Wesfarmers Audit Report: ASA 701, Key Audit Matters and Review

This report provides an analysis of the Wesfarmers audit, focusing on the application of ASA 701, which deals with the communication of key audit matters in the independent auditor's report. The report examines key areas such as the impairment of noncurrent assets, supplier rebates, and the finalization of acquisition accounting, specifically referencing the Homebase acquisition. It discusses the advantages and disadvantages of ASA 701 and reviews the annual report for the year ended June 30, 2018, of the ASX-listed company. The report emphasizes the importance of auditor attention to detail, particularly regarding noncurrent asset impairment, supplier rebates, and acquisition accounting, and offers recommendations for improvement, contributing to a better understanding of the financial reporting process and the role of auditors in ensuring transparency and accuracy in financial statements. The report also highlights the significance of corporate governance and the role of directors and executives in overseeing the company's key operations.

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Executive Summary
The main aim of the report or its role is to shed light on the new proposed auditing standard ASA 701
that is the communication of key audit matter in the independent auditor report. The report is prepared
in the light of the ASX listed company that is Wesfarmers. The report initiates with the introduction
followed by the key audit matter of Wesfarmers, and why ASA 570. Further various matter of the
company in respect to different activities has been indicated in the report. The annual report of
Wesfarmer has been studied to get a strong insight. This enables proper understanding of the matter.
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Contents
Introduction.................................................................................................................................................2
Discussion....................................................................................................................................................2
Key matters needing attention of the directors and auditors......................................................................3
Advantages and disadvantages of ASA 701.................................................................................................3
Review of the annual report for the year ended 30th June 2018................................................................3
 Impairment of the noncurrent assets inclusive of the intangible assets of the organization..............4
 Supplier rebate....................................................................................................................................4
 Finalization of the acquisition accounting of home base.....................................................................5
Recommendations.......................................................................................................................................6
Conclusions..................................................................................................................................................7
References...................................................................................................................................................8
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Introduction
The report is a good treat to the users and the outside investors which look on to the statements
and the results of the company as a sign to get their mind on for investing in the company as per
their scales. There have been many cases stating that due to improper or distraction and
manipulation in the file data have caused severe damage and humungous losses to the investors
and the users. This brings into light that the fact of using the ASA701 is quite necessary and
important for the company and its investors and the on-lookers who have a keen interest in the
company and the article deals with the same and highlights the points that are seemingly
important and require attention.
The beginning of the report helps to have a revision of the traditional method of ASA570 along
with the foundations of the ASA701 and the explanations for leading such preferences. The use
of the ASA701 has been made a tally with the reports submitted by the higher authority of the
company and hence the positives and the negatives about the needed concept has been noted and
listed (Mock et. al, 2013).
Discussion
• Why there has been a remembrance for the ASA570.
It had come to the display that the investors from all over the world have been suffering huge
losses due to the present position of the market and there has been a non-compliance with the
financial structure of the company growth along with time in the past years. As the concept of
ASA570 deals and is based on the structure of Going Concern so it provides a transparent picture
of the working of the auditor's reports and thus there has been a revision for the concept of
ASA5770.
From the moment when the revision for the above concept has started, it has brought about a
massive change in the field and that to related to the functioning of the Going Concern
terminology along with the clearance of all the corrupt and distracting techniques which were
eventually followed. Also, it has been successfully seen that the auditors were almost at the part
of creating the concept on a practical basis as per the preparations of their reports without the use
of any branch of manipulations (Mock et. al, 2013).
The relationship developed between the practices of an auditor's and the rules of primary
auditing in tune to the application of the ASA701.
The reason for the establishment of the ASA701 has been done so that its reflection can be seen
in the working of the auditor while the preparation of the reports under its rules. The ASA701
was created under the AUASB powering act and since its creating it has made it to the big
platform with all the audit reports being made under its attention (Needles & Powers, 2012).
The ASA710 carries solution to all the matters that were a fact of concern lately for the auditors
whiles the conduction of the audition and during the preparations of the reports in the final stage
for a company (Manoharan, 2011). Following all the humps of the concept has helped the
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auditors to keep their work clean and has duly made the company to disclose all the facts about
the structure of the company (CAANZ, 2016).
The corporate governance structure of the organization basically and most probably consists of
the directors and the top executives (Niemi & Sundgren, 2012).
Key matters needing attention of the directors and auditors
The key matters and all the processes in the organization is known and taken care of by the
directors and the top executive managers only. All the important matters and the fact that is to be
published in the statements are to be determined by the executives only (Wood, 2011). The
welfare for the company is the top priority for the directors of the company any many such
matters that distort or damage these facts are to be taken care of by the company and such facts
many-a-times remains hidden. Under such conditions, it has been seen that and is of utter
importance that all the auditors pay attention to their work and all the reports which are prepared
during this time interval are to be in association with the rules of the concept (Roach, 2010). In
the paragraph 9 of the ASA701 it has been described that all the important matters are to
carefully study with the attentive rules to be followed and then all the facts and the figures are to
be noted down and displayed clearly so as it can be a positive aspect on the investors and the
stakeholders of the company (Wesfarmers, 2018). It is also the duty of the auditors that to work
in the welfare of the company also and not throw out any data on the sensitive areas of the
company that can have collateral damage to the company. Situations have also risen where the
auditors have shown much linearity and attention is not paid to the data and the auditing matters
which are to be dealt with for the welfare of the company or may the situation may be somewhat
like in which the auditor is not given much of an authority to set up and control the important
auditing matters of the company as it is in the hands of the higher executives.
Advantages and disadvantages of ASA 701
The vagueness and the opacity in the auditing matters and the statements have been much more
improved and cleared by the new standard and the concept that has been followed. The increase
in the standard of the auditing reports has been a very positive fact for the stakeholders and the
investors of the company as they are able to analyze and make their freed decisions by staying on
the fact that what is the financial state of the company (English et. al, 2010). All this also be
increasing the liabilities of the auditors simultaneously and will also serve the cause for the non-
involvement and the ignorance of the ASA701 but it generally does not happen and the rules of
the case are likely in which the basic and the structure of the ASA701 is promptly followed so as
for the preparation of the final and transparent report.
Review of the annual report for the year ended 30th June 2018
The organization Wesfarmers Limited is one of the most important companies which was trying
to analyze the report by the help of the ASK corporate governance principles. Also, a clear report
of the auditor was presented on the financial documents which stated various aspects of the
annual financial accounts of the organization. Therefore, a detailed analysis of the financial
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statements should be conducted so as to get a proper insight into auditing reports by considering
all the key audit matters (Wesfarmers, 2018).
 Impairment of the noncurrent assets inclusive of the intangible
assets of the organization
It has been observed that the auditors have skipped the analysis of impairment of noncurrent
assets which are inclusive of tangible assets of the organization. This is one of the most
important key auditing matters which can create a great impact on the performance of the
organization (Wesfarmers, 2018). The impairment losses are a type of deductible expense which
can reduce the revenue of the organization by hiding certain profits and deducting certain losses
using unethical measures. The auditors should try to pay special attention for maintaining the
accuracy of the impairment loss of a particular organization.
It is very important for the organizations to calculate and evaluate the total impairment losses
that are being incurred by the organization at the end of each year so that it can be mentioned in
the audit reports. All the noncurrent assets and intangible assets should be clearly testified so that
the total value of goodwill can be evaluated for finding out the total impairment loss. Also, it was
noticed that the annual report of the financial accounts mentioned that the organization is having
no clue in regards to impairment losses charged (Peirson et. al, 2015). There were several
sensitive cash generating units that were to be assessed for impairment losses. Even if there is a
small chance that an impairment loss exists in an organization, then the financial report should
clearly mention them (Teen, 2012). The suggested measures that should be taken into account by
the auditors are:
• Analysis of all the assumption that is made in relation to the cash flow of the organization.
• Analyzing the discount rates, growth rate and determination of cash generating units of the
organization.
• Determining the disclosures that are being made by the auditor while conducting the analysis
of the financial reports.
 Supplier rebate
Supplier rebate is also one of the most important key audit matters that are generally missed by
the auditors while conducting the audit process. The company is conducting business at a large
scale because of which a lot of purchases have been made. The suppliers of the organization also
provide them with various types of schemes and discounts because of the huge purchases made
by it. The figures of the discount that have been provided to the organization can be easily
manipulated and hence it is very important for the auditors to analyze the financial statement for
any kind of misstatements (Parrino, Kudwell & Bates, 2012). There are various factors
determining which the discount is being provided to the organizations. A disclosure statement is
also presented by the supplier for maintaining clarity towards the discounts that have been given
to the organization. There are suggestive measures that are needed to be checked for the accuracy
of KAM:
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• Evaluating the design of the controls that were used for the determination of the supplier
discount.
• Comparison of the rebate agreement with agreements of the past year.
• Analysis of the supplier rebates by understanding the documents collected from the
population.
• Clear analysis of the rates of supplier credits and recognition of rebates.
• Making time to time inquiries for the rebate contracts that are not part of the main contract.
• Collection of regular statements from purchase managers, supply chain manager and other
staff members without any non-standard agreement.
 Finalization of the acquisition accounting of home base
Third possible key auditing matter for the organization is to evaluate the accounting of home
base. In the current fiscal year, it has been observed that the organization have acquired Hamden
group that works in accordance with the principles of AASB 3. There are various key auditing
matters that can be very important for preparing the balance sheet of the organization. The total
value of acquisition that was being felicitated by the organization was observed to be 665 million
dollars which is the very huge sum and may also lead to the change the fair value of assets and
liabilities in an identifiable manner (Wesfarmers, 2018).
There are certain measures that should be taken into account for confronting this kind of audit
matters:
• Setting the acquisition accounting policy and the methodology of the organization.
• Making certain key changes in the judgments and estimation of the values
• Valuable changes should be made in the fair value within the period of 12 months.
• Taking valuable consultations from the expert so that the process can be carried out easily
(Parker, Guthrie & Linacre, 2011).
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Recommendations
The first and most important auditing matter was related to the impairment of noncurrent assets
and intangible assets like goodwill and patents. The transactions in relation to the impairment
losses are highly sensitive in nature because of which they require a greater emphasis on
auditors. Hence, it is very important for the auditors to clearly analyze the accounts for any kind
of impairment losses present in the financial reports.
The second important auditing matter was related to the supplier rebate or discount which was
provided to the organization. The auditors classify the incomes and assumptions with the help of
a clear analysis of income statement that can be easily manipulated using these figures of rebates.
Hence, it should be further noticed by the auditors that analysis of such figures is very important
because they can not only make changes in the figures of financial reports but also can harm
their relationship with their suppliers.
Another important key auditing matter was about the firm acquiring Hampden group Limited.
The differences in the standards followed by the two companies were very important to be
considered because it can create a lot of problems in the future.
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Conclusions
After making the analysis of all the financial reports of the organizations it can be stated that
various key audit matters should be taken into account while preparing the audit reports. It is also
important for the order to determine the methodology that has been used by the organization for
preparing its financial statements and further conduct the audit process for that the information
collected by them can be used by the stakeholders and investors of the business for making
further decisions. It is the general duty of the auditors to use correct auditing measures while
assessing the financial reports of the organization so that proper report can be submitted to the
shareholders and investors who can further use it for conducting the process of decision making
efficiently. These reports also help the organization to provide transparency to its customers
about the business that is being carried out by the firm.
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References
AUASB. 2015. Auditing Standard ASA 701 Communicating Key Audit Matters in the
Independent Auditor’s Report, [online]. Available at:
http://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf
[Accessed 6 May 2019].
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operational stage of long term partnerships for the private sector provision of public services.
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Manoharan, T.N., 2011. Financial Statement Fraud and Corporate Governance. The George
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Mock, T. J., Bedard, J., Coram, P., Davis, S., Espahbodi, R. and Warne, R. 2013. The audit
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Roach, L. 2010. Auditor Liability: Liability Limitation Agreements. Pearson
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annual-report.pdf?sfvrsn=0 [Accessed 20 May 2018].
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