
10. In the context of carrying value of the intangible assets, the company can face the risk of
inaccurate estimates regarding the future, resulting in wrong analysis of the statistics and their
projections in the balance sheet.
11. The risk relating to the accounting for discounts and promotional allowances relates to the
inappropriate calculations, influencing the cash outflow of the company( Nexia-SAB &T, 2016)
Events affecting the company’s capability to remain as a successful entity
As per ASA 570, the financial reports are prepared with the assumption that the concern will
continue operating as a successful entity in the future, till the management dissolves it or halts its
operations when it is left with no option (Auditing and Assurance Standards Board, 2015).
The decision of the management whether the entity would continue to survive as a successful
concern depends upon a number of factors. These include happening of the contingent event
whose results are uncertain. The extent, nature, complexity of the entity and type,
characteristics of the industry in which it operates also influence its capability to survive as a
successful concern in the future. These factors also affect its decision making abilities. When
there is an absence of continuity in its transactions, it can’t be observed as a going concern
(Deloitte, 2016).
In the context of Coca –Cola Amatil, its business risks including the threat to the soft drinks
business due to change in the consumer preferences, the retail pricing pressure influencing the

Auditing & Assurance 7
entity and the liquidity crises faced by the entity in the local Papua New Guinea market does not
affect its ability as a going concern.
Apart from this, the compliance of the proposed legislations relating to the container deposit
scheme and the levy of sugar and plastic taxes does not pose a threat to its existence as a
successful entity. The Occupational Health and Safety risk and the threats posed by the natural
disasters and cyber security risk can disturb the business activities if there is an absence of the
adoption of appropriate policies and procedures .But if the company has reduced the influence of
the major disturbances by adopting appropriate measures and policies, it would not affect its
capability to operate as a going concern.
The market, credit, liquidity and translation risk cannot affect the organization’s capability as a
going concern as appropriate measures have been adopted by the company to mitigate these risks
(Coca- Cola Amatil, 2015).
With regards to the charges of impairment of assets, carrying value of the intangible assets and
provisions relating to the discounts and provisional allowances provided to the consumers cannot
affect the organization’s ability to operate as a going concern. This is because the entity has
adopted suitable measures to cope up with these risks.
Recommendations/ Conclusion
To conclude, it can be said that the focus of the audit is to analyze the financial reports and state
the opinion regarding the performance and the risks of material misstatements of the company. It
should be executed with the assurance that the financial report does not project any possibilities
of probable frauds, thereby affecting the capability of the company to continue as a going
concern in the future (Salem, 2012).
The responsibility of the auditors is to test the accounting principles and procedures applied by
the management with relevance to the dealings of the company. The steps involved are
accumulating the data and testing its authenticity and dependability. It is tested by suitable proofs
at the operational level and through its records. The relevant results should be derived from the
analysis done by the auditors. If there are frauds or mistakes in the procedures or policies
adopted by the organization, then the auditors should suggest the measures to rectify them as
well as strictly monitor to stop their occurrence in the future. Also, the concerned personnel
should be penalized for committing frauds, so that the staff doesn’t repeat it in future (Szívós &
Orosz, 2014).
Coca-Cola Amatil, which is one of the largest listed entities on ASX, has complied with the
applicable Australian Auditing Standards. Also, the auditing team has assessed the important
transactions of the company on the basis of Australian Auditing Standards. They have suggested
suitable measures to upgrade the accounting processes and mechanisms relating to its areas of
operations (Coca –Cola Amatil, 2018).

Auditing & Assurance 8
References
Auditing and Assurance Standards Board (2015) Auditing Standard ASA 701 Communicating
Key Audit Matters in the Independent Auditor’s Report [online]. Available from:
http://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf [Accessed 20th January,
2018].
Auditing and Assurance Standards Board (2015) Auditing Standard ASA 570 Going Concern
[online]. Available from: http://www.auasb.gov.au/admin/file/content102/c3/ASA_570_2015.pdf
[Accessed 20th January, 2018].
Auditing and Assurance Standards Board (2016) Australian Auditing Standards [online].
Available from: http://www.auasb.gov.au/Pronouncements/Australian-Auditing-Standards.aspx
[Accessed 19th January, 2018].
Auditing and Assurance Standards Board(2013) Auditing Standard ASA 315 Identifying and
Assessing the Risks of Material Misstatement through Understanding the Entity and Its
Environment[online]. Available from:
http://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_ASA_
315.pdf [Accessed 19th January, 2018].
Awadallah, A.A. & El-Said, H.M. (2018) Auditors’ Usage of Non-Financial Data and
Information during the Assessment of the Risk of Material Misstatement for an Audit
Engagement: A Field Study. Accounting and Finance Research. 7(1)
Coca- Cola Amatil (2015) Real Possibilities Real Progress 2015 Annual Report[online].
Available from: https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2015/
CCA166-CCA-Annual-Report-2015-WEB_final.ashx [Accessed 20th January, 2018].
Coca- Cola Amatil (2016) Annual Report 2016 [online]. Available from:
https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2017/CCA181-Annual-
Report-2016-low-resolution.ashx [Accessed 20th January, 2018].
Coca –Cola Amatil (2018) Our Company [online]. Available from https://www.ccamatil.com/
[Accessed 20th January, 2018].
Coca- Cola Amatil (2018) Our History [online]. Available from: https://www.ccamatil.com/our-
company/our-history [Accessed 20th January, 2018].

Auditing & Assurance 9
CPA Australia (2013) Overview of audits and reviews of financial statements [online]. Available
from: https://www.cpaaustralia.com.au/documents/seam-audits-reviews-financial-statements.pdf
[Accessed 20th January, 2018].
Deloitte (2016) Clear, transparent reporting: The new auditor’s report [online]. Available from:
https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/audit/ch-en-audit-new-auditors-
report.pdf [Accessed 20th January, 2018].
E & Y (2014) Africa FY16 Audit Quality Update. Fraud: Case, cause & our response [online].
Available from: https://www.icpak.com/wp-content/uploads/2017/11/ICPAK-ISA-240-Fraud-
By-CPA-Enock-Omwenga.pdf [Accessed 20th January, 2018].
E & Y (2018) EY at a glance[online]. Available from: http://www.ey.com/us/en/newsroom/facts-
and-figures [Accessed 20th January, 2018].
Ernst & Young (2013) Key considerations for your internal audit plan Enhancing the risk
assessment and addressing emerging risks [online]. Available from:
http://www.ey.com/Publication/vwLUAssets/EY_Key_considerations_for_your_internal_audit_
plan_1/$FILE/ATT5QP7A.pdf [Accessed 20th January, 2018].
Financial Reporting Council (2016) Identifying and Assessing the Risks of Material Misstatement
Through Understanding of the Entity and Its Environment [online]. Available from:
https://www.frc.org.uk/getattachment/0737b946-b24a-441d-a313-54e0a90f9e7d/ISA-(UK)-315-
Revised-June-2016_final.pdf [Accessed 20th January, 2018].
Kerr, D.S. (2013) Fraud-risk Factors and Audit Planning: The Effects of Auditor Rank. Journal
of Forensic & Investigative Accounting. 5(2).
KPMG (2013) Risks in business: Internal and external pressures[online]. Available from:
https://home.kpmg.com/xx/en/home/insights/2013/07/business-risks-internal-external-
pressures.html [Accessed 20th January, 2018].
Nexia-SAB &T (2016) Reporting of key audit matters in the audit report [online]. Available
from:
https://www.nexia-sabt.co.za/wp-content/uploads/2016/09/SABTip_August_2016_Reporting_of
_key_audit_matters.pdf [Accessed 20th January, 2018].
Salem, M.S.M.(2012) An Overview of Research on Auditor’s Responsibility to Detect Fraud on
Financial Statements. The Journal of Global Business Management. 8(2).

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Szívós, L. & Orosz, I.(2014) The Role of Data Authentication and Security in the Audit of
Financial Statements. Acta Polytechnica Hungarica. 11(8).