Audit Procedures, Assertions And Areas Of Concern In Woolworths Limited Financial Statements For FY 2016

Inherent Risk

INHERENT RISK Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	JUSTIFICATION	ASSERTION AND LEDGER ACCOUNT IMPACTED	AUDIT PROCEDURE
Valuation of Inventory at End and its changes Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Inventory on 30June 2016 amounting to $ 4558.5 million which is major part that is 60% of the total assets. The company has very complex product range and written down the BIGW division inventory to make it simple. Also due to high range of goods of company, the company has to value its inventory at Net Realizable value due to loss in value of inventory because of its huge size and time.	Assertions: · Correctness in value of Inventory · Fullness of all inventory items · Closing inventory Account Balance: Ø Inventory Ø Accounts Payables Ø Purchases Ø Sales	Ø Physical verification of inventory at regular intervals and report the discrepancies Ø Vouching of Purchases in relation with Purchase Orders Ø Documents examination in relation to stores, warehouses for inventory keeping
Application of Cash and its balance at the end	The company is dealing with daily with numerous small customers. The cash and cash equivalents are at high risk position in the company which is standing in balance sheet as at 30^th June 2016 amounting to $ 948.1 million. The company has high chances of theft of the same cash and also the cash and cash equivalents are decreasing from past year creating major doubt of cash embezzlement in minds of auditor. The company is also paying the cost of acquisitions in business combinations in cash amounting to $ 22.7 million in current year.	Assertions: · Accuracy in value of Cash and Cash Equivalents · Fullness of all cash transactions are taken into considerations · Recording of all cash sales · Reconciliation of payments Account Balance: Ø Cash Ø Bank Ø Sales Ø Accounts Payable	Ø Physical cash counting at particular period Ø Bank Balance Confirmation Certificate from Bank Ø Bank Reconciliations and their preparation intervals along with Bank statements Ø Tracking Cash trail from Sales to its actual Receive and transfer to safe custody Ø Checking of Approvals and authorization
Foreign Exchange Currency Risk	The company is operating in Australia and New Zealand. The function currency is Australian Dollar so while reporting all the business transactions relating of New Zealand is converted in Australian Dollar and then finds the place in the annual Report of the company. The company has invested the amount in other country and so involvement in foreign exchange market risk portfolio.	Assertions: · Accuracy in translation of Foreign Currency · Correctness in Recording the foreign Exchange Transactions Account Balance: Ø Cash Ø Bank Ø Foreign Exchange Gain Ø Foreign Exchange Loss Ø Assets Ø Liabilities Ø Foreign Currency Translation Reserve	Ø Correctness of Exchange rate in translation provisions Ø Ascertainment of future Foreign Exchange Rate Fluctuations Ø Recalculate the foreign exchange gain or loss Ø Checking Foreign Currency hedging options and policies adopted in relation to the same

AREAS OF CONCERN	JUSTIFICATION	ASSERTION AND LEDGER ACCOUNT IMPACTED	AUDIT PROCEDURE
Profitability of the company	The company has huge loss in the current year amounting to $ 2347.9 million which mainly because of the discontinued operations of Home Improvement Business division of the company. The loss reduces the current year profitability to negative returns to the value of the shareholders. If we only considers the profitability of the continued operations then also the profitability decreases to 1.44% in 2016 as compared to 3.90 % in 2015 which shows more than 50% decrease in the earnings from operations with same level of revenue earned.	Assertions: · Increased Cost of Operations · Chances of error and frauds at the level of management in ascertaining the profits for shareholders Account Balance: Ø Branch Expenses Ø Administrative Expenses Ø Sales Ø Purchases Ø Direct Expenses	Ø Vouching of all the material expenses in details Ø Ledger confirmation from parties for tracking the revenues to be received
Liquidity of the company	The current ratio of the company is less than 1 that is 0.83:1 in 2016. The company is not able to pay its current and short term obligations with its short term funds. The auditor has to check in detail with the areas of decreasing of current assets in the company and reasons for increases in suppliers and other liabilities. Also in the current year the assets are which held for sale has been increased to $ 1100.5 in 2016 in relation to $ 381.6 in 2015.	Assertions: · Correctness in valuation of Trade Receivables and Inventories majorly comprising in Current Assets · Correctness in value of the Suppliers and Account Payables Account Balance: Ø Inventory Ø Cash Ø Trade Receivable Ø Accounts Payable Ø Provisions Ø Short term Borrowings	Ø Verification of all currents and current liabilities Ø Physical verification of current assets whichever is possible Ø Balance Confirmations from Parties Ø External advise in valuation of Provisions
Valuation of Non Current Assets	Total Impairment Expense reported by the company in 2016 is $ 2118.9 million. The impairment consists of both continuing and discontinuing operations costs. The auditor has to identify the cause and effect relationship of impairment with assets as it can affect the net worth of the company at reporting date. The Home Investment division asset has remaining useful life and company has written up of all the assets according management judgment which is concern area for audit.	Assertions: · Correctness in calculation of carrying amount · Calculation of value in use · Management evaluation Account Balance: Ø Property, Plant & Equipments Ø Impairment Expense Ø Intangibles Ø Goodwill	Ø Examination of Principles followed by the company in valuation of Impairment Ø Physical verification of Assets at particular interval Ø External advise on Capitalization of Asset

The Independent auditor has issued a unqualified opinion the financial statements of Woolworths Limited for 2016. The unqualified opinion contains that the financial statements are prepared according to the generally accepted accounting principles of Australia and the financial and non financial affairs show true and fair view that means free from material misstatements.

The opinion given by auditor is not correct. The auditor should give qualified opinion. Qualified opinion refers to opinion given by an auditor having certain limitations. That means apart from call areas, there are certain areas in the financial statements which are not as generally accepted accounting principles.

In the case of Woolworths, the auditor should given qualified opinion because of the inherent risks present in the financial statements as identified and should test in details of the areas which are under concern for auditor.

The auditor report presented in annual report are in conforming with Australian auditing standard 700 and Corporation Act,2001 apart from the following:

The audit report does not contain the basis of opinion of the auditor
The audit report does not contain anything about the sufficiency of the audit evidence.
The audit report does not contain anything relating to Key Matters of the company and these matters are reported in accordance with Australian auditing standard 701
The audit report does not contain anything related to other information which is not the part of Financial Report and Audit Report but may report to give information to investors

No, there is no other matter which takes place after the date of audit report which has impact on auditor opinion.

The company has a process relating to Corporate Governance and issues a Corporate Governance statement each year for its stakeholders. In Section 5- OTHER INFORMATION of the annual report it has been mentioned about that shareholder information and corporate governance statement of the company. The company is issuing the separate corporate governance report apart from annual report.

The company has audit committee which is formed in accordance with provisions of Auditing Principles. The compositions of the audit committee for 2016 which is correct in accordance with rules and regulations are as follows:

Hubert Brody- a independent non executive director is the chairman of the audit committee.
Patrick Allaway- independent non executive director is member
Peter Bacon- independent non executive director is member
Zarina Bassa- female independent non executive director is member
Andrew Higgison- independent non executive director is member

Part C

The audit committee is necessary as it provides benefits to different users governing the audit practices and for those who are using the reports for framing a decision on the basis of audited reports. The following are key benefits of having audit committee as whole:

Enhancing the Financial performance and reporting methods- The audit committee is the bridge between auditor, management and board of director of the company which helps in transferring and communicating the information which are related directly or indirectly to internal control policies and preparation of books of accounts.
Prevention of Frauds and error- The audit committee being independent body monitors that the code of ethics, standards and rules and regulations are completely followed to avoid frauds and errors.
Enhancement of Auditor Performance- The committee analyzes the performance of the external auditor and provides the safeguards to avoid the threats to independence of auditor.
Internal Audit- The audit committee should ensure the proper internal audits are done after particular intervals. And the report of internal audit should be assessed and corrective actions in relation to findings of internal auditor should taken by the company.

References

Woolworths Official Website, (2016), “Annual Report” available at https://www.woolworthsgroup.com.au/icms_docs/185865_annual-report-2016.pdf accessed on 14/05/2017

Woolworths Official Website, (2016), “Corporate Governance Statement” available at https://www.woolworthsgroup.com.au/icms_docs/182380_Corporate_Governance_Statement.pdf accessed on 14/05/2017

Ruhnke, K. and Schmidt, M., 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.

McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance.

Badolato, P.G., Donelson, D.C. and Ege, M., 2014. Audit committee financial expertise and earnings management: The role of status. Journal of Accounting and Economics, 58(2), pp.208-230.

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