Financial Statement Overstatement: An Auditing Report on Woolworths

This report examines the overstatement of financial statements, specifically focusing on a case study involving Woolworths. The analysis delves into the misstatement of income and expenses, highlighting how the company overstated both revenues and expenses by equal amounts, ultimately nullifying the net effect on profits. The auditor identified that personal expenses were improperly included in branch expenses, and the company overstated revenues from other sources to offset these expenses. The report discusses the auditor's findings, the materiality of the misstatement, and the implications for the audit opinion. The auditor is expected to give an adverse opinion on the overstatement of revenues and expenses. The report also touches upon the relevant auditing standards (ASA 705) and the potential consequences of these misstatements, including the influence on investor decisions and potential scrutiny from tax authorities. The conclusion emphasizes the auditor's duty to provide an opinion based on the findings and not to seek personal interest by giving unqualified opinion on misstated financial statements.

AUDITING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5
Appendix..........................................................................................................................................6

INTRODUCTION
The report is about the effect of overstatement of company's financial statement. It will
reveal how overstatement of income and expenses in the income statement. The reasons behind
these overstatement could be in the knowledge of management of company. Significant
misstatement can affect the position of the company in market. For this project annual report of
Woolworths supermarket have been taken.
MAIN BODY
Annual financial report of Wools worth shows an overstatement of 10 million in its income
statement it has not increased or decreased the profits as the income and expenses both were
overstated with equal amount that nullified the net effect on profits.
It is found by the auditors that the company has overstated the expenses of administration
and branch by 10 million. And on the other side it has also overstated the revenues from other
sources by 10 million. The auditor has found the expenses are overstated as some of the personal
expenses are included in branch expenses. The overstated expenses in statement will decrease the
profits of company therefore it has increased the revenues from other sources like rent from
buildings and income from sale of wastes have been shown at prices more than which was
achieved by them. Company has overstated the rent by 3 million and the income on sale of scrap
and waste by 7 million. The overstatement of revenues was to cover the personal expenses that
are included in income statement of company. Personal expenses are not allowed to be claimed
in business expenses (Auditing Standards, 2019). Also the claim was decreasing the profits of
company which will decrease the tax consequences and can cause for further enquiries by tax
department.
Auditor observed the overstatement in income and expenses while performing the audit
of accounts of company. The amount of misstatement is material and it is the duty of the auditor
to identify the faults and misstatement that can influence the business decisions of company. As
per auditing standards the auditor is required to give an modified opinion in the financial
statements of company. The overstated income will attract investors where the overstated
expenses shows that operation of company are very wide which gives misleading information
about the company position. Auditor will give adverse opinion in his audit report as after
performing substantial audit procedures it has obtained sufficient audit evidence regarding the
misstatement in financial reports.

Individually the auditor will give adverse opinion on income from other revenues and
over administration and branch expenses as they are misleading. Where collectively auditor
should give disclaimer of opinion as all the other expenses have complied with relevant
accounting standards of regulatory authorities (ASA 705, 2019). All other expenses and incomes
have been properly stated therefore disclaimer of opinion is viable option for auditor.
CONCLUSION
Misstatement of financial statement of company influences the decision of interested
people in company. And suitor should give opinion based on the findings while performing the
audit it should not seek personal interest by giving unqualified opinion on misstated financial
statements.

REFERENCES
Online
Auditing Standards. 2019. [Online]. Available through :
<https://www.auasb.gov.au/Pronouncements/Australian-Auditing-Standards.aspx>.
ASA 705. 2019. [Online]. Available
through :<https://www.auasb.gov.au/admin/file/content102/c3/ASA_705_2015.pdf>

Appendix