Key audit matters
From the financial performance of Coca cola Amatil, it must be noted that the company must undertake proper internal control measures so that it can outperform its competitors in the market. Besides, the role of auditors is the prime requirement in this case as they can assist in identification of material risks in the financial statements so that the organization is safeguarded from future complications and danger. Based on the annual report, the auditors have asserted that the company has reflected a true and fair view of its performance and that includes proper disclosures on non-audit services, key audit matters, and remuneration segments (Cocacola Amatil, 2017). This can be proved by the fact that the company has effectively adhered to the requirements of Corporations Act that sheds light on such matter. Overall, this report can assist in depicting the auditing measures adopted by the company that further highlights the significance of audit processes in the current scenario.
From the company’s annual report, it can be observed that it has functioned in a way that can address the requirements of all crucial rules and regulations, and that has allowed it to thrive in the industry. In addition, the company’s accounting standards have been effectively fulfilled that sheds light on the focus asserted by it towards such compliances. Moreover, there was no independent needs that was not addressed by the company. This was also highlighted in the annual report of the company and the auditors have approved of the same. Nevertheless, the compliance with Corporations Act 2001 makes it clear that the company has portrayed a true and fair view of its financial performance to the users.
The company’s audit team has provided some non-audit services in addition to the auditing of financial statements. For example, they have assisted in offering in advising legal and ethical issues that must be addressed in relation to non-audit services. The company has also assessed its committee of risk management to ensure that an efficient decision-making measure is facilitated. Nevertheless, the non-audit services that have been offered to the organization have been effectively reflected in the audit report so that the users can ascertain what type of services have been offered by the auditors to the company on a whole. Overall, it must be noted that the compliance with regulatory norms like Corporations Act 2001 can assist in determining whether the audit and non-audit services are truly disclosed or not (Cocacola Amatil, 2017).
Distinction between management and auditor’s duties
The intangible assets value of the company in the current scenario reported at $929.3 million. Moreover, its goodwill reported at $147.5 million and its value of trademark reported at $13.8 million. Furthermore, other assets of the company consisted of $2.5 million value that were held together in its financials and as a result, reported a total of $1093.1 million. Moreover, all such assets consisted of more than eighteen percent of the net assets prevalent in the balance sheet (Cocacola Amatil, 2017).
It is also clearly visible in the company’s financials that all the expenses of impairment in relation to intangible assets including other assets must be effectively corrected and noted with the assistance of CGU (cash generating units). Assumption and estimation of information must also be made in association with the cash flows of future so that the objectives and motives can be efficiently satisfied. Nevertheless, the audit procedure of the company also comprises of ascertainment of various cash generating units that can be utilized in the model of impairment to finalize the assets and liabilities’ carrying values (Elder, Beasley & Arens, 2010). Moreover, the mathematical appropriateness of the framework of cash flow is also relevant because it comprises of effectiveness of significant information that will be offered to the investors and board so that there is accurate forecast of future and analysis of motives of cash flow can be facilitated as well.
The audit committee of the company has framed an effective analysis in relation to the non-audit services that have been offered by the auditors so that their integrity and objectivity can be enhanced. Further, the company has also made proper data evaluation so that it can be assured whether any destruction to the efficiency of corporate governance has occurred owing to the adoption or facilitation of non-audit services (Gay & Simnet, 2015). Nevertheless, it must be properly accounted that interrogating the effectiveness and honesty of auditor cannot be regarded as an appropriate act on the part of the company.
The auditors of the company have offered an unqualified opinion in relation to the financial statements. However, the report framed by the auditors cannot be regarded as valid or appropriate in nature. The reason behind this can be attributed to the fact that no proper details were disclosed that cannot assist the users in their decision-making process. Hence, it is the primary duty of auditors to evaluate every aspect of financial statements of a company so that no material aspect is disregarded and truthfulness of financial performance can be attained (Cocacola Amatil, 2017). Therefore, it can be noted that the auditors failed to depict the audit reports properly and that can create confusion and complications on the part of users in their effective decision-making processes.
In contrast to this, it is also notable that the auditors have intended to represent proper descriptions for all procedures that have been performed by the company in association with the audit measures that can be helpful for the users in their decision-making processes.
The prime duty of an auditor is to facilitate audit of the company’s financial statements so that an audit opinion can be framed whether the details are true and fair or not. Furthermore, such financials are managed and prepared by the management and thereafter, audited by the auditors (Mock et. al, 2013). Moreover, the auditor is offered the responsibility of effectively evaluating the company’s financials so that users can make proper decisions based on the same. Besides, any kind of flaw or error that is prevalent in the financials must be identified by auditors and thereafter, represented for authenticity so that a fair information can be offered to the investors and customers (Cocacola Amatil, 2017). The primary responsibility of management is to implement and organize functions of control within the organization that can assist the business in processing and recording of transactions that can further assist in reflecting effective financial statements. Nevertheless, a direct control has also been offered to the management so that liabilities and assets’ realization can be facilitated properly. However, the auditors is only provided with the information so that he can review them and verify whether risks are prevalent or not (Geoffrey, Joleen & David, 2016).
It has been effectively disclosed in the financials of the company that the revenue recognition in association with the sales will be conducted after an efficient evaluation over the ownership of rewards and risk of goods that have been passed to consumers and the net revenue has been measured on a dependent basis (Hoffelder, 2012). Further, the net revenue is attained based on promotional allowances and rebates that are owned by the company to the consumers as per the contractual agreements framed betwixt them. Nonetheless, the procedure or measurement or recognition of these promotional and rebate allowances is very crucial for the company because it assists both parties to claim their own values. Further, it is relevant for investors to evaluate the net organizational revenue that makes it beneficial for the audit procedure to convey the exact value to investors (Coram, Mock, Turner & Gray, 2011). In addition, the procedures of audit of the company also comprised of effectiveness of its accounting policies and estimates in association with its revenue recognition principle based on promotional allowances and rebates that were offered. The company has also depicted a comprehensive statement of income that can be utilized to assess the control processes prevailing within it (Matthew, 2015).
The aggregate evaluation of the company’s audit report has represented that the auditors have been incapable of depicting all crucial details that has facilitated in the absence of significant details from the company’s financial statements. Furthermore, proper labelling was failed to be performed owing to material influence in the audit report and the overall financials that altogether affected the decision-making process of users. However, still they have attempted in presenting various footnotes that can be referred by users in their decision-making processes (Cocacola Amatil, 2017). Overall, it is complicated for the users of financial statements to rely on the audit report because of the prevalence of inappropriate methods utilized to prepared the report.
It is a matter of fact that no auditor can acknowledge the activities that has been facilitated by them for conducting the audit of financials. Therefore, it is relevant for the management to construct the financials based on sound principles. Moreover, the auditor’s duty is restricted to offering suggestions on the financials. In relation to Coca cola Amatil, it can be noted that the auditor remained incapable of undertaking the audit process properly. This might have generated errors or flaws in the financials of the company and hence, the management and auditor’s duties are distinct in nature (Kaplan, 2011). The company’s financials comprise of various information that can be beneficial for offering notes to the users. In contrast to this, there are reports that have been concealed by the company to enhance their image in the industry. The information about company’s consolidated groups have also not been reflected effectively and thus, it is crucial for the company to reflect all details properly so that it can be evaluated by investors in their decision-making processes (Cocacola Amatil, 2017). Various significant factors have been highlighted by the company even though these can generate a negative impact in the financial performance. This was done to allow users make proper decisions based on such information (Lapsley, 2012).
Overall, the auditors have been negligent in disclosing proper information regarding many segments that can create future complications. Besides, various variations could be visible in the company’s goodwill owing to the disclosure of undesired information (Carcello, 2012). Therefore, it can be stated that auditors might have utilized effective information that could have assisted them in taking proper decisions by evaluating the company’s performance.
The annual report of Coca cola cannot represent any gaps that are prevalent in the details disclosed through the auditors and whether they are materially appropriate or not. Further, the information offered in the statements are not transparent that deteriorates their effectiveness. The reason behind this is because the company had exerted significant focus on selective issues and discarded many relevant topics. Nonetheless, the prime issues that must be evaluated by investors to assess financial information are not disclosed properly owing to which decision-making ability of users can be hampered on a whole (Blay et. al, 2011). Moreover, endeavour on the part of auditors to enable and assist users with the offered information in the organization’s financials can be seen (Livne, 2012). However, it is very crucial for them to record every liability and asset that have been conducted by the company but in the case of Coca cola, various issues were prevalent in relation to the details disclosed by the auditors. This can altogether hamper the decision-making ability of users that is a negative indicator. Therefore, it can be observed that various significant details were missing from the information disclosed by the auditors (Baldwin, 2010). This can result in misguiding users that can create future issues for the entire company on a whole. Hence, it is crucial for the auditors to offer the users with the best feasible information that can be evaluated by them to make investment decisions.
Many information and factors are present that represents why the auditors have been negligent in the disclosure of material information. The absence of such significant details has not interrogated the organization’s integrity but also deteriorated its reputation in the industry (Manoharan, 2011). Moreover, the company’s goodwill was interrogated after the evaluation of missing footnotes in their financial statements. The presence of footnotes and notes in the financial statements that is annexed to the auditing report has been appreciated but the organization must not have missed disclosure of material information in the report. Therefore, the company has failed to address the obligation of offering users with ethical and true financial information that can be used in decision-making process (Kalpan & Williams, 2013). The descriptive disclosures in association with the company’s financials assist the users in making effective decisions for investment. Much of the factors of significant details in association with corporate governance, risk, etc were reflected in the audit report that can be further used in decision-making processes.
Conclusion
In the light of previously mentioned evaluation, it can be noted that the audit processes of the company have been adequately reflected. Furthermore, the prime motive of Coca cola to address the needs of users have been taken into due consideration. Even though there is some ineffectiveness in the auditor’s information highlighted in the audit report, yet it cannot be concluded that the users cannot make decisions based on the same. Overall, it can be recommended that the audit procedure undertaken by the company was efficient, thereby offering the users with material information. In addition, the company must undertake remedial measures to get rid of some issues so that its future can be safeguarded for overall effectiveness.
There are various questions that can be asked to the auditors so that the entire auditing profession can refer the same for overall effectiveness. These questions are as follows:
- Have all the compliance requirements been adequately addressed by the auditor?
- Describe the processes by which the management has been able to encounter the compliance requirements?
- How has the matters associated to material subsequent events were taken into due consideration and identified on a whole?
References
Baldwin, S. (2010). Doing a content audit or inventory. Pearson Press.
Blay, A. D., Geiger, M. A. & North, D. S. (2011). The Auditor’s Going-Concern Opinion as a Communication of Risk. Auditing: A Journal of Practice & Theory, 30 (2): 77- 102. Doi: https://doi.org/10.2308/ajpt-50002
Cocacola Amatil. (2017) Coca Cola Amatil 2017 annual report & accounts. Available from: https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-Report-2017.ashx [Accessed 21 September 2018]
Carcello, J. (2012). What do investors want from the standard audit report? CPA Journal 82 Retrieved from https://www.questia.com/magazine/1P3-2594765681/what-do-investors-want-from-the-standard-audit-report
Coram, P., Mock, T. J., Turner, J. & Gray, G. (2011). The communicative value of the auditor’s report. Australian Accounting Review 21(3): 235-252. Doi: https://doi.org/10.1111/j.1835-2561.2011.00140.x
Elder, J. R., Beasley S. M., and Arens A. A. (2010). Auditing and Assurance Services. Person Education, New Jersey: USA
Gay, G., and Simnet, R. (2015). Auditing and Assurance Services. McGraw Hill
Geoffrey D. B., Joleen K., K. K.S., and David A. W. (2016). Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors. Accounting Horizons, 30(1), 143-156. https://doi.org/10.2308/acch-51309
Hoffelder, K. (2012). New Audit Standard Encourages More Talking. Harvard Press.
Kaplan, R.S. (2011). Accounting scholarship that advances professional knowledge and practice. The Accounting Review, 86(2), 367–383. https://doi.org/10.2308/accr.00000031
Kaplan, S. & Williams, D. (2013). Do going concern audit reports protect auditors from litigation? A simultaneous equations approach. The Accounting Review, 88 (1), 199-232. Doi: https://doi.org/10.2308/accr-50279
Lapsley, I. (2012). Commentary: Financial Accountability & Management. Qualitative Research in Accounting & Management, 9(3), pp. 291-292. https://doi.org/10.1111/1468-0408.00081
Livne, G. (2015, May 12). Threats to Auditor Independence and Possible Remedies. Retrieved from: https://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-and-possible-remedies?full
Manoharan, T.N. (2011). Financial Statement Fraud and Corporate Governance. The George Washington University.
Matthew, S. E. (2015). Does Internal Audit Function Quality Deter Management Misconduct?. The Accounting Review, 90(2), 495-527. Doi: https://doi.org/10.2308/accr-50871
Merchant, K. A. (2012). Making Management Accounting Research More Useful. Pacific Accounting Review, 24(3), 1-34. Doi: https://doi.org/10.1108/01140581211283904
Mock, T. J., Bédard, J., Coram, P., Davis, S., Espahbodi, R. and Warne, R. (2013). The audit reporting model: Current research synthesis and implications. Auditing: A Journal of Practice and Theory, 32, 323-351. Doi: https://doi.org/10.2308/ajpt-50294
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