1.The two companies that have been selected for this case study are Telstra Corporation Ltd and Wesfarmers Limited. A brief overview of both the companies is given below.
Telstra Corporation Ltd is one of the biggest telecommunication Company in Australia. It provides various mobile and dth services along with other entertainment products and pay television services. The company has the highest market share in Australia and is now trying to spread its business to other countries as well (Tysiac, 2017). It is fully privatized and the customer focus is the main aim of the company. The company is listed on the Australian Stock Exchange and provides employment to large number of people. There is large number of companies in their business, Telstra has the top position. The second company is Wesfarmers limited. It is the biggest Australian Conglomerate that is situated in Perth, Western Australia (Gartland, 2017). The major interest of the company lies in Australia and New Zealand retail, fertilizers, chemical, safety products, coal mining and other industrial goods and products. It is the largest Australian Company by revenue and provides employment to a large number of people round the year. It is listed on the Australian Stock Exchange and also has the highest market share in this type of industry and is now expanding to other parts of the world also. The company is performing extremely well in comparison with the other companies that are operating in the same field of operation (Mayntz, 2017).
2.The annual report of both the company was downloaded and analyzed. In case of Telstra it was seen that the financial statements of the company was prepared as per the IFRS framework and in compilation with the given accounting standards and principles. The books of the company are prepared as per the Corporations Act 2001. The annual reports of the company are audited by the auditors and they have given a clear report for the same (Belton, 2017). The financial statements of the company have been prepared accordingly with all necessary disclosures given in the notes of account of the company. The other company is Wesfarmers; the annual report of the company has been prepared as per Australian Accounting Standards. The statements of the company have been prepared as per the IFRS and have given the necessary notes with all the relevant disclosures and details. The books of the company have been prepared complying with the necessary accounting standards and accounting policies. The auditor has also given their clear report for the same (Tysiac, 2017). Thus we see that the annual reports of the company have been prepared on the basis of the same accounting policies and principles. This lends uniformity to both the statements and hence they can be easily compared with each other.
Coming to the performance of the companies in their respective industry on the basis of their ratio analysis is given below.
In case of Telstra it can be seen that the price earnings ratio of the company is very less in comparison to the industry standards which implies that the overall earning of the company is less, and the return to the shareholders is not satisfactory when compared with the industry. However the dividend yield ratio is very good, thus it means that high amount of dividend is paid. Overall the price sales ratio is constant with comparison with the industry and also the price cash flow ratio is more than that of the company. However with relation to the industry it can be seen that the performance of the company is constant, and satisfactory. However it can be seen that the company needs to improve its overall price earnings ratio. The price book value of the company is almost same as the industry.
For this company it can be said that the price earnings ratio of the company is better than the industry. The dividend yield of the company is very good of the company in comparison with the industry. This means that the company is paying high returns to the investors for the money that they are investing in the company. The price sales and the price book ratio of the company is similar with relation to the industry (Abbott & Kantor, 2017). The company just needs to improve their price book value of the shares of the company. Overall it can be seen be that the company is doing well and also it is performing way better then the standards of the industry and hence it is in a better position. The investors will be attracted towards the company and will be interested in investing in the company and will earn huge returns from the same. Thus it can be said that Wesfarmers is performing better in comparison with the industry and in case of Telstra the performance of the company is not up to the industry standards and they need to work on the same (Tysiac, 2017).
In comparison to each other it can be said that the annual report of Wesfarmers was more detailed in comparison to Telstra. It includes more insight from the management of the company, the chairman and the directors. The minor details related to the company are highlighted. The annual report of the Telstra Company was 191 pages and of Wesfarmers were 144 pages. The financial statements of the company are more or less similar; it consists of all the necessary disclosures (Alexander, 2016). However there was lack of uniformity and hence it was not possible to make the comparison very easily. However it can be said that in case of Telstra the report was more detailed then in case of Wesfarmers. Both the companies belong to different industries, and they have different particulars and hence both are different from each other in some or other ways.
3) The Wesfarmers is an Australian Conglomerate that is engaged in the variety of businesses and thus they have wide objectives and diversified business ventures. The key business objectives include expansion and entering into business areas where the company sees potential and also expanding their business to other parts of the world, in which the company is not operating for the present time (Belton, 2017). The two major inherent risks in this kind of industry is that too much of diversification may not be useful for the parent company, often companies do not like getting merged with other companies that are operating in different sectors of the industry. Also it is a tough task to manage multiple kind of business effectively. Often the top executive who is working in this kind of industry finds it difficult to manage diversified work because they do not have knowledge about all the companies. If one company fails it takes great deal of time and energy to save them from flunking (Bromwich & Scapens, 2016).
The Tesco Corporation is operating in the Telecommunication sector, the main objectives of the company are to provide fast communication and internet services to the users of the company. The company also aims to use better technology that can help in breaking the barriers of the communication among different parts of the world, and cheap data services can be made available to the people. The major risks that are associated with the company is that entry and exit is very easy in this kind of industry in the lower levels of the business (Dichev, 2017). Also it a lot depends on the spending power of the people whether they want to use this kind of services of not. This is because many users do not need telecommunication services as a necessity, so if there is recession in the country, the consuming power of the company users will reduce. This will affect the overall development and growth of the company. These are the few inherent risk that are associated with this kind of industries in which both the companies are operating.
4) The key audit strategies and audit tests that has been taken by the auditors of the given company are-
Audit procedures are the methods that have been applied by the auditors of the company to judge whether the books of the company are showing a true and fair picture of the company are not. There are different types of audit procedures that can be applied by the auditor. These processes are designed by taking into consideration the industry in which the company is operating (Trieu, 2017). The different procedures include analytical review, investigation, inquiry and observation and few others. These are carried on extensively to see if there is any mistake in the annual reports of the company and if the internal control of the management are in place or not. Risk identification and mitigation is also one of the most important objectives of auditing. The different type of audit control includes valuation testing, cut off testing, occurrence testing etc (Linden & Freeman, 2017). These are basically test of control that has been designed to judge the effectiveness of the internal control of the company. It is important that the auditors must design these tests in such a manner that all errors can be identified and mitigated by the company.
5) The auditors of the both the company is Ernst and Young. It is one of the big four auditing firms that has wide scale expertise in providing auditing and consulting services. The audit reports of the company are more or less similar. The auditors have presented their views and opinions on the effectiveness of the accounts of the company and whether or not the management of the company has performed their work with utmost diligence and care (Werner, 2017). The audit report states that the companies have prepared their statements as per the international reporting framework and have given relevant disclosures that the investors might require. A clear report has been given from the auditors and there is no modification in the same. The audit report of Wesfarmers consists of four parts that are the report on the financial statements of the company, the director’s responsibility for the audit report. In this report the auditors have stated that the management of the company have been supportive enough during the entire course of audit and has provided them with necessary details that the company might need. The other parts of the report include auditor’s responsibility, a report on the remuneration of the auditor, and also the auditor’s opinion on the same. The auditor has established their independence with respect to the audit report of the company. The same is stated in the audit report of the Telstra Group. The audit reports have been signed by the respective audit partners with a attached stamp of the company on the same. Since the auditors of the companies are same, the audit reports are more or less similar and an extract of the same is attached from the annual report of the given companies.
The audit opinion is the view point of the auditor on the financial reports of the company. These reports are issued depending on the findings of the auditor. There are four different types of audit report are unqualified, qualified, adverse and disclaimer of opinion. In case the auditor is satisfied with the financials of the company then a qualified opinion is issued. In case the management is not supportive enough then a disclaimer of opinion or adverse is issued. In case some changes are required then unqualified opinion is issued. In the given audit reports of the company, the auditors have issued a clear report stating that the financials of the company are free from all kind of errors and mistakes. It states that the annual reports of the company are effective and are prepared as per the guidelines required and contains all the information that might be required by the investors of the company.
6) The limitations of the audit report with respect to the users are given below-
7)The main responsibility of the auditors of the two company were-
References
Abbott, M. & Kantor, A., 2017. Fair Value Measurement and Mandated Accounting Changes: The Case of the Victorian Rail Track Corporation. Australian accounting Review.
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management Accounting Research, Volume 31, pp. 1-9.
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.
Gartland, D., 2017. The importance of audit planning. Journal Of Accountancy.
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), pp. 353-379.
Mayntz, R., 2017. Networked Governance. s.l.:Springer.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, Volume 93, pp. 111-124.
Tysiac, K., 2017. Rulemaking gives auditors a chance to provide more insight. Journal of Accountancy.
Tysiac, K., 2017. Tactics for driving quality in a single audit. Journal Of Accountancy.
Werner, M., 2017. Financial process mining – Accounting data structure dependent control flow inference. International Journal of Accounting Information Systems, Volume 25, pp. 57-80.
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