|
Inherent Risk |
Justification |
Assertion And Ledger Account Impacted |
Audit Procedure |
|
Inventory – Valuation (Woolworths Official Website, 2018) |
As per the annual report of the company, Inventory on 30June 2018 amounts to $ 4233 million which counts approximately 18% of the total assets. The company has the wide range of products and services and in the year of 2016, worth mentioning, that the company has written down the inventory of BIG W business at a large value suddenly therefore, the inventories of the product shall be valued at net realizable value instead of cost. Although the company has calculated the net realizable value as net of selling expenses but it has been not been detailed in the report. Thus, because of the high amount of inventory and size of the business, the company is prone to risk. |
Following are the assertions Accuracy in the valuation of inventory. Completeness of accounting of Inventory Valuation of closing inventory. Following are the impacted ledger accounts: Inventory Sundry Creditors / Accounts Payables Purchases Sales / Revenue |
Following audit procedures shall be adopted: The company shall ensure the system in place to have the physical verification of inventory on periodical basis and give report to the management. The purchases shall be verified with the entries made in the books of accounts along with the invoices and purchase orders. On verifying the purchases and conducting the physical verification of inventory it is necessary to have the verified all the documents pertaining from the date when it is entered in factory and till the date it is converted to finished goods. |
|
Utilization of the Cash and Its Balance (Ruhnke, 2014) |
Cash is regarded as one of the most important assets of the company as it helps in running day to day functions of the company. As on the 30th June of 2018, the company has the cash and cash equivalents amounting to 1273 million dollars. As the company is into retail sector and has the long chain of customers who purchases the goods from the company on daily basis and in cash. The cash balance is liable to be many dangerous threats which include the cash fraud by the accountant, theft, robbery or embezzlement in any manner and so on. Therefore, the ash balance shall be taken care off. |
Following are the assertions: There are large chances of having the inaccurate balances of cash and cash equivalents Completeness of all cash transactions whether the same have been taken into account or not. Completeness and the accuracy of the recorded and unrecorded cash sales Reconciliation of ledger accounts with the parties balance confirmation along with their ledger accounts. Following are the assertions impacted ledger accounts Cash Bank Sales Accounts Payable Debtors Expenses |
Following audit procedures shall be adopted: System should be in place for physical verification of cash on periodical basis and reporting the discrepancies noticed to the management. Balance confirmation certificate shall be obtained from the banks and the parties so as to reconcile the balances with the books of accounts. Verifying the each invoice of sale and purchase with the books of accounts and verifying that whether related cash payments and receipts have been recorded or not. |
|
Risk of having loss due to fluctuations in the Foreign Exchange Currency |
The company has its head office in Australia and operates in New Zealand as well. As and when the company enters into transactions where the payment or receipts have to be done in the currency other than the functional currency then the risk of having the gain or loss arises. |
Following are the Assertions: The translated foreign currency shall be accurately recorded. Completeness shall be ensured in recording all book entries. Following are the impacted ledger accounts: Cash Bank Foreign Exchange Gain Foreign Exchange Loss Assets – depending upon the circumstances and facts. Liabilities – depending upon the circumstances and facts. Foreign Currency Translation Reserve |
Following audit procedure shall be adopted: The currency rates adopted by the company for each of the transactions shall be verified by the rate as envisaged on a daily basis by the statutory regulating authorities. |
Analytical Reviews are conducted either through the ratio analysis or the trend analysis. It helps in ensuring that the audit planning has been done in the correct manner.
|
Analyitical Review – Comfort Identified |
Justification |
Assertion And Ledger Account Impacted |
Audit Procedure |
|
Earnings Valuation (Woolworths Official Website, 2018) |
The company has higher profit for the year under consideration amounting to $ 1795 million and that has occurred due to the increase in the turnover of the company. The profitability of company has created the doubt because of the higher increase in the cost of sales, branch expenses and administration expenses due to which the profit has been increased from 2.90% to 3.16% of sales relating to 5% increase in sales. |
Following are the Assertions: Cost of Sales has been increased. Branch Expenses have been increased. Administration Expenses have been increased. Following are the impacted Account Balance: Branch Expenses Administrative Expenses Sales Purchases |
The sales and the expenses shall be verified as entered in the books of accounts with the invoices and the bills and related supporting evidence. The nature of the expense shall also be checked whether any personal expenses have been entered in the books of accounts. |
|
Current Ratio and Working Capital |
The liquidity of the company is not good as for the year under consideration the current ratio is 0.69 which less as per the industry standard counting to 1.32. It entails that the company will not be able to pay the short term liabilities within the period of one year. If it remains and persisting the company will be facing the challenge of liquidity and shortage of cash. |
Following are the Assertions: Account receivables and the inventories as valued in the books Accounts payables as valued in the books. Following are the impacted Account Balance: Inventory Cash Accounts Receivables Accounts Payable Expense Payable / Provisions Short term Borrowings |
Following is the audit procedures: Analysis shall be made for the current ratio for the last five years. The reason for decline shall be understood with the each heads of the accounts as clubbed under the current assets and current liabilities. |
|
Rebates |
The rebates are received from the suppliers and the company recognizes them as the reduction in the value of the inventory or the figure of the sales. This is the area of concern because of the fact that sometime it are overstated and are not valid due to which the results of the group may be hampered. |
Following are the Assertions: Accuracy in the recording the amount of rebates. Completeness in the recording of purchases. Following are the impacted Account Balance: Purchase Inventory Cost of Sales Rebates |
Following are the audit procedure: The accounting of the rebates needs to be verified with the invoices and the debit notes and credit notes if any. Valuation of inventory shall be checked. |
Yes, the company has the defined process pertaining to the Corporate Governance and accordingly issues and publishes statement for Corporate Governance every year for the benefit of not only the shareholders or the investors but also the other stakeholders. As per separate head – OTHER INFORMATION as mentioned in the financial report of the company, it is very clearly mentioned that company is maintain the corporate governance statement and sustainability report and publishes the same as separate to each other (McCahery, 2016).
Yes, the concern has the audit committee and which has been duly constituted as per the statutory principles. Following is composition as on 30th of June 2018.
- Miachel Ullmer – Chairman of the committee and is also an an independent non executive director.
- S Perkins – Male Member and a non executive director
- Siobhan Mc Kenna – Female Member and an non executive director
- Jillian Broadbent – Member and an non executive director
- Gordon Cairns- Member and director being a non executive one.
Yes, it is very necessary to have the system of audit committee in place. It is because of the fact that the committee helps in resolving any kind of discrepancies on the timely basis and helps the users and stakeholders to take the timely and effective decision. The key benefit which has been provided by the audit committee is as follows:
- The committee so forms acts as the best way to communicate all the matters and rectification required in the books of statements and procedures either to the management of the company or the auditors.
- The committee helps in identifying the frauds if any in the timely manner and takes the immediate effect in the books of accounts and does not wait for the start of the statutory audit (Badolato, 2014).
- The committee reviews the reports of the internal as well as the external auditor and hence helps in analyzing their performances and take corrective action if required.
References
Badolato, P.G.,(2014). Audit committee financial expertise and earnings management: The role of status. Journal of Accounting and Economics, 58(2), pp.208-230.
McCahery, J.A., (2016). Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance.
Ruhnke, K., (2014). Misstatements in financial statements: The relationship between inherent and control risk factors and audit adjustments. Auditing: A Journal of Practice & Theory, 33(4), pp.247-269.
Woolworths Official Website, (2018), “Annual Report” available at https://www.woolworthsgroup.com.au/icms_docs/185865_annual-report-2018.pdf accessed on 08/09/2018
Woolworths Official Website, (2018), “Corporate Governance Statement” available at https://www.woolworthsgroup.com.au/icms_docs/182380_Corporate_Governance_Statement.pdf accessed on 08/09/2
