Auditing can be termed as analysing the monetary reports that are published by the organizations in order to make sure that the reports does not contain any kind of frauds, misstatements of materials or mistakes. Therefore, it is the duty of the auditors to provide a good quality which is relevant to the information relating to the financial statements. The auditors should also provide information to the stakeholders in such a language which will be not difficult to understand. In the present situation, the audit committee have done many things in order to make good quality audit report. Therefore, the auditors should take into account the issues which is present in the financial statements which will also make a better quality audit (Wesfarmers.com.au. 2018.). The following report emphasizes on the currant report of the Wesfarmers Limited which linked with large number of aspects of audit of the financial reports. In this case the audit partner here is Ernst and Young.
Before the production of audit service, the auditing firms present should maintain all the rules and regulations which are related to the independence of the auditor. The auditors therefore, are required to be linked with the audit client while providing audit operations. The section of the latest report of Wesfarmers of the year 2018, Ernst & Young states that it did not have any agreement in association with the Corporations Act 2001, when the audit operations is to be provided (Zhou, Simnett and Hoang 2018). The directors of Wesfarmers stated that the auditor Ernst & Young had maintained all the important professional principles which are related to the standards of auditing. Some of which relates to the guidelines of “ Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants” and “ Corporations Act 2001”. The above mentioned things are need to be followed so that the auditor’s independence can be properly maintained.
There are mainly two different types of audit which are based on the latest report of Wesfarmers in the currant year. The two types of services include services related to the compliance of tax and the other different services. In order to perform tax compliance service, the auditor is been provided with an amount of $683,000 and for the other service it has been provided with $343,000. Therefore, the non audit service fees of the Wesfarmers have been $1,026,000 in the currant year which is 12.01% of the audit fees which is incurred in the year 2018 (Wesfarmers.com.au. 2018.). Although, all the necessary compliances for Ernst &Young have been ensured by Wesfarmers while obtaining the non audit services which indicates that the auditor has not comprised as per the regulations mentioned in Corporations Act 2001. The auditors were also not provided any amount of work that may involve the review of the work by Wesfarmers while taking any kind of management decisions. While doing the non audit services, different kinds of guidelines and governance norms have been followed which implies that there is a presence of independence of the auditor.
The table above shthe services related to non audit comprises of tax compliance service and other services as well. ows the audit service payments that both the Australians and the cross border network firms takes into account. The above table shows that the Wesfarmers has decreased the audit service payments to the Ernst &Young by 5.05% in the currant year which denotes that lower audit have been obtained by Wesfarmers and the non audit services in 2018. Because of such declination, the total amount paid to the auditor went down by 16.44%.
key audit matters can be stated as the important aspects during the time of auditing the monetary statements. The annual report of 2018 states that four key audit matters can be identified which are describes in order to minimise:
The Wesfarmers are required to establish the amount of property that can be recovered along with equipment and plants, goodwill and assets that are intangible in the light of significant judgement. It has been observed by the auditors that Target has an amount that can be recovered which is more than the carrying amount which would result in impairment of the cash generating unit of Target. In order to deal with this matter, the auditor has looked into the assumptions and the methodologies which are associated with the cash generating unit, growth rate as well as estimating the cash flows. Along with that the adequacy of the monetary statements which relates to the impairment test, sensitivities and assumptions are also used by the auditors which can be stated as analytical procedures.
The rebates of the suppliers are those which the Wesfarmers have obtained from the suppliers which are related to the operations of the retail. The rebates of the suppliers considers a key audit matter because of the supplier rebate quantam that id realised in the period and the perception is required to be exercised by taking into account few factors. In order to deal with this kind of issue , Ernst & Young has taken into account t the audit procedures. In addition to this, these practices are also depicted to include the testing standard for providing supplier rebates and ensuring suppliers have a promotional credit for analyzing the sample is associated with new contracts for the materials. These practices are also necessary for assessing the inquisitive legal counsel pertaining to the business representatives. Therefore, it is important to categorize the procedures such as control tests with a considerable level of detail among the substantive balance required for analytical test of procedure (Council 2014).
Wesfarmers had agreed for disposing the coal mines of Curragh in return of $700 million in 2018. This agreement was conducive in promoting the mechanism of sharing value related to the future prices of metallurgical coal. Moreover, it is also discerned that organisation has taken into consideration PAT of $ 250 million associated with discontinued operation from the mine (Krishnan and Wang 2014). There are also several considerations based on trading outcome which are related to disposing the gains, which form as the main reason for why E&Y has regarded it in their KAM. The supervision of this matter taken into account with sale agreement and purchases which are to be referred with the documentation which are required for computing and evaluating the gains from post-tax disposal (PTDG). Secondly, it is also identified various inputs from PTDG calculation pertaining to which it is able to make sure that the liability and asset values are the recognized. The next important step has considered the engagement of tax specialists in identifying the tax impacts associated with the investment and various types of financial statement disclosures which are also discussed to Curragh (Baatwah, Salleh and Ahmad 2015).
In the first half of 2018, there are several instances which has led to the recognition related to impairment charge for BUKI amounting to $953 million. On 25th May 2018 Wesfarmers to the decision of divesting their operations for a nominal price. The financial statement published by the company in 2018 showed that Wesfarmers had incurred a loss of 1.66 billion from discontinued operations. This has considered the impairment charge which were realised during the beginning of six-month period as a result of trade outcome. This was also effective at the time of disposal point and during disposal loss. This needs to be also considered as the important rationale for why such a case was included by E&Y in their KAM (Aobdia, Siddiqui and Vinelli 2016).
In order to handle such a situation of KAM, E&Y had tried to assess the precision of impairment testing. It realized this with the application of several assumptions and methodologies. The significant inputs were considered with assumptions pertaining to commodity prices, discount rates, growth rates and rate of inflation (Amin, Krishnan and Yang 2014). In addition to this, it was also understood by the auditor that the sale agreement and purchases related with the documents they required for evaluation and computation of disposal gains from tax. Secondly, it was also assessed that the inputs pertaining to post-tax sales loss computations had confirmed the derecognition of liability and asset values. The next important step was seen with engaging the tax specialists for identifying the effects of taxation and divestment. This was finally stated under the disclosures made in the financial statement (Drayson, Cranston and Krosch 2015).
The last annual report published by Wesfarmers Limited had identified that management related to the organization has formed a risk and audit committee and also stated about its role in carrying out and monitoring of several types of procedures leading to internal control and protection of the assets thereby confirming the integrity among financial reporting standards. The aforementioned committee is recognised with two non-executive directors- J.A. Westacott and D.L. Smith Gander. The important expanses for the evaluation of the committee has regarded constituting of compliance with financial reporting, integrity and reviewing the influential dynamics on the commercial incomes. The framework is also seen to be playing a pivotal role for conducting a risk management plan and incorporating the same into audit (Simnett and Huggins 2014).
The evidence is on audit opinion is recognised under the independent report published by the auditors of Wesfarmers Ltd in 2018. The various disclosures of this report have stated about conforming to the guidelines as prescribed under “Section 300A of the Corporations Act 2001”. In addition to this, the opinion of E&Y has been also built a state about development of financial reporting in such a manner which will be conducive for regulating the AAS and other regulations which comply to Wesfarmers. Therefore, in the given case it is seen that E&Y has passed an unqualified audit opinion on the company (Drayson, Cranston and Krosch 2015).
The information given in the latest financial report of Wesfarmers have shown the differing responsibilities of auditor and management. This is mainly seen with financial statements. The directors along with the managers are needed to ensure that the financial reports are able to portray accurate picture of compliance with the regulations under Australian accounting standards and Corporations Act 2001. More importantly, the accountability of the directors is also essential to know about the ability of an organisation to operate as per the going concern criteria. Moreover, there are other responsibilities which are not similar to each other (Simnett, Carson and Vanstraelen 2016).
It is the responsibility of the auditors for assessing and investigating the financial reports. These include confirming whether the reports are free of errors, frauds and material misstatements. In addition to this, some of the other responsibilities of the auditors are concerned with risk evaluation which are relevant with obtaining adequate information on the internal control procedures and catalyzing the effectivity of accounting policies which will be able to appropriately address the going concern criteria. These forms the main accounting base for the directors. However, directors are not depicted to carry such rules. The auditors are also accountable presentation of financial statements (Simnett and Huggins 2015).
It is worth mentioning that there are two main events which are considered by Wesfarmers in 2018. Firstly, it is important to depict the demerger with Coles in March 2018. Despite of such a decision by the management E&Y has not included this event under material value as there is not a significant impact of materiality in the financial statement of Wesfarmers. The executive directors of Wesfarmers have also declared about fully franked ordinary dividend amounting to 120c for each share. Due to this, the total amount pertaining to the final dividend which was to be paid to the shareholders amounted to 223c on 27th September 2018. This amount of dividend is yet to be distributed among the shareholders (Drayson, Cranston and Krosch 2015).
As opined by the third-party stakeholders, it is evident that E&Y is having an efficient role in terms of interpreting material information of Wesfarmers Ltd in its latest publication of financial reports. Moreover, the appropriateness of adherence is understood with the compliance of Corporations Act 2001 and APES 110 standards (Kass 2017). Furthermore, it can be stated that auditors have identified four KAM from the financial statement and taken several ramifications which led to minimizing the impacts as well. These considerations clearly identified that E&Y was efficient in handling of material evidence (Knechel and Salterio 2016).
The thorough perusal of several excerpts of the annual report for Wesfarmers Ltd published in 2018 shows that it’s auditor E&Y has not failed to consider any material evidences or aspects which may take the form of material collision in the financial statements. Moreover, every aspect of evidences was disclosed and inspected appropriately by the auditors thereby stating about the factors associated to materiality which could have adverse implication on the business (Australia and Australia 2015).
There may be numerous questions raised by the shareholders of Wesfarmers at the time of annual general meeting. Some of the questions are listed as follows:
what are the initial motivations for carrying out the audit process?
Conclusion
The discourse of the study has been conducive in the eviction of several audit services which are provided by the audit firms and conform about the guidelines pertaining to the independence of the auditors. In the recent publication of financial statement published by Wesfarmers Ltd it is evident that the company has appointed a team of audit risk committee for monitoring and protecting of several types of internal control procedures which will ensure overall fairness and integrity of financial reporting. In addition to this, the directors and managers have also confirmed whether the financial statements are in compliance to the Australian accounting standards and Corporations Act 2001. Furthermore, the learnings from the study have stated about the accountability of the directors in ensuring operations of the company as per going concern criteria.
References
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