Auditing and Assurance Report: ASA 701 and Supermarket Analysis

Verified

Added on  2023/03/21

|14
|3385
|33
Report
AI Summary
This report delves into the realm of auditing and assurance, focusing specifically on the supermarket industry in Australia. It examines the application of ASA 701, the standard outlining key audit matters, and analyzes the financial reporting practices of major players like Woolworths, Coles, IGA, ALDI, and Caltex. The report highlights critical auditing issues, such as the valuation of assets, accounting for rebates, and the significance of IT systems, drawing from the annual reports of these companies. A case study of Lehman Brothers' bankruptcy is presented to illustrate potential pitfalls in auditing practices. The analysis provides a comprehensive overview of the challenges and best practices in auditing within the context of the supermarket industry, offering valuable insights into financial statement analysis, risk assessment, and the importance of transparency in corporate operations.
tabler-icon-diamond-filled.svg

Contribute Materials

Your contribution can guide someone’s learning journey. Share your documents today.
Document Page
Running head: AUDITING AND ASSURANCE
AUDITING AND ASSURANCE
Name of the Student
Name of the University
Author Note
tabler-icon-diamond-filled.svg

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
1AUDITING AND ASSURANCE
Executive Summary
Auditing forms a crucial part of the organization and with respect to this, it becomes
considerable crucial for the firm to ensure that they are successfully able to abide by all these
standards. The given report is based on the auditing issues as faced by the different firms and in
line of this, it becomes considerably crucial to understand the manner in which these firms have
been dealing with the same. The Supermarket industry has been used as a point pf analysis in the
report.
Document Page
2AUDITING AND ASSURANCE
Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Analysis...........................................................................................................................................6
Woolworths..................................................................................................................................6
Coles............................................................................................................................................7
IGA..............................................................................................................................................8
ALDI............................................................................................................................................9
Caltex.........................................................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
Document Page
3AUDITING AND ASSURANCE
Introduction
The Key Audit Matters can be considered to be the matters which the auditors consider to
be of utmost importance. This means that the auditors believe that, the firm may falter in the long
run with respect to these issues and it is due to this, that they often outline certain key audit
matters which will then go a long way in ensuring that the firm is able to find considerable
success in the long run (Brasel et al. 2016). The individual and independent auditors tend to
determine these different issues which take place in the firm and with respect to this, the ASA
701 has become of considerate importance which outlines the steps to be rightfully considered by
the firm in ensuring long term success (Cordoş and Fülöp 2015). If the consideration of these
matters is not taken seriously earlier, then it might lead to a considerable loss for the firm in the
long run and a probable fall out. Hence, in line of this, the report will be undertaking the case of
the supermarket industry in Australia and outline the different Key Audit matters which will
have considerate impact on their performance as per the guidelines of the ASA 701.
Discussion
The Key audit matters can be rightfully considered to be those matters as per the ASA
701 which tend to attract the utmost importance in the perception of the auditor while they
undergo the overall analysis of the financial statements as present (Gimbar, Hansen and Ozlanski
2015). As the auditor will successfully be able to verify the different issues which exist, it
becomes considerably easier for them to see to it that, they are able to ensure long term success
of the firm. The new standard ASA 701 talks about the overall commitment which the auditors
need to provide towards the company and also focuses on the overall enhancements in the
current field of auditing as prescribed by the International Auditing as well as the Assurance
tabler-icon-diamond-filled.svg

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
4AUDITING AND ASSURANCE
Standards Board. The different aspects which form a considerate part of the new standard can be
understood to be as follows:
The importance of the Key Audit measures and matters communication is essential to
take place in the annual reports of the different companies as present.
Enabling the different auditors of different companies to use their own description and
take the right decision which will be most beneficial for the firm (Kachelmeier, Schmidt
and Valentine 2017).
The auditors will also be considerably required to ensure that they will be able to identify
the different areas of risk which will ensure that the firm remains risk free.
They will also be required to fulfil all other relevant documentations as present in the
particular domain.
The standard comes in effective from the period post 15th December 2016 (Köhler,
Ratzinger-Sakel and Theis 2016).
It is the long term duty of the different firms to ensure that if they want to ensure long
term success then they will be required to take decisions and carryout the different
operations in a manner such that they are successfully able to bring about transparency in
the operations of the firm.
The ASA 570 can be considered to be an effective guideline to the management with
respect to the aspect of the going concern of the firm. The standard had been developed in order
to provide the different auditors specific measures which would then assists them to attain their
overall long term objectives of the firm which they are auditing (Sirois, Bédard and Bera 2018).
In addition to auditors would be essentially required to ensure that they are being able to
undertake and make use of the Going concern basis while preparing the different financial
Document Page
5AUDITING AND ASSURANCE
statements. In line of this, it has to be understood that, the auditing standard also lays down that
as an auditor, it lies its duty to assist the firm in outlining any risks which might be potentially
faced b it. In addition to this, the auditors are also required to provide the management with
adequate guidelines which will ensure that the firm is able to identify any harm or related
circumstance in the future and undertake measures to improve the same accordingly. For this
reason, it becomes important for the firms and the auditors to undertake considerable initiatives
and see to it that they are successfully able to reduce any negative impacts and make the firm
prosper in the long run.
A case where the auditors went wrong can be considered to be the case of the Lehman
brothers who filed for bankruptcy in 2008 whereby the organization had $640 billion in assets
and approximately $620 in the debts (Xu et al. 2011). The particular bankruptcy came as a huge
surprise to the globe and the firm became the victim of the subprime mortgage market led
financial crisis back in the year 2008. The firm had begun its operations in a humble form and
with respect to this, it can be rightfully stated that the firm`s organ goes back to its operations in
Germany as a simple general store. Since then there had been no turning back for the firm and it
had grown considerably and faced the different operations which took place over the time.
However, the firm was unable to surpass the drop of the U.S housing market because it was
unable to stand through the density of the loss (Knechel and Salterio 2016). At the time when
Lehman brothers undertook the overall acquisition of the housing sector, the firm was
undergoing a boom and the firm was undertaking considerable profits with respect to this,
however, it was in the beginning of the 2007, when the operations of the firm started to crack and
hence, the firm began to go down. It can be stated that the auditors were greatly responsible for
the downfall of the company because, they were unable to assist the firm in identifying the
Document Page
6AUDITING AND ASSURANCE
different risks as associated with the operations of the firm and were also unable to check the
high degree of leverage involved. The perceived procedures were very week and it was too late
by the time the firm could have come on track.
Analysis
The industry which has been chosen for the analysis of the implementation of the ASA 701
can be considered to be the Supermarkets industry. The Supermarkets Industry in Australia is
comparatively a very large industry and in line of this, the Independent Auditor Reports of the
following supermarkets shall be examined in the section.
1. Woolworths
2. Coles
3. IGA
4. Aldi
5. Caltex
Woolworths
The Key Auditing matters as identified in the annual reports of the firm can be
understood to be as follows:
Valuation of BIG W property, plant and equipment and consideration of onerous lease provisions
The Deloitte group considered this issue to be a Key Auditing Matter because, the focus
had to be laid on the key judgments as well as the estimates of the different future trading
performance as well as the cash flows and taxation were largely concerned. In order to come up
with a solution with respect to the same and to improve the overall scenario, the different
initiatives which were largely undertaken by the audit team comprised of understanding the
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
7AUDITING AND ASSURANCE
overall control of the group, understanding its methodologies, evaluation of the key assumptions,
testing on a sample basis, performing sensitivity analysis and assessing the appropriateness of the
disclosures.
Accounting for rebates
As the group receives a considerable amount of rebates , incentives as well as discounts
from the different suppliers as present, it leads to a reduction in the value of the inventory and
hence, the judgements are essentially required in line of the ensuring their validation
(Woolworthsgroup.com.au 2019). The procedures to undergo this and resolve the matter
comprises of the obtaining the understanding related to the key controls which the Group is
required to establish. The testing of the standard rebates and lastly, assessing the appropriateness
of accounting for nonstandard processes rebates.
IT Systems
The IT systems are very complex around the group and there lies a considerable level of
integration between them. Hence, with respect to this, it is crucial that these continue as per the
overall key component of the firm. To respond to this, the procedures include discussion with the
key management, testing the design of the Key IT Controls, coming up with additional controls
and other such processes (Woolworthsgroup.com.au 2019).
Coles
The different Key Auditing matters comprise of the following matters
Supplier rebates
Document Page
8AUDITING AND ASSURANCE
The Supplier rebates can be largely understood as the rebates which are essentially
received by the organization from the different suppliers as present in the same field. This is
essentially considered to be an audit matter because, of the quantum of supplier rebates which
are generally recognised during the particular year and the judgement which is required to be
undertaken including the different factors which comprise of aspects like the commercial aims of
each of the rebates, timing of recognition, consideration of the nature of the rebate and the
accurate recognition and measurement of the rebates in accordance with the Australian
Accounting Standards (Wesfarmers.com.au 2019).
In order to resolve this matter, the auditing procedures comprise of the different steps as
well as the procedures like the gaining of adequate understanding in this topic, the assessment of
the effectiveness of the relevant control systems, the comparison of the performance of various
rebate arrangements against the prior year as well as budget and along with this, it also
comprises of the review of the aging profiles and inquiry from the business representatives.
IGA
Impairment Assessment for goodwill and other intangible assets
The reason why the particular issue has been chosen as the Key Audit Matter can be
understood to be to understand whether the Group`s assessment included appropriate
consideration of these particular factors or not. The different estimations as well as the
assumptions which are undertaken by the firm tend to impact the overall performance of the firm
in the long run and hence, it with respect to this, it becomes essentially crucial for the firm to
ensure that it will be successfully required to look into these specific measures which will help
them in attaining their overall goals as well as objectives (Fastly.net 2019). The different
procedures taken by the audit group to improve the same can be understood to be assessment of
Document Page
9AUDITING AND ASSURANCE
the Group`s determination of the cash generating units, assessment of the cash flow forecasts of
the business, testing the overall mathematical accuracy of the cash flow models, performing
sensitivity analysis on the discount rates and assessing the adequacy of the financial statements.
Accounting for supplier income
The matter related to the accounting for supplier income can be considered to be a key
auditing matter as the income from the suppliers tends to contribute a significant measure to the
overall earnings of the group and additionally there exists a large number of arrangements as
well as judgement to be applied in order to determine the same. In addition to this, the audit team
has been following the procedures of evaluating the Group processes and controls, gaining an
understanding of the nature of a sample of individuals, assessing the design and effectiveness
and lastly, considering the impact of supplier claims during and subsequent to the year
(Fastly.net 2019).
Onerous contracts
The particular matter is generally concerned to be the Key audit matter because, it
became crucial to consider whether the Group`s assessment comprised of an appropriate
consideration of these factors. In order to bring an improvement in the same, the auditors tend to
evaluate the Group`s processing for identifying the positions and testing the valuation of the
same.
ALDI
The different key audit matters can be understood to be as follows:
Carrying value of intangible assets including the goodwill
tabler-icon-diamond-filled.svg

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
10AUDITING AND ASSURANCE
The auditors are under the firm belief that the overall impairment assessment could
largely turnout to be very different in nature if different assumptions were applied successfully
and hence, as a result of this step, the overall evaluation of the of the recoverable amount of the
intangible assets including the goodwill turned out to be very different in nature. It is for this
reason, that this specific measure has been considered as a key auditing matter. To respond to the
auditing matter, the auditing group has undergone various procedures as well as processes which
include understanding the process management, assessing as well as challenging the budgets and
statements as present, testing the overall process on a sample basis, agreeing the inputs in the
cash flow models, performing sensitivity analysis and assessing the overall appropriateness of
the disclosures (Wppaunz.com 2019).
Caltex
The different key audit measures as observed for Caltex Australia can be identified as the
following:
Site remediation and dismantling provisions
The determination of the overall site remediation and dismantling can be largely
understood to be considerably complex in nature and it is due to this fact that, the conversion
tends to act as a crucial terminal which can be largely used as a key audit measure. This can be
largely contributed to the inherent complexity of the environmental costs and particularly those
which have to be forecasted in the future (Catlex 2019). This is largely influenced by the current
environment regulations, expected timing of expenditure, third party advice and other aspects. In
order to improve the overall scenario, the auditing company undertook various measures which
comprised of processes like comparing the basis of recognition and measurement of remedial
provisions to bring about overall consistency. Additionally, the competence capability and
Document Page
11AUDITING AND ASSURANCE
objectivity of the groups assessment will also be required to be undergone an examination, The
auditing group also engaged in the testing of the historical remediation’s provisions by
comparing an actual experience and this was used as a basis to challenge the current cost
estimation of the management. In addition to this, the evaluation of the completeness of the
provisions was also undertaken through thorough examination of the operating locations of the
firm and confirmation of the external lawyers with respect to the same.
Conclusion
Therefore, from the given analysis it can be rightfully stated that in order to ensure long
term success, any firm as present in the business environment would be required to undertake
considerable measures to ensure that the different initiatives as adopted by them are considerably
fair in nature and in addition to this, they are also required to ensure that, all the different
regulations as well as the rules are being abided by successfully. In line of this, the given report
was based on the overall introduction and modification of the Accounting Standard named ASA
701 and how it has been incorporated by the different firms as present in the chosen industry of
Supermarkets. In line of this, it is crucial to imply that the report followed a systematic format
with respect to which the overall analysis of the ASA 701 was followed by the analysis relating
to the Going concern as well. An example of the Lehman brothers was also provided. The latter
half of the report concentrated on the analysis of the Key Audit Matters as identified by the
independent auditors of the five supermarkets and the manner in which the auditors dealt with
the issue has also been provided.
Document Page
12AUDITING AND ASSURANCE
References
Brasel, K., Doxey, M.M., Grenier, J.H. and Reffett, A., 2016. Risk disclosure preceding negative
outcomes: The effects of reporting critical audit matters on judgments of auditor liability. The
Accounting Review, 91(5), pp.1345-1362.
Catlex 2019. Annual report. [online]. Available at: file:///C:/Users/User/Downloads/CALTEX
%20AR%20FULL%20ASX.pdf (Retrieved on: 18 May. 2019).
Cordoş, G.S. and Fülöp, M.T., 2015. Understanding audit reporting changes: introduction of Key
Audit Matters. Accounting & Management Information Systems/Contabilitate si Informatica de
Gestiune, 14(1).
Fastly.net 2019. Annual report. [online]. Available at: https://mars-metcdn-
com.global.ssl.fastly.net/content/uploads/sites/101/2017/07/28082756/metcash-annual-report-
2017.pdf (Retrieved on: 18 May. 2019).
Gimbar, C., Hansen, B. and Ozlanski, M.E., 2015. Early evidence on the effects of critical audit
matters on auditor liability. Current Issues in Auditing, 10(1), pp.A24-A33.
Kachelmeier, S.J., Schmidt, J.J. and Valentine, K., 2017. The disclaimer effect of disclosing
critical audit matters in the auditor’s report. Working paper.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Köhler, A., Ratzinger-Sakel, N.V. and Theis, J., 2016. The effects of key audit matters on the
auditor's report's communicative value: Experimental evidence from investment professionals
and non-professional investors. Available at SSRN 2838162.
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
13AUDITING AND ASSURANCE
Sirois, L.P., Bédard, J. and Bera, P., 2018. The informational value of key audit matters in the
auditor's report: Evidence from an eye-tracking study. Accounting Horizons, 32(2), pp.141-162.
Wesfarmers.com.au 2019. Annual report. [online]. Available
at:https://www.wesfarmers.com.au/docs/default-source/reports/wes18-044-2018-annual-
report.pdf?sfvrsn=4 (Retrieved on: 18 May. 2019).
Woolworthsgroup.com.au 2019. Annual report. [online]. Available
at:https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf (Retrieved
on: 18 May. 2019).
Wppaunz.com 2019. Annual report. [online]. Available at: https://www.wppaunz.com/wp-
content/uploads/2018/03/WPPAUNZ-2017-Annual-Report_Final.pdf (Retrieved on: 18 May.
2019).
Xu, Y., Jiang, A.L., Fargher, N. and Carson, E., 2011. Audit reports in Australia during the
global financial crisis. Australian Accounting Review, 21(1), pp.22-31.
chevron_up_icon
1 out of 14
circle_padding
hide_on_mobile
zoom_out_icon
logo.png

Your All-in-One AI-Powered Toolkit for Academic Success.

Available 24*7 on WhatsApp / Email

[object Object]