HI6026 Audit, Assurance and Compliance: Enhanced Auditor Reporting

This report provides an executive summary of audit, assurance, and compliance practices, focusing on the enhanced auditor reporting implemented in Australia since 2016. It examines the introduction of 'key audit matters' in auditor's reports to improve transparency and the use of 'plain English' to communicate critical issues. The report analyzes the audit of Woolworths Limited, discussing auditor's remuneration, the importance of the audit committee charter, and the auditor's opinion. It also explores the responsibilities of management and auditors, subsequent events, and the concept of a true and fair view. The report highlights the significance of key audit matters, such as accounting rebates and IT systems, and their impact on financial reporting. Furthermore, it delves into the role of the audit committee and its charter in ensuring quality and compliance. The report concludes with an overview of the auditor's opinion, management and auditor responsibilities, and the relevance of subsequent events in financial reporting, providing a comprehensive understanding of the evolving landscape of audit practices in Australia. This report is a valuable resource for students, available on Desklib, which offers past papers and solved assignments to aid in their studies.

AUDIT, ASSURANCE AND COMPLIANCE

EXECUTIVE SUMMARY
Countries like Australia, USA, etc are focusing a lot on enhancement of quality of audit reports since 2016. Due to such requirements in
the industry, a special paragraph has been inserted in the independent auditor’s report called ‘key audit matters’ which are required to be
represented in “Plain English” so that such matters which, in auditor’s opinion are of key importance, has been brought into the notice of
the auditor.
The new Australian reporting requirements will form the basis for financial reporting that would deliver transparency at its best and
would be qualitative and quantitative in nature.
Thus, the dream of accounting & auditing industry of having a highly qualitative report would be a reality soon.

Contents
INTRODUCTION............................................................................................................................................................................................................. 3
AUDITOR’S REMUNERATION..................................................................................................................................................................................... 4
KEY AUDIT MATTERS.................................................................................................................................................................................................. 6
AUDIT COMMITTEE CHARTER.................................................................................................................................................................................. 8
AUDIT OPINION........................................................................................................................................................................................................... 10
MANAGEMENT & AUDITOR’S RESPONSIBILITIES..............................................................................................................................................11
SUBSEQUENT EVENTS............................................................................................................................................................................................... 12
TRUE AND FAIR VIEW............................................................................................................................................................................................... 13
CONCLUSION............................................................................................................................................................................................................... 14
Bibliography................................................................................................................................................................................................................... 15

INTRODUCTION
Big 4 companies in the auditing and accounting industry are known for their expertise knowledge in various fields whether taxation,
auditing or accounting. The current annual reports of Woolworths Limited are audited by one of those big companies called Deloitte
which is known best for auditing. The company, being number one audit firm all over the world, is based on corporate ethical principles
where professional conduct is of major importance for everyone. Actions and reactions of a professional are some of the important
concerns of the firm. This is like maintaining integrity at any cost. In case of Deloitte, the Global Principles of Business Conduct guides
Code Of Ethics and Professional Conduct which sets a standardized framework for all the professionals at whichever level they are
working and thus, are restricted to the boundaries set up by such framework (Atkinson, 2012).
Being a reputed company all over the world and abiding by the principles so much that the assurance of whether auditors are complying
with their independence requirements is already justified. According to section 307C of the Corporations Act, 2001, an auditor is required
to give a declaration about his independence which can be visualized from financial reports of Woolworths where the audit partner gives
his authorization regarding professional conduct throughout the audit work and that there has been no violation of applicable
professionalism standards (Berry, 2009).

AUDITOR’S REMUNERATION
The following table represents the auditor's remuneration for the services served by it. As per the case, the auditor's remuneration have
increased from the previous year. Such major changes in remuneration has occurred due to non-audit services which shows a change of
143.35% in case of auditor of the parent entity and 88.64% in case of other auditors. Non audit services are those services that are
provided along with audit services by the audit team. However, such separate services shouldn't compromise with the auditor's
independence requirements as stated in APES 110 (Code of Ethics For Professional Accountants). Such non audit services shouldn't be
provided in such a way that decisions are made on behalf of the company or auditors shouldn't be responsible for sharing of any risks or
rewards on company’s behalf (Case, 2012).
These services includes consultancy and assistance on matters related to accounting, taxation and assurance services such as regulatory
services, norms regarding raising borrowings, due diligence and such other small services. The remuneration provided for such extra
services was $504,000 and didn't impact on the statutory requirements of an auditor.
AUDITOR'S REMUNERATION
Particulars
2017 ($'000) 2016 ($'000)
%
Change
Auditor of the parent entity : Deloitte Touche Tohmatsu Australia
Audit or review of the finnacial report 3254 2748 18.41%
compliance & regulatory services 129 239 -46.03%
other non-audit related services 421 173 143.35%
tax compliance services 108 113 -4.42%

Total 3912 3273 19.52%
Other Auditors
Audit or review of the finnacial report 305 218 39.91%
other non-audit related services 83 44 88.64%
tax compliance services 154 160 -3.75%
Total 542 422 28.44%

KEY AUDIT MATTERS
As already discussed above and later on even, key audit matters state matters which are of key importance and critical for the company.
Such matters are separately stated along with the procedures adopted for addressing such matters (Dash, 2016). Procedures could be
substantive in nature or maybe analytical procedures and test of controls. Two of such matters are discussed below :
Particulars Description Substantive Test of details test of controls analytical procedures
Accounting for
rebates
We see that the company
gets a lot of rebates,
discounts from other
parties and incentives
which is one of the major
reason for having reduced
value of inventory & cost
of sales. The difficulty
arises in the assessment
and recognition off such
discounts which is complex
as it requires a lot of details
regarding contract
agreements as well as
sources from where data
Checking of accuracy and
appropriateness of amounts
presented as receivables,
discounts received on the date
of reporting; evaluating the
accounting treatment of such
incentives and checking the
basis for valuation of
inventory.
Understanding the controls the
company is exercising over
such rebates and incentives.
testing of incentives and
discounts received on
sampling procedures ;
testing of sale reports ;
comparison of it with
previous years.

has been derived. as they
affects inventory valuation
and COGS calculations, it
is found to be a key matter.
IT system The IT system adopted is
complex in nature and is
comprised of a number of
levels for well integration
and execution of it. Since
such systems are important
for assessing the operations
of the business and
maintaining strict control
over the reporting of
financial information, such
IT systems are found to be
critical in nature and so is a
key matter.
Discussions with management
regarding the IT controlled
environment, discovering the
scope of IT testing; additional
substantive procedures;
checking the accuracy and
appropriateness of information
generated by the system.
Testing the IT designing
controls ; in case of
discrepancies, applying of
additional controls ;
understanding the controls of
review ; evaluating the
operating effectiveness of such
controls. -

AUDIT COMMITTEE CHARTER
Being one of the well known companies in the retail sector of Australian market, Woolworths has provided every information through its
audit report. We can already visualize well that there is an audit, risk, management & compliance committee. This committee is formed
by 5 members of the board where Michael Ullmer has been made the chairman (Edwards, 2014).
The audit committee charter is a governing charter that gives directions to the audit committee to perform their actions in the best way. It
should have at least three members where all of them are independent directors of the board and out of them, one person is made the
committee's chairperson. The audit committee requires members to satisfy their independent requirements as long as possible. Th
members are required to be literates financially and they are allowed to serve not more than three audit committee of public companies at
one time until and unless the Board approves them to do so.
The audit committee should perform following functions :
 They are required to guide the directors so that they can fulfill their responsibilities in the best way towards potential
shareholders ;
 Maintaining of financial reports along with all relevant document that are both qualitative and quantitative in nature ;
 Evaluating the efficiency of internal control environment over the company as well as over the preparation of financial reports ;
 Compliance with various legal and regulatory requirements and also with the auditor's independence requirements ;
 Evaluating and supervising the internal audit department work as well as having regular meetings with independent auditors to
provide them with information that they might ask for or voluntarily maybe.
The charter defines the framework focusing on the responsibilities bestowed upon the audit committee. The management of the company
would be responsible for applying appropriate and accurate accounting reporting standards so as to prepare and present such financial
information in the reports that delivers a true and fair picture. It is required to base its professionalism on ethical grounds and exercise due

control over the operating environment of the company (Girard, 2014). The company believes in adopting such policies and procedures
that are flexible enough to adapt to every corporate change. It is the committee's responsibility to continuous monitor the corporate
reporting in terms of quality, various threats upon the company’s reporting, related risks and company's ethical personality (Taillard,
2013). It has the responsibility of formulating procedures and policies for the company after having a clear understanding of the risks,
controls and assessment procedures of the company. It plays an active role while planing an action for auditing with the internal audit
team or external auditors and also helps the costing department for preparing budgets or compensation reports etc.

AUDIT OPINION
Audit opinion, that forms the most important and crucial job of an auditor, expresses his opinion on the financial statements that such
statements gives a true and fair view (Hubig, 2013). However, such an opinion is just an assurance and shouldn't be mixed up with
guarantee.
In the current case of Woolworths, as per financial reports as on 25 June, 2017, the auditor is of the opinion that the financial reports are
true and fair and that his opinion is an unqualified opinion (Siciliano, 2015). The reports audited by the auditors include consolidated
statement of financial position, consolidated statement of profit or loss and other comprehensive income, statement of changes in equity
and cash flow Statements, all being of consolidated nature and are prepared with required & relevant notes to accounts. Also the reports
show a summarized picture of accounting standards applied and that a declaration has been obtained from the directors (Holtzman,
2013).
That the reports are also complying with Australian Accounting Standards and Corporation Regulations 2001. It complies with every
standards and norms as set out in Corporation Act 2001.

MANAGEMENT & AUDITOR’S RESPONSIBILITIES
The auditor's job is to analyze and examine the financial statements but the preparation and presentation of such financial statements are
management's responsibility. Considering the Australian Accounting Standards and the relevant act, it is the management who is
responsible for strictly controlling the internal environment of their business so as prepare reports that are free from material
misstatements and the risk of errors and fraud are low (McLaney & Adril, 2016). The management is required to test the going concern
abilities, appropriate corporate disclosures, efficiency and effectiveness of the business operations etc.
However, the auditor's responsibilities extends to a much broader concept where their objective is to provide reasonable assurance about
management's actions in terms of financial reports, internal control, future plans and risk assessment. They are required to be sure that
such reports are free from risk of material misstatements (Menifield, 2014). Their scope of work extends from planning their audit
procedures, executing their plan of actions, collecting sufficient audit evidences and conclusions so as to base their audit opinion on such
findings. The team is required to evaluate and examine their internal control efficiency, appropriateness of accounting & auditing
standards, having an attitude of professional skepticism, examining the third party relations and all such necessary documents or factors
necessary for concluding about the fairness and truthfulness of such financial statements and their corporate reporting.