Auditing Standards, Corporate Governance, and Case Study Analysis

This report examines the auditing standards applicable to Woolworths Group Limited, a public company, focusing on the mandatory nature of these standards under the Corporations Act 2001 (Cth) and the role of the Auditing and Assurance Standards Board (AUASB). It highlights three key auditing standards: ASA 701, ASA 610, and ASA 550, emphasizing their importance in communicating key audit matters, using the work of internal auditors, and addressing related party transactions. The report also analyzes the Harris Scarfe case, a major corporate collapse, attributing it to fraudulent financial reporting and auditor negligence. It details the auditors' failures in understanding internal controls, non-compliance with ASA 265, and shortcomings in the audit committee's composition. The report underscores the crucial role of auditors in ensuring sound corporate governance, referencing the Australian Stock Exchange and Corporations Act guidelines. The report provides valuable insights into the practical application of auditing standards and their impact on financial reporting and corporate governance.

AUDITING

Answer 1
Part a
Woolworths Group Limited is a well renowned public company engaged in the retail
industry. The audit of the financial statements of the enterprise is subjected to the various
provisions of the Corporations Act, 2001 (Cth). The section 336 specifically states for the
formulation of the auditing standards by the Auditing and Assurance Standards Board
(AUASB). Further, the sub section 4 of the said section states that the auditors must
mandatory abide by the requirements of the said auditing standards unless the standards
specifically states for the non-application of the auditing standards (Austlii, 2019). Thus, the
nature of the applicable auditing framework for the public company Woolworths Group
Limited is in the form of the standards that have the mandatory applicability. The purpose of
the auditing and assurance standards is stated to provide a guideline to the auditors in context
of their responsibilities and the manner of the preparation and contents therein for the
preparation of the auditor’s report (AUASB, 2019a). Hence, as an auditor partner in charge of
the company Woolworths group, it is the responsibility of the auditors to consider the
guidelines stated therein. Further, in relation to the duties and responsibilities of the auditors,
the APES 110 “Code of Ethics for Professional Accountants.”
Part b
The three auditing standards that are specifically applicable to the enterprise are stated as
follows. Firstly, the Auditing Standard ASA 701 “Communicating Key Audit Matters in the
Independent Auditor’s Report” states that auditors must communicate key audit matters in the
reports of the auditor. The purpose of the above auditing standard is to lift the role of the
auditor’s report in relation to the communication with the intended users (AUASB, 2019b).
Thus, the provision of the greater transparency is aimed at while performing the audit as the
said standard is mandatory. The second key audit standard applicable to the entity is the
Auditing Standard ASA 610 “Using the Work of Internal Auditors.” Being a public entity,
the entity is required to mandatory appoint internal auditors under the ASX Corporate
Governance Accounting Principles. Hence, as the principal statutory auditors, it is the
responsibility to abide by the requirements of the ASA 610 compulsorily. The purpose of the
said standard is to provide more robust framework for the evaluation of the using of the work
resulting out of the function of the internal audit (AUASB, 2019c). The third auditing
standard that is applicable on the enterprise, apart from the others is the Auditing Standard

ASA 550 “Related Parties.” The objective of this auditing standard is to provide a guideline
to the auditors on the manner to deal with the responsibilities of the auditors in context of the
matters pertaining to the related party relationships in the company and such transactions in
the audit of a financial report. Yet again, the disclosure of such related parties and the
transactions are compulsory for the public companies as stated by the corporate governance
guideline of the Australian Stock Exchange. Hence, the said standard is applicable to the
auditors of the Woolworths Group.
Answer 2
Part a
One of the popular cases of the frauds in the company by the virtue of the auditors is that of
the national retail chain “Harris Scarfe.” The explanation of the case is stated as follows.
 Before the collapse of the organisation, the company was ranked third in context
of the largest retail group in Australia.
 The company had collapsed in the year 2001, by the virtue of the mounting debts
to the tune of $265 million.
 The month of March 2001 had witnessed conflicts in the stock situation of the
company.
 The company’s collapse is evidently credited to the deceitful set of company’s
financial and other incidental key records. In addition, the financial position was
wrongly expressed to all stakeholders of the company.
 The profit position of the company was expressed higher than the real values.
 Following the continuous problems, the company went into the voluntary
liquidation owing to the problems in the cash flow position of the company.
 The management of the company and the auditors were subjected to the
investigations, leading to the observations that the auditors of the company was
grossly negligent of the duties.
 Following the collapse, the company’s business was sold to Momentum Corporate
in 2007, following the further selling Pepkor South East Asia in 2012 for $67
million (Evans, 2016).
Part b
The auditor’s role in the above mentioned corporate collapse has been elaborated in detail as
follows. It was pronounced in the case by the courts of the law that the auditors of the

company were “inexcusably incompetent and grossly negligent.” The popular audit firms
Ernst & Young and PricewaterhouseCoopers were the auditors of the company during the
period in question. There was a failure on the part of the auditors to understand the internal
control of the enterprise efficiently, which is a prime requirement of the ASA 265 that is
“Communicating Deficiencies in Internal Control to Those Charged with Governance and
Management.” Based on the instructions of Alan Hodgson, the Chief Financial Officer, the
accounts were falsified starring from the mid of the year 1994. Though the preparation and
presentation of the financial statements is the duty of the management of the company and
auditors are dependent on the information delivered by the management of entity, yet there
has been inefficient coordination between the company’s internal and external auditors.
Further to highlight, a chief issue in the organisation was that the composing of the Audit
Committee was of majority of non-independent directors (Kavrar and Yilmaz, 2017). Thus,
there was a major failure of the best practice advices of the “Australian Stock Exchange and
Corporations Act,” in context of the non-independence of the members in the audit
committee and the same was not highlighted in the auditor’s report. Hence, it can be stated
that auditors have a crucial role to play in the sound corporate governance of the entities.

References
Auditing and Assurance Standards Board (2019a) Australian Auditing Standards [online]
Available from: https://www.auasb.gov.au/Pronouncements/Australian-Auditing-
Standards.aspx [Accessed on: 06 October 2019].
Auditing and Assurance Standards Board (2019b) Auditing Standard ASA 701
Communicating Key Audit Matters in the Independent Auditor’s Report Standards [online]
Available from:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_701_Compiled_2017_1503299611
435.pdf [Accessed on: 06 October 2019].
Auditing and Assurance Standards Board (2019b) Auditing Standard ASA 610 Using the
Work of Internal Auditors [online] Available from:
https://www.auasb.gov.au/admin/file/content102/c3/Nov13_ASA_610_Using_the_Work_of_
Internal_Auditors.pdf [Accessed on: 06 October 2019].
Austlii (2019) Corporations Act 2001 - Sect 336 [online] Available from:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s336.html [Accessed on: 06
October 2019].
Evans, S. (2016) Debenhams fashion lines give early boost to Harris Scarfe [online]
Available from: https://www.afr.com/companies/retail/debenhams-fashion-lines-give-early-
boost-to-harris-scarfe-20160922-grm02m [Accessed on: 06 October 2019].
Kavrar, O. and Yilmaz, B. (2017) Corporate Collapses in Australia: Case of Harris Scarfe,
Journal of Economics, Business and Management, 5(1), p. 14.