Auditor’s Assurance Services For Wesfarmers: Summary And Evaluation

Compliance with the necessary statutory requirements

In order to trace errors and frauds in the financial statements of the company, the auditors should always make sure that they are focussing on the internal control system of the same company. This will aid them in detecting material misstatements caused as a result of errors or/and frauds and representing a true and fair view of the financial well being of the company in their audit reports. Considering the audit process carried out at Wesfarmers, it would be fair enough to say that the reports of the company reflected transparency of its affairs and offered a true and fair picture of its financial performance (Wesfarmer, 2017). The credit for the same can be entirely given to the auditors for the functioning of the same was considerate and also the company was able to adhere to all the necessary independent requirements especially the ones like The Corporations Act, 2001.

The company was able to survive and expand in its industry in the presence of all its rivalry companies owing to the compliance that was made with all the necessary statutory requirements. The fact that the company was able to adhere to almost every independent requirements is highly appreciable. The audit report of Wesfarmers too highlighted the fact that the company has been in compliance with all the necessary standards. All such necessary statutory requirements were based on the Corporations Act, 2001 which affirms the true and fair view of the financial performance of the organization and APES 110 code of ethics that are especially for professional accountants (Wesfarmer, 2017). Also, certain other significant matters apart from compliance are also dealt with appropriately.

In context of non-audit services, it can be said that the audit committee of the company has extended their services by means of providing legal and ethical advice on the same. Also, all these legal and ethical suggestions were provided in written form for the purpose of non-audit services so as to comply with the resolutions made. Not only this, the board assessed the risk on behalf the risk committee and they were extremely contended seeing that the auditors of the company are well capable of offering non audit services as well by means of giving legal and ethical suggestions (Wesfarmer, 2017). The capability of the auditors in providing both auditing and non audit services was reflected in the annual report of the company which assists the users in making appropriate decisions. In context to Corporations Act 2001 for the purpose of decision making there are various standards that are required to be accepted-

1. The objectivity and integrity of non audit services are required to be substantially monitored by the audit committee of Wesfarmers so as to safeguard the policies of corporate governance adopted by the company. Also, when the independence declaration copy has been provided, it is unacceptable to question the credibility of an auditor’s suggestions and decisions (Wesfarmer, 2017).
2. The auditors are not allowed to review their own work may it be in the case of audit or non-audit services.

Audit or fees	2017 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2016	%	%
Review and audit of financials
E &Y (Overseas)	702	577	8.869236	6.644404
E &Y (Australia)	5723	5780	72.30575	66.55919
Assurance services
Other audit firms	218	112	2.754264	1.289728
E &Y	1272	2215	16.07075	25.50668
Total	7915	8684
Non-audit services
E &Y (Australian & overseas):
– Compliance of tax	1088	1096	47.16081	55.4095
Others	1219	882	52.83919	44.5905
Total	2307	1978
Payment to auditors	10222	10662

Non-audit services

In order to govern the overall performance of the organization and taking care of all its compliance of necessary independent requirements, internal and external audit, internal control process, financial reporting an Audit Committee was formed at Wesfarmers. The audit committee can only work on the matters that are confined to it or rather within its limitations so as to avoid any conflict with the work of the management (Wesfarmer, 2017). The financial records of the organization are made available to the audit committee which will also assist the management in diligently executing their responsibilities.

Amount of non-audit services provided to the consolidated group

The company offered audit services of worth US$2307000 to its consolidated group. It is close to 23.1 per cent of the amount that was being paid to other companies in June 2017. The amount is yet to be received by Wesfarmers from its consolidated company.

Significant audit matters

The auditor provided a favorable result meaning that the financial statements were free from any error. In short, it can be commented that the auditor provided an unqualified opinion that reflects the financial statements are free from error and is clean. Such reports are highly dependable. Wesfarmer has a clean report and the financial statement does not have any uncertainty that is duly undertaken and assessed by the auditors. This projects that the compliance system of the company is followed in an effective manner.

 For the purpose of evaluation of forecast cash flows, Corporate Governance, decisions, discount rates, internal control mechanisms, risk assessment, growth rates and other denominations by means of assessing the audit plan, Wesfarmers installed various procedures. This assessment shall pave ways for the company to expand its operations. The company has examined numerous components by means of incorporating impairment test in order to trace their effectiveness (Cooper & Coram, 2015). All such factors are elaborated below-

Credit strategies were decided by means of examining the documents that were created whenever the discounts were offered to suppliers. Determination of non-standard agreement was done so as to trace any misuse of company’s name by analysing certain business facts such as merchandisers, products, supply chain manager, staff in order, etc (Wesfarmer, 2017).

The effectiveness and worthiness of the financial report presented by the company were assessed by disclosure of sensitivities, key assumptions and impairment testing approach. Certain auditory tasks like valuation of all types of materials and few others not only yielded commercial income for the company but also paved ways for the regulation of efficient control mechanisms (Dauber, 2009).

Calculation of the salaries given to auditors

Forecast exchange rate assumptions.

The company not just before but also after balancing its financial statements installed new material contracts. This helps in ascertaining the effectiveness of the procedures. The last year’s budget was considered by means of comparisons so as to evaluate effective discount schemes. It allowed the management of the company in considering and analysing the ageing profiles.

Yes, there is a huge contrast between the responsibilities of the management and the auditor of the same company. The financial statements that are initially prepared and handled by the management of the company forms a basis of assessment and scrutiny by the auditors for sharing their opinions and suggestions on the financial well being of the company (Wesfarmer, 2017). The auditors evaluate the financial statements prepared by the management of the company so as to bring out the transparency of the financial performance of the company and give and true and fair view of its state of affairs that will help the users in their decision making (Matthew, 2015).

It is the job of the auditor to trace the material misstatements and label them as errors or/and fraud for the purpose of eliminating data corruption and maintaining the genuineness of the financials of the company whereas the job of the management of the company is to adopt sound policies and such other practices along with the installation of internal control mechanisms for the purpose of recording and processing transactions in the financial statements that overall derive benefits to the company and allow it to survive and expand its business in its industry (Christensen, 2011). All such operations, related assets and liabilities along with equities are controlled and regulated by the management.

The auditors form an opinion on mainly two grounds. One on the basis of the information provided by the directors and the management prior to the auditing and secondly, on the basis of their own findings (Ruhnke & Schmidt, 2014). It is entirely the duty of the management of the company to effectively present the financial statements of the company governing all the accounting principles and statutory requirements (Wesfarmer, 2017). On the other hand, it is the responsibility of the auditors to fairly represent their opinions and suggestions based on their research work.

The auditors at Wesfarmers were not efficient in their work. They were ignorant towards classifying the misstatements as errors or frauds which brings out the contrast in between the responsibilities of the management and auditors (Wesfarmer, 2017).

Audit Committee

The annual report of Wesfarmers shows the occurrence of 2 key subsequent events after its date of reporting. These events were regarded as material subsequent events for if the same would have occurred prior to the date of reporting the consequences would have been huge for the company. The events have occurred right one after another which could have badly impacted the financial statements of the organization. Payment of dividend has widely affected the financials and well being of the company. This is due to the fact that the payment of dividend reflects the capability of the company to earn sufficient revenues and achieve substantial EPS and ROI which allows the company to declare dividend to its shareholders. A profit of 120 cents per share was paid by the company just after its date of reporting. If the same would have been paid before the date of reporting, the financial well being of the company would have severely suffered (Wesfarmer, 2017). The company also failed to provide dividend for year 2017. It would have also severely affected the finances of the company.

The next material subsequent event is related to the departmental store of the company which is Kmart that has developed its brand value in New Zealand and Australia. The long term license agreement of the company to hold such departmental stores cost around US$ 100 million. It could not impact the revenues of Kmart but had the capacity of affecting the share prices and earnings of Wesfarmers Ltd if only it happened prior to the date of reporting.

The report prepared by the auditors of Wesfarmers was hardly effective. The efficacy of the auditor’s report was not clear. It was asserted by the auditors of the company that they adhered to all the necessary statutory requirements and have audited the financials of the organizations carefully(Wesfarmer, 2017). The auditors failed to disclose certain significant audit matters in their audit reports that were required to be projected. The essential matters were not explained. These were just highlighted by the auditors in their reports which could be confusing for the users in evaluating and arriving at their decisions (CAANZ, 2016). Focusing on the positive side, it can be seen that the auditors have at least offered explanations of the processes considering the significance of such audit matters which can be of great help for the users in taking decisions (Elder et. al, 2010).

Amount of non-audit services provided to the consolidated group

However, the auditors have failed to represent necessary issues in their audit reports which required mandatory disclosure as a significant information. Labelling a significant issue as material information defines the effectiveness of such issue which was completely ignored by the auditors in their report thus, disallowing the users in taking effective decisions. But, the positive side to the reports was the presence of notes and footnotes represented by the auditors (Wesfarmer, 2017). This allows the users to make a quick review of certain information. The effectiveness of the report prepared by the auditors was barely seen. This makes it harder and complicated for the users to depend on such details and make effective decisions.

The crucial matters that required disclosures were not mentioned in the reports of Wesfarmers. The absence of such material disclosures puts the company’s image into question. Not just the goodwill of the company but the users are also affected as a result of missing of such significant information. The users face dilemma in making decisions owing to the mishaps in the audit reports. The credibility of the company is also doubted. Missing notes and footnotes in the financial statements of the company are an example of such failures (AUASB, 2015).

However, the presence of notes attached with the financial statements is appreciable. The company not just missed to disclose required information but also under reported significant information. Wesfarmers has failed to disclose information related to its consolidated companies. Minimal information regarding its consolidating companies was presented that is of hardly any use or rather inappropriate for the users in taking decisions. Full and sufficient disclosures allow the users in making appropriate decisions. The details of the diversity of the company, was also not mentioned in its audit report. Material information related to risk factors, corporate governance, sustainability, etc are few to be named that were disclosed in the report of the company (Moroney & Trotman, 2016). This shall assist the users in their decision making ability. Moreover, such information will aid the parties in taking useful decision. Hence, the projection of such information gives clarity of the work undertaken.

The key audit matters were also not legitimately presented by the auditors in the company’s audit reports. There were some areas that were not significantly projected.  All such discrepancies in the audit report on the part of auditors can severely affect intended users in taking decisions of investing in the company along with hampering the goodwill of the company (Wesfarmer, 2017). Presence of crucial matters and significant information in the audit report could have justified the performance of the company and assisted the intended users in taking effective decisions.

1. How the complicated matters of the company were addressed and the steps taken by them in times of contingency.
2. How the sensitive matters were answered that pose a threat to the smooth functioning of the company?

• The strength and weakness of the management of the company are detailed?

Conclusion

From the above report it can be commented that the audit procedure plays a dominant role in shaping the destiny of the company. Further, in the light of Wesfarmer it can be seen that the role of auditor is immense because of the company being huge. The overall report sheds light on the fact that the audit was done in an effective manner. The crucial matters were dealt and disclosed in an appropriate manner thereby providing the stakeholder relevant information. Hence, from the discussion it is imperative that the auditors play an important part in shaping the destiny of the organization. The auditors play an important role in providing a true and fair view of the state of affairs of the company. The audit report is important as it leads to projecting up of vital information.

References

Christensen, J. (2011) Good analytical research. European Accounting Review. [online]. 20(1), p. 41-51. Available from: https://doi.org/10.1080/09638180.2011.559030 [Accessed 17 September 2018]

Cooper , B. and Coram, P. (2015) Modern Auditing & Assurance Services. 6th ed. Australia: Wiley.

Dauber, N. (2009) Wiley The Complete Guide to Auditing Standards, and Other Professional Standards for Accountants. NY: John Wiley & Sons.

Elder, J. R., Beasley S. M., and Arens A. A. (2010) Auditing and Assurance Services. Person Education, New Jersey: USA

Matthew, S. E. (2015). Does Internal Audit Function Quality Deter Management Misconduct?. The Accounting Review [online]. 90(2), p. 495-527. Available from:  https://doi.org/10.2308/accr-50871 [Accessed 17 September 2018].

Merchant, K. A. (2012). Making Management Accounting Research More Useful. Pacific Accounting  Review [online]. 24(3), p. 1-34. Available from: https://doi.org/10.1108/01140581211283904 [Accessed 17 September 2018].

Moroney, R., and Trotman, K.T. (2016) Differences in Auditors’ Materiality Assessments When Auditing Financial Statements and Sustainability Reports. Contemporary Accounting Research. [online]. 33(2), p.551-575. Available from: https://doi.org/10.1111/1911-3846.12162 [Accessed 17 September 2018]

Moroney, R., and Trotman, K.T. (2016) Differences in Auditors’ Materiality Assessments When Auditing Financial Statements and Sustainability Reports. Contemporary Accounting Research. [online]. 33(2), p.551-575. Available from: https://doi.org/10.1111/1911-3846.12162 [Accessed 17 September 2018]

Niemi, L., and Sundgren, S. (2012) Are modified audit opinions related to the availability of credit? Evidence from Finnish SMEs. European Accounting Review. [online] 21(4), p. 767-796. Available from: https://doi.org/10.1080/09638180.2012.671465 [Accessed 17 September 2018]

 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. [online]. 33(4), p.247-269.  Available from: https://doi.org/10.2308/ajpt-50784 [Accessed 18 September 2018]

Wesfarmer. (2017) Wesfarmer annual report and accounts 2017 [online]. Available from: https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-report.pdf?sfvrsn=0 [Accessed 18 September 2018]