Ethical Conduct And Audit Services Provided By Deloitte For Woolworths Limited

Code of Ethics and Professional Conduct

The reports of Woolworths Limited have been audited by one of the big four audit companies, that is, Deloitte. At Deloitte, the ethical behavior and the professional conduct is of some serious concern for everyone at whichever level they belong to. The strength of a role is determined by one’s actions. One of the most valuable parts of Deloitte is Integrity (Taillard, 2013). The ethical values, the professionalism rules are not some mere philosophy but a powerful tool that acts as a guide for all the professionals to take up the right actions and correct decisions, whatever the situation may take place. The Code Of Ethics and Professional Conduct is guided by the Global Principles of Business Conduct that sets a standardized framework for the professionals of Deloitte who have to restrict themselves within that framework wherever in the world they might be serving.

Having a reputed name worldwide and being so much committed to its principles, the auditor has complied with the independence requirements. The auditor’s independence declaration, according to section 307C of the Corporations Act 2001, in the financial reports is an authorization from Deloitte that being a lead audit partner, it declares to the best of its knowledge and belief that there has been no violation of applicable professional conduct and independence requirements of the auditor related to the audit of the company  (Alvarez, 2013).

Non audit services are the services provided along with audit services. As stated in the Director’s statutory report, Deloitte Touche Tohmatsu has provided certain non audit services which in no way has compromised with the auditor’s independence requirements as stated in APES 110 Code Of Ethics for Professional Accountants  (Atkinson, 2012). Such non audit services do not involve auditing the work of an auditor or making any decision in the capacity of the company or sharing of rewards or risks on the behalf of the company.

The non audit services include assistance on various accounting matters, services of assurance such as regulatory services, raising debts, due diligence and other petty services. The remuneration for such non audit services are $504,000. Such services do not have an impact on the statutory audit requirements (Siciliano, 2015).

As we can see from the table, the auditor’s remuneration has increased in comparison to previous year  (Strathern, 2010). However, the auditor has provided more non audit services for the current year. Such non audit services have been in the nature of providing assistance related to accounting & taxation matters and various other services already stated above  (Cochran, 2017). The major change in the auditor’s remuneration has been observed to non audit services.

AUDITOR’S REMUNERATION
Particulars	2017 ($’000)	2016 ($’000)	% Change
Auditor of the parent entity : Deloitte Touche Tohmatsu Australia
Audit or review of the financial report	3254	2748	18.41%
compliance & regulatory services	129	239	-46.03%
other non-audit related services	421	173	143.35%
tax compliance services	108	113	-4.42%
Total	3912	3273	19.52%
Other Auditors
Audit or review of the financial report	305	218	39.91%
other non-audit related services	83	44	88.64%
tax compliance services	154	160	-3.75%
Total	542	422	28.44%

Independence declaration

Key audit matters are of utter importance for the audit work for the current year and therefore, the auditor states it in his independent report along with the audit procedures adopted for analyzing such matters. The audit procedures adopted are usually are test of controls, substantive test of details or analytical procedures (Donohue, 2015). The current report of Woolworths also contains key audit matters that can be explained in the following way along with the audit procedures adopted:

Particulars	Description	Substantive Test of details	test of controls	analytical procedures
Home Improvement	As disclosed in the notes, there has been improvement in the exit of hotel improvement business. There is a number of concerns in this matter such as lowe’s put option, property cost accounting, Home Corsotium transaction, taxation matters of masters inventory, liquidation matters, closure matters, measuring onerus leases, settlement of liabilities. The matter included significant complexities, estimates and judgements for measurement of assets and liabilities. And this is why, the auditors considered it to be a key matter.	Checking of sale agreement of Home Timber and Hardware; assessing the terms and conditions of liquidation; checking of lease agreements and contracts; checking of carrying value of assets and liabilities.	Evaluating the accuracy and appropriateness of the accounting method with respect to sale of Home Timber and Hardware, evaluation of put option of Lowe, consequences of Home Improvement Exit, appropriate disclosures are there or not.	Testing of amounts of revenue and costs of the liquidation matters in relation to terms of appointment of GA Australia Pty Ltd., evaluation of estimates or judgements used regarding assets and liabilities; comparison of amounts recorded against historical trends in relation to lease agreements and other contracts.
Inventory	The Group has a policy of valuing inventory at cost or net realisable value. Currently, it shows a value of $4080.4 million. It also considers any obsolescence or discrepancies, forecasting of sales assumptions, historical trends . The reason for considering it as a key matter whether the valuation of inventory has been done as decided or not.	Understanding the policy of provisions of inventory with respect to seasonality, aged inventory, selling on the basis of rates; reviewing historical values of provisions of inventory ; checking of inventory written off during the year.	Testing of internal control over the inventory valuation; Evaluation of judgements used or assumptions applied for calculation of inventory.	testing of amounts through sampling ; comparison of such values  with vendor’s prices and sales value ; testing of shrink rate ; obsolescence rate ; testing of calculations for checking of mathematical accuracy.

Yes, there is an audit, risk, management & compliance committee composed of 5 people where Michael Ullmer is the chairman of the committee and the rest four people are the members of the committee. Four out of five members are independent non-executive directors.

The audit committee charter is the charter that governs the actions of an audit committee. The audit committee is composed of at least three members where all the members should be independent directors of the board and one person out of them should be made the chairperson of the committee  (Easton, 2010). For the fulfillment of audit committee requirements, members shall be assumed as independent as long as they are satisfying the independence requirements. Each of them should be a literate financially and none of them should be serving more than three audit committee of public companies simultaneously until and unless the Board isn’t approving it.

• Guiding board of directors to fulfill its responsibility in the best way towards potential shareholders ;
• Maintaining the integrity of the financial reports and other related documents of the company ;
• Having a responsibility towards maintaining an effective internal control over the company reporting of financial statements ;
• Assurance regarding compliances with various legal requirements and regarding qualifications and independence of auditor’s appointed ;
• Having a sight on the internal audit department’s performance work of the independent auditor.

The duty of the audit committee is as set up in the charter. It is the duty of the management of the company to prepare and present the financial reports, applying appropriate accounting and reporting standards, maintain ethical principles and maintaining a strong internal control over operations of the company  (Elaine, 2015).

The committee while fulfilling its responsibilities believes that the policies and procedures adopted should be flexible enough to to change it so as to adjust it with the changing circumstances. The committee is held responsible for taking appropriate steps for monitoring the quality of the financial reporting, business threats, risks associated and ethical behavior of the company. The committee is responsible for revising and evaluating the policies and programs of the company related to risk management, assessment & controls  (Fisher, 2012). It shall take an part of formulating a plan of actions for auditing with the internal auditors, external auditors and top management and should be involved in the preparation of budgets or compensation structures

Audit opinion, being one of the most important parts of an audit report, is an expression of opinion of an auditor on the financial reports which is considered as an reasonable assurance and not a guarantee. Such an opinion is expressed after auditing the entire reports and having enough audit evidences to base their opinion on.

Non-audit services

In the financial reports of Woolworths Limited as at 25 June 2017, the opinion has been expressed as unqualified. The auditors have audited the company along with its subsidiaries the financial reports of such companies along with relevant notes to such reports, summary of accounting standards adopted and declaration of directors  (Fridson & Alvarez, 2012).

The unqualified opinion is expressed as that the Group ‘s financial report is fulfilling the needs of the Corporation Act 2001 that the reports delivers a true and fair picture of the financial performance and position as on 25 June, 2017. Also, the reports comply with all the norms and standards as per Australian Accounting Standards as well as Corporations Regulations 2001.

The directors and management responsibilities includes presentation and preparation of financial statements in accordance with Australian Accounting Standards and Corporations Act, 2001, maintaining a strict internal control over such preparation so that the reports are capable enough to deliver a true and fair status of the reports which can be considered as free from material misstatements, errors and risks of fraud.

The other factors that the management is responsible to assess are its ability to continue as a going concern, disclosures fulfillment, matters associated with going concern status, the intention of the Group to liquidate or stop their operations.

The auditor’s responsibilities have a far wider scope as their objective to derive reasonable assurance regarding the reports and making sure that they are free of material misstatements or errors or fraud and having enough audit evidences to express an audit opinion about the financial reporting  (Girard, 2014). The auditor is responsible for assessing the risk of material misstatements, performing various audit procedures, examining the internal control within the company, evaluating the appropriateness of accounting standards, maintaining a professional skepticism attitude, evaluation of relations with third parties and all such matters necessary to conclude about the truthfulness and fairness of the financial reports.

Material subsequent events refer to events taking place after the reporting date but before the issue of financial statements. Yes, Woolworths also has subsequent events occurring after 25 June 2017 (Johnstone, 2014).

On 26 June 2017, an agreement took place called Share Sale Agreement (SSA) which required the company to sell off is 66.7% share of Hydrox to Home Consortium provided that the Lowe’s shares are sold (Knubley, 2010). The agreement included 21 masters freehold development sites, 20 masters’ leasehold sites and 40 master’s freehold trading sites binding the Woolworths to have three masters’ freehold sites and take up the responsibilities of the liabilities linked with 11 master’s leases.

Auditor’s remuneration

On 4 August 2017, the shares of Lowe in Hydrox have been sold to a beneficiary called Trust with Home Consortium in exchange for an agreed consideration of about $250.8 million. The termination of JVA has been made subsequently .

Considering Woolworths Limited to be one of the big companies in the retail sector, it enjoys a status of oligopoly. It is believed to be holding 31 per cent of the market and is considered as one of the major contributor of economy in Australia producing $53 billion approximately or 4.1% of GDP more precisely.

Coming to the audit report of Woolworths audited by Deloitte, the financial statements have been prepared in details with appropriate standards and corporate disclosures. The auditor has provided his scope of auditing, clearly defining his responsibilities and how accountable the reports are for delivering the truthfulness and fairness of the reports  (Loughran, 2010).

The requirement of key audit matters for an enhanced qualitative audit report requires certain matters to be stated in the independent audit report that were of significant nature and how such matters has been addressed. Deloitte has conducted its audit work in the best possible manner and has expressed the key audit matters along with the audit procedures adopted to address such issues. The auditors have also provided services other than audit work like compliances information, accounting & taxation related queries. Considering the audit report prepared in the best possible manner and where the professionals have acted in their competent authority, we believe that the material information provided are true and fair. And that the financial as well as non financial information are effective and relevant and therefore, the report is both qualitative and quantitative  (McLaney & Adril, 2016).

 Considering the preparation of financial statements, we saw ‘branch expenses’ costing $10,671.40 million. However, we do not find the relevant justification for such high amounts. The expenses could have been shown in the notes notifying what expenses are incurred and in which branch. Somewhere, such presentation of branch expenses wasn’t sufficient for acceptance by the users  (Parrino, 2013). Such expenses might be under reported or over reported and could be sorted out only with the confirmation from the branch offices. Thus, such information could have been expressed in a more effective manner or disclosed in a better way in the notes  (Shapiro, 2007).

Conclusion

When the company’s annual general meeting would be held, the questions that should be asked to the auditor is better explanation of the Notes to Accounts 6.5 ‘Subsequent Events’ where a proper reasoning is required regarding its disclosure in the notes and not in the books. An explanation of capital losses is required to be explained. Because the information mentions somewhere that sufficient capital gains will be produced in the future that would absorb the huge capital losses. However, the fact that profits will be produced is an estimation and therefore, the vision regarding it would give a clear understanding.

Another question to be asked to the auditor is should be regarding ‘other information’ provided at last in the independent auditor report where the auditor has explained whether they have considered such information or not but didn’t mention the nature of such information except that they are not material for their report. However, what kind of information they have talked about could be explained in the meeting and the intended users can get a better picture of such information.

After all, transparency and quality are what an audit report desires for.

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