Audit Report Summary: Harvey Norman Holdings Limited

Provision of Non-Audit Services

The international auditing and assurance board has issued several audit and assurance rules and standards which need to be complied by the listed company to keep the business more transparent to its stakeholders. The auditor The Ernst & Young has stated in its report that company has disclosed all the material information in its note to disclosure. This report assists in identifying the rules and accounting standards which company failed to comply.  The auditors of company are working in the fiduciary position towards its stakeholders. Therefore, it is their responsibility to keep the financial and business information more transparent towards the stakeholders. It is necessary to provide the proper and clear information to the stakeholders if company wants to keep its business more transparent to them. These requirements are for the enhancement of transparency and value of information of auditor’s report. All the stakeholders are required to be informed through the annual report of the company and the same would be audited by Auditors. All such information is related to the auditors and the audit reports of the company. The Ernst & Young is the auditor of company who has been implementing the audit and assurance program for evaluating whether company has complied with the applicable international financial accounting standards. These reports showcase how Enhanced Auditor Reporting is being embraced in Australia to disclose the fair view of the assets and liabilities to the stakeholders

The auditor The Ernst & Young has given non-qualified audit report with some disclaimers. These disclaimers are given to identify the failure of company to comply with the certain rules and accounting standards (Harvey Norman Holdings Limited., (2016).

Harvey Norman Holding Company is listed company which is offering the retail services to its clients. The auditor of Harvey Norman Holding Company is Ernst & Young who has been auditing the financial statements of company so that it could identify errors and frauds of the company.  The Auditing standards of Australian Securities and Investment Commission lay down certain principles in its different-different legislations for the independence of the Auditors. Maintaining independence will create a relationship between client and auditor. There are some areas where auditor should be aware and implement his appropriate responses. These areas are in the form of some conflict of interest situations like specific relations of audit or auditor team and audited entity. There are few general requirements like provision of non-audit services in which auditor should be aware of the situation. He must be diligent in evaluating and identify the threats to independence and apply appropriate safeguards. Audit need to submit a financial report in which he is required to declare that there has been no contravention of auditor independence or the code of conduct (Harvey Norman Holdings Limited., (2016).

Auditor Remuneration

All the audit and non-audit services provided by the auditors should be disclosed in the audit report of company. These annual reports should contain all the information regarding the remuneration that needs to be paid to the auditors, any non-audit services of the entity, formation of the committees regarding audits with their audit charters, opinions of auditors, the matters highlighted by the auditors. As per the annual report, auditors have provided the tax compliance services and insurance services to company worth AUD $ 205.32 million as non-audit services. The provision of the non-audit services are made to increase the effectiveness of the reporting frameworks. This report will highlight the independence of the auditors, auditing functioning and their non-audit services. All the audit functions and other material information which is to bifurcate the key audit matters and responsibility of auditors (Harvey Norman Holdings Limited., (2016).The provision of the offered non-audit services has been done in accordance with the Australian Auditing Standards (Halligan, 2017). The non-audit services which are rendered to fully exploit the potential of auditors and it do not undermine the principles of auditor’s independence set out in code of ethics. This is just as a professional aid from the auditors on some non-audit matters. Non-audit services such as tax compliance and others are legally complied with the principles of APES 110 code of Ethics for Professional Accountants in relation to the independence of the auditors (Tepalagul & lin, 2015).  

It is analyzed that the remuneration of the auditors includes payment made to auditors for auditing and non-auditing services. Apart from offering the audit remuneration provides to auditors, company has been offering remuneration to audit committee.  The remuneration that has to be paid to the auditors including the lead auditors which is comprised of his audit services and non-audit services (Mishra & Malhotra, 2016). The below given table reflects the remuneration paid to auditors for auditing and non-auditing services (Harvey Norman Holdings Limited., 2016).

This company has one audit committee in which 1/3^rd of the auditors are independent and having no material relation with company. The independence of company is shown in the annual report of company to showcase that they have no relation with the company and they work in the best interest of the stakeholders (Bell, Causholli, and Knechel, (2015).  The independence of Ernst & Young is one of the eligibility criteria for auditing the financial statement of company.  Auditors need to consistently disclose the independence with the annual report. The certain key audit matters would be disclosed in the annual report of company.  The below given table reflects the key audit matters undertaken by the company in its annual report. The decision is made in light of the undertaken audit procedure (Cohen, and Simnett, 2014).

Key Audit Matters

Audit committee was established by the Chairman of Australian Securities and Investment Commission in compliance with section 45 of the Public governance, performance and Accountability Act 2013 and for commonwealth Entities in Section 17. The role of the committee of Harvey Norman Company is to provide assurance to the Australian Securities and Investment Commission’s chairman on the responsibilities relating to financial, reporting of performance, oversight risk, management and internal control system (DeFond, and Zhang, 2014). The committee of Harvey Norman Company is responsible for the advisory functionaries and its formulation in a constructive and professional manner not the executive management. Members of the committee are responsible to act in the best interest of the entity by using their good judgement, skills and management. Members can express their opinions openly and raise issues related to the committee. The Audit charter of Harvey Norman Company is a blueprint of the committee’s operations. This charter is made to mention the Harvey Norman Company need, objective and culture and fulfil them with its operation. It is clear chart to show the role and responsibilities, structure, membership, authority, process, composition and procedures which is approved by the board. A combined audit and risk committees can be established for the smaller corporations in Harvey Norman Company. It gives the responsibility to oversee and monitor the functions of the company (Bohm, Bollen & Hassink, 2016). Harvey Norman Company has both audit committee and audit charter in its audit structure. The audit committee is made of the 1/3rd independent auditors and rest are the internal auditors of company (Simnett, Carson, and Vanstraelen, 2016).

An audit committee is made up with all the board of directors in a delegated authority. It has essential role to play for the transparency and integrity of the Harvey Norman Company. The chart of the Audit committee helps in understands the role and responsibilities of the committee members. The objectives of the company are mentioned in the charter of the company. The fundamental component of good corporate governance is an independent audit committee. The non-executive and executive auditors determine the structure of the audit committee. Auditors of the Harvey Norman Company are responsible for the proper harmonization between the domestic and international accounting standards. They are responsible for the analysis of annual report of the company. Committees are made up on the basis of its size and operations like a larger entity establishes more than one committee as risk and compliance committee, health and safety committee, environment and audit committee depend on the nature of the entity (Lisic et. Al., 2016).

Audit Opinion

The audit structure and committee formation of the Harvey Norman Company has been determined on the basis of the corporation act and listing rules and regulation of company (Louwers, et al. 2015).

Chairman of Harvey Norman Company- Graham Charles Paton

Solicitor of Company- Christopher Herbert Brown

Accountant of the Harvey Norman Company- Kenneth William Gunderson

Audit committee has responsibility towards internal and external audit of the corporations and some non-audit works also. In its internal work, there is financial reporting and internal risk and control management. In its financial task it reviews the financial issues and reporting them to the higher authority. Reviewing the processes of management and ensure its compliance with the laws and regulations. Review the external auditors and find any difficulty encountered with it. It reviews the annual financial report of the company. It assesses the internal process to determine and manage the key risk areas in the internal process. They ensure that the company’s risk management system is complying with the laws, standards and guidelines. They address the effectiveness of the internal control system, performance management and risk management system with internal and external auditors. It recommends and decides the appointment, removal and remuneration of the independent and external auditors (Khelil, Hussainey & Noubbigh, 2016).

The financial statements and audit procedures are made according to the provisions of Corporations Act 2001. The regulations are given by the Australian Standards and the Corporations Regulations 2001 which are followed by the committee (Simnett & Huggins, 2014).  As per the audit report given by auditors, company has received non-qualified audit report which helps in identifying the fact that company has complied with the all the applicable laws and regulations. Company has strong financial position and would have sustainable business practice (Knechel, and Salterio, 2016).

The management and auditors both are doing their separate tasks in company. The management of company is to help accountants to prepare the financial statements of company as per the applicable accounting standards and laws. It is the duty of the management to ensure that there is enough control on the entity and it will have sustainable business practice. The main reason of keeping the differences between the auditors and accountant is based on the increasing effectiveness of the transparent view point of the prepared financial statements (Chan, and Vasarhelyi, 2018).

The auditors are engaged in identifying the fact that whether company has made any discrepancies and issues in preparing the financial statement. They also act in the best interest of the stakeholders as they stand in the fiduciary position towards the stakeholders not company ((Harvey Norman Holdings Limited., (2015). The Auditor’s responsibility is to identify the inherent, control and detention risk of the organization which might be faced by company while formulating the financial statements.

Directors’ and Management’s Responsibilities

The directors are the true drivers of company and all the employees and accountants are accustomed to act in the best interest of stakeholders. It is their responsibilities to act in the best interest of the organization and keep the business more sustainable in long run (Chen, Srinidhi, Tsang, and Yu, 2016). Directors should also evaluate whether the resources of company is being deployed in effective manner or not. He will be responsible to take all the strategic decisions and keep the business more sustainable in long run.

There are several material subsequent events shown in the annual report of company. The sudden decrease in its profitability has also happened due to the negative market condition. The strategic alliance to enhance its backward integration has also increased the cost of capital for the initial time period which will lower down the return available to equity shareholders. Company has also proposed its investment plan to increase its market operation which will help it to increase the turnover and market share. It has also changed its auditor in last year and hired E&Y as its auditor to audit its financial statements.

Conclusion

The audit report of Harvey Norman has been showing that company has complied with the applicable laws and regulations. However, as per the audit report, there is no discrepancies have been made by company while formulating the financial statement and also complied with the applicable laws. In context with the audit, the non-audit services which are rendered to fully exploit the potential of auditors and it do not undermine the principles of auditor’s independence set out in code of ethics which assists in keeping the transparent view of the recorded books of account of company. The crux of this report is that auditors act in the best interest and benefits of the stakeholders and shareholders so that they could use the true and fair view of the financial statements to make their investment decision. Auditors needs to analysis that financial statements should be prepared by following the proper accounting standards and laws. Auditors should also be diligent in evaluating and identify the threats to independence and apply appropriate safeguards. Furthermore, auditors also need to disclose independence of the auditors, auditing functioning and their non-audit services provided to company.

References

Bell, T.B., Causholli, M. and Knechel, W.R., (2015). Audit firm tenure, non?audit services, and internal assessments of audit quality. Journal of Accounting Research, 53(3), pp.461-509.

Böhm, F., Bollen, L. H., & Hassink, H. F. (2016). Audit committee charter scope: Determinants and effects on audit committee effort. International Journal of Auditing, 20(2), 119-132

Chan, D.Y. and Vasarhelyi, M.A., 2018. Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.

Chen, L., Srinidhi, B., Tsang, A. and Yu, W., 2016. Audited financial reporting and voluntary disclosure of corporate social responsibility (CSR) reports. Journal of Management Accounting Research, 28(2), pp.53-76.

Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), pp.59-74.

DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2-3), pp.275-326.

Halligan, J. (2017). Reform design and performance in Australia and New Zealand. In Transcending New Public Management, 2^nd ed. Ausralia: Routledge.

Harvey Norman Holdings Limited., (2015). Annual report. Available at https://www.harveynormanholdings.com.au/reports-announcements-1/., Accessed on 19^th June 2018

Harvey Norman Holdings Limited., (2016). Annual report. Available at https://www.harveynormanholdings.com.au/reports-announcements-1/., Accessed on 19^th June 2018

Harvey Norman Holdings Limited., (2017). Annual report. Available at https://www.harveynormanholdings.com.au/reports-announcements-1/., Accessed on 19^th June 2018

Khelil, I., Hussainey, K., & Noubbigh, H. (2016). Audit committee–internal audit interaction and moral courage. Managerial Auditing Journal, 31(4/5), 403-433.

Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk.4^th ed. Australia: Routledge.

Lisic, L. L., Neal, T. L., Zhang, I. X., & Zhang, Y. (2016). CEO power, internal control quality, and audit committee effectiveness in substance versus in form. Contemporary Accounting Research, 33(3), 1199-1237

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. 2^nd ed.  Australia: McGraw-Hill Education.

Mishra, M., & Malhotra, A. K. (2016). Significance of Audit Committee Roles in India: A Study of Auditors’ Perception Using Analytic Hierarchy Process. Journal Accounting Business and Management-International, 23(2), 13-20.

Simnett, R., Carson, E. and Vanstraelen, A., 2016. International archival auditing and assurance research: Trends, methodological issues, and opportunities. Auditing: A Journal of Practice & Theory, 35(3), pp.1-32.

Tepalagul, N., & Lin, L. (2015). Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), 101-121.

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