Adherence with independent requirements
Both audit report and audit processes play a relevant part in detecting risks of material misstatements in a financial report that can facilitating in portraying a true and fair view of the company’s performance. In relation to Woolworths, it has portrayed a proper disclosure strategy and there is a prevalence of proper audit processes within the framework that is a positive indicator (Woolworths limited, 2017). The company has also complied with the necessary rules and regulations so that it can satisfy the users in relation to legal compliance and the auditors can thereafter, scrutinize the effectiveness of same. The company’s dependence of information related to key audit matters, remuneration, etc shall also be discussed through this report.
The company’s annual report sheds light on the fact that various audit procedures had been followed by it in adherence to the AASB standards and Corporations Act 2001. In addition, the independent requirements are also disclosed by the company in its segment of audit report. Furthermore, the auditors have also been selected by the company in adherence to the Code for professional accountants (APES 110 code of ethics) that is a positive indicator on the company’s part.
Deloitte Touche Tohmatsu have served as the auditors of Woolworths Ltd and they have also provided some non-audit services in addition to the prime audit affairs. Nevertheless, the management is satisfied that all non-audit services attained has also been in adherence with the basic requirements and does not violate any significant provisions based under many statutory guidelines (Wood, 2011). The code of ethics for the professional accountants have also been duly adhered to by the company that is a positive indicator. Furthermore, the auditors have efficiently functioned within the company and shared all awards or risks when it comes to the provision of auditing services and non-auditing services on a whole. Furthermore, the company’s pay to the auditors in relation to such services have also been discussed in the auditor’s report (Lapsley, 2012).
It is observable in from the financials of the company that most of the remuneration of auditors has been attained from the review or auditing of company’s financial statements. Besides, a lesser figure has also been attained from the services associated to compliances. Refer appendix for the table.
These matters are considered the most crucial by the auditors of a company because their entire decision is based upon such matters. Moreover, disclosure of such matters is necessary so that users can understand what information are so crucial and the opinion is based on what kind of information (Hoffelder, 2012).
Non-audit service
The company’s carrying values of its property, plant, and equipment and non-current assets related to Big W forms a major part of the consolidated PPE with a figure of $514.3 million respectively. The trading performance of Big W has also experienced decline in the current scenario and hence, there is a material risk that the PPE and non-current assets’ carrying values can be higher than their original recoverable figure (Kaplan & Williams, 2013). Nonetheless, the management’s measure and their results of audit of these recoverable amounts has been properly disclosed in the notes section to the financials statements. The cause behind considering this as a key audit matter is that the assessment of recoverable amounts requires judgements and estimates based on trading performances and profitability of Big W. Moreover, this also comprises of development rates of future, impact of Big W’s competition on the shares of market, etc. Overall, the company’s impairment review in addition to the impairment expense of $35.3 million has also been disclosed in the annual report.
The next key audit matter is the information technology matter that are regarded as relevant to the ongoing operations of the company and hence, benevolent to the auditing processes on a whole. Hence, this matter has been recognized as a key audit matter by the company. In addition to this, inventories provisions are also another crucial factor or matter recognized by the auditors in their report (Mock et, al, 2013). Nevertheless, the inventories of company have been identified by the auditors at lesser of net realisable amount and cost. In addition, the company has also provided for obsolescence and shrinkage affairs due to estimates on sales and other past patterns (Roach, 2011). Furthermore, for general merchandise, Woolworths has accounted for its inventories by offering the same to slower all seasonal lines and progressing items. Hence, the company has concentrated on its affairs in such a way that it has assessed all the inventories at lesser of cost and net realisable value.
Accounting for the rebates is another key audit matter disclosed by the auditors in their report. In association to this matter, Woolworths has obtained rebates, discounts, and incentives from several suppliers so that it can effectively recognize their majority as a decline in the value of inventories (Merchant, 2012). Besides, the same can be recognized as a deterioration in the sales cost by depending on the trait of such rebate, incentive, and discount. In addition, assessing the timing of recognition of such incentives, rebates, or discounts is a complicated operation that requires an enhanced understanding of contractual arrangements in addition to a deeper and effective source of data to which these arrangements can be applied. Moreover, accounting for such arrangements’ significance in relation to rebates, the auditors have focused on the same and the cause behind is that these can easily affect valuation of cost of goods sold and inventories effectively (Woolworths limited, 2017). Overall, the timeliness and efficiency of recording these arrangements can easily have a significant influence on the company’s outcomes.
Remuneration of auditors
These are the key audit matters that have been disclosed by the auditors in their report and the reason behind selection of such matter as a key matter has also been portrayed with the assistance of many points. Moreover, the points highlighted by the auditors in their report in relation to such key audit matters play a vital part in highlighting the fact that these are very crucial to be analysed because these possess a significant influence on the financials of the company and if left unreported, can have a material negative impact (Geoffrey et. al, 2016).
The Risk Management, Audit, and Compliance Committee is the board’s committee of Woolworths Ltd. Further, the charter depicts all duties assigned by the board to the Committee and its goals, duties, authority, functioning, and composition. Further, the role of Committee is to offer support and suggestions to the company’s governance segment including accounting practices, internal and external audit, internal control mechanism and risk management, compliance systems, and financial reporting of the company. No non-executive director is present on the audit committee
The Audit Committee is instructed to function within the boundary of its roles reflected in the charter and to facilitate effective suggestions to the management. Further, the committee has unhampered accessibility to the company records and superior management as needed. Moreover, the committee is also authorised to meet with internal or external auditors without any management members being prevalent as the Committee may deem effective. Overall, the Committee has also been instructed to attain professional advice that it considers crucial to execute its affairs.
The auditor at Woolworths provided relentless service, gathered appropriate information about the financial information of the business activities and expressed opinion on the financial report. An unqualified opinion was given by the auditor meaning that the financial statement of the business was free from misstatements.
The prime role played by the management and directors is that they are liable for the preparation of financial statements of a company. However, when it comes to an auditor, even though he can assist in the preparation of a company’s financial statements by offering professional advice related to implementation of new accounting principles, yet they are primarily liable in providing an opinion on such financial statements whether the same can reflect a true and fair view of the company’s performance (Matthew, 2015). In other words, the auditor is bound to examine the financial statements to express an opinion on the same.
Key audit matters
Nonetheless, the prime duty of the directors and management in relation to the reflection of true and fair view of their financials carries it with them the privilege of determining what kind of disclosures are compulsory in nature (Elder, Beasely & Arens, 2010). In relation to the preparation of financial statements, the auditor may also assist as a counsel to assist the management and directors in completing the same effectively and efficiently. Nevertheless, accepting the advice of auditors and implementing the same in the preparation of financial statements cannot change the basic separation of responsibility. The management and directors are only responsible for the decisions associated to the form and content of the financial statements. In contrast to this, the auditors are responsible to form an opinion whether the prepared financials are true or not, and thereafter, issue a qualified or unqualified opinion based on their findings (Manoharan, 2011).
Overall, the responsibility of the auditors is limited to the undertaking of audit examination and thereafter, reporting the results that are based on GAAP. The reason behind such responsibility can be attributed to the fact that this can assist in detection of material risks and errors in the financial statements (Woolworths limited, 2017). Besides, it is the management and director’s duty to ensure that the detected errors and risks are evaluated and assessed accordingly so that it does not result in a negative impact on the performance.
The presented reports from the Woolworths company has shown that the company has shown some extra resultant events. Profound attribution can be made to the fact that the company had these events acted upon after the completion and finalization of the financial report. These occurring events are counted as extra because though they hold a place, they do not affect the report which they have could if they were dealt with earlier (Carcello, 2012).
The company’s entrance into an SSA (Share Sales Agreement) is the first thing to e observed in the extra events according to which 66.7% of the shares of Hydrox can be sold to the Home Consortium. 41 Masters freehold sites in which 21 Masters freehold development sites along with 20 Masters leasehold sites have been held by the company under a part of the SSA (Woolworths limited, 2017). With these, the company has also been added by the workload of 11 Master leases which would be under the company now. In the case of share sales of Lowe, it can be seen that the company appointed a group responsible for sharing such shares which will add to the beneficiary of the company. This event was finalized by the company as it would strike a profit of about $250.8 million and this was the main reason why the joint venture contract was deleted by the company.
The decision of the company to sell the Hydrox has lighted up the way in which the company has a chance to get struck by occurring losses but will hardly affect the balance sheet of the company. It has been skillfully calculated that after the completion of the event, the capital loss standing before the company will be a massive $1.8 billion (Woolworths limited, 2017). This is the reason these events have not found their place in the affecting part of the financial reports.
The financial report of the Woolworths Ltd has been keen enough to show the hardworking of the auditor id revealing the operations and the financial condition prevailing inside the company along with the material events taken up by the company. The auditors in their report have mentioned the fact that the company management has been totally in association and in line with the Corporations Act 2001and also it has been written that the remuneration policies of the company have also been fair and clear as per Section 300 of the Corporations Act.
The auditors have also been successful to adhere with all the important priorities of their task related to the reports and have also provided a detailed explanation to associate with the same. These revealing by the auditors have been a boon to the investors as it contains many key matters and sensitive information which are essential for coordinated decision making (Baldwin, 2010). IT related matters is one of the topics which has not been paid attention to properly by the auditors and the latter may find it confusing to search that why it had been put there in between the key points (Woolworths limited, 2017). These are some of the matters that decrease the reputation of the auditors in case of the material events taking place in the company. The investors may find the report to be slightly difficult to understand and they may require some extra time to see that they are in the profit zone but this does not mean that they will have t withdraw from the investments fully because of the complexity (Bley, Geiger & North, 2011). When other than the primary members, some other general investors are involved then it requires that all the points in the reports are precisely explained (Livne, 2015). All the matters other than the IT was properly explained in the reports but that matter also required precise attention to be dealt with so as the customers would lose some complexity and would gain some ease to take the investment related decisions. If all the matters including the IT matter were also described with attentiveness then the report would have been very fair and clear and all the topics included in the reports would have been recognized as fair and square.
Audit Opinion
From the evaluations, it is clear that the company has not been fully transparent in their working and have hidden many such matters related to their financial conditions that would provide a downfall to the reputation of the company. Some of the particulate matters associated with finances have been presented in the report but no adequate explanation for the same are given in the reports (Woolworths limited, 2017). The accounting processes, as well as the records, have been shown poorly which provides complexity and hindrance in the decision making of the investors and also the balance sheets have not been evaluated and presented properly lagging in explanations and briefings. The company has been clever enough to present the liabilities associated with the sales in the year 2016 and 2017 but the explanation and the records and reasons for such transactions have not been presented or are absent. Also, the running liabilities are mixed and are not separated from the previously evaluated liabilities. The case of the profit evaluation is the copy paste of hat has been done with the liabilities (Woolworths limited, 2017). The company has taken the rules for granted and has only shown that all the transactions are linked with the records but the presence of the records is nowhere to be seen. These are some serious matters that the company needs to solve as soon as possible as it will be losing its investors on a large scale and also the financial position and the reputation of the company will suffer a huge downfall. The company of Woolworths Ltd is big enough and that means that the transactions taking place will involve a lot of money which means that making such affairs without any adequate reasons and in the absence of such records will be a big fatal blow to the company in the upcoming future (Woolworths limited, 2017). So it is time for the company to take up some strict processes so that the company is saved from drowning which can happen in the future.
There are questions that can be asked by the auditor at the annual general meeting of the company:
- Have you reported any potential deficiencies of internal control to the audit committee? If yes, explain these deficiencies in detail, and provide an answer as to why these were not referred as material weaknesses. Moreover, have you initially concluded any material weaknesses and thereafter, changed your decision?
- Does the audit committee has chaired has really understood complicated matters of accounting and mechanisms of internal control? What are some of the specific illustrations that play a key role in supporting your outcome?
Conclusion
In the above report, it can be seen that the report of the company Woolworths was a little complex in nature but was at par with all the rules and regulation and decision making can be made with such a report through some extra time will be required for the same. This means that the company has prepared its reports and worked in associated with the rules stated in APES Code 110 of Ethics for professional accountants and the Corporations Act 2001. The company doesn’t seem to have violated any law from the above code rule books but some issues related to the briefings explanations of certain topics have surely taken over the negative side of the report concludes. The whole of the auditing department has seemed to be efficient in their work and this shows that they are able and worthy to counter any material misstatements that occur in the company if necessary. The risk management processes taken up by the auditing team have to be appreciated and this shows that the company has been following a strict audit scan with all the rules duly followed and adhered with.
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
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
Elder, J. R., Beasley S. M., and Arens A. A. (2010). Auditing and Assurance Services. Person Education, New Jersey: USA
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, 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
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