Hi6026 | Assurance And Compliance Assessment Answers

Answer:

Introduction

Auditing can be explained as the process of evaluating along with investigating the financial reports published by the companies for evaluating that such reports are devoid of any material misstatements, frauds, errors and certain aspects. For this reason, the auditors need to enhance the quality of its audit report by means of revealing material-based information related with the company’s annual report(Chand, Patel & White, 2015). In addition, the companies alsorequire to offer such information to all its stakeholders in a format that will be simple for them to understand. In the recent years, the audit committees have considered implementing several effective approaches in order to enhance their quality of the audit report. Therefore, this is deemed important for the auditors to considerincreased issues within the company’s financial statements which can facilitate them in ensuring better quality of audit(Bond, Govendir& Wells, 2016). In accordance with that, it is important to justify that the selected company “Wesfarmer Limited’s” audit partner is Ernst and Young. 

Auditors Independence Requirement Adherence

At the time of offering better audit services, all the auditing companies requires to make sure that the important guidelines along with norms associated with auditor’s independence. In other words, it must also be indicated that the auditors requirebeing associated with the audit partner in which they offer certain better audit-based operations(Perera& Chand, 2015). The directors associated with the company have alsoindicated that Ernst and Young has abided by every important professional guidelines and principles associated with auditing standards(Leung &Verriest, 2015). “Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants’’ and “Corporations Act 2001” are followed by the company in maintaining effective reporting. These standards are implemented so that the auditor’s independence can be sustained in a better manner.

Non-Audit Services

For Wesfarmers Company, its audit partner provided certain non-audit services that encompass tax complianceservice along with certain other services. In tax-based services, the Ernst and Young was paid $683,000 and $343,000 was offered to the audit firm for its non-audit services. Conversely, Wesfarmers have also entertained that the needed compliance for Ernst and Young with all the important standardsfor attaining certain non-audit services. Rather than that, Wesfarmers have offered the auditor with certain type of work which encompass the work review of auditor itself for undertaking certain management decisions(Chapple, 2017). In addition, certain corporategovernance guidelines as well as norms followed by means of offering certain non-audit services. Moreover, all the factors indicate the auditor independence.

Renumeration of Auditors

The table indicated below facilitates in analyzing the audit service payments taking into consideration the Australian along with cross-border network companies. Non-audit services like tax compliance and some additional services are provided by Ernst and Young to Wesfarmers. As gathered from the table above, it is observed that Wesfarmers has decreased its audit service payment to its audit partner by 5.50% for the year 2018 in comparison to the previous year(Howieson, 2017).

Figure 1: Remuneration for Ernst and Young

(Source: Wesfarmers.com.au., 2018)

In addition, an identical trend has also been indicated for the non-audit services for the reason that payment to the non-audit services has been decreased by 55.53% for Ernst and Young in contrast to prior year. This situation also indicates that an overall payment that is offered to the auditor has decreased in the year 2018 by 16.44% n comparison to the previous year(Green, 2014).

Major Audit Factors

Based on the viewpoint presented by Ernst and Young, major audit matters are considered to be considerable at the time of financial statements auditing. Relied on the financial statements of the year 2018 for West farmers, four major audit matters are recognized. Such factors are explained withdesirable audit techniques for its segmentation and minimization(Wee, Tarca& Chang, 2014).

• Non-current asset impairment encompassing tangible assets within target- Based on the auditor’s opinion it is necessary for the Wesfarmers to make sure that the recoverable amount based on the plant, property and equipment in consideration to a considerable judgement. For this reason, it might lead to impairment within the Target’s cash generatingunits (Zeff, Radcliffe &Gunz, 2014). Additionally, the relevance of the company’s financial statements in accordance of the impairment test, anticipations along with sensitivities those are employed by the audit Partner “Ernst and Young”. This technique can also be categorized in the form of analytical techniques.
• Suppliers Rebate- Supplier rebates are taken into consideration through acting as a major audit matter because of the supplier rebate quantum realized at this period along with the judgement is required being implemented through considering major factors. Effective audit techniques are implemented by the audit patner of Wesfarmers that which includes analysis of supplier rebates, internal control analysis of the company and analysis of rebate contracts with conducting comparisons from budget of previous year (Mita, Utama &Wulandari, 2018). Conversely, the audit processesencompass sample testing related with supplier rebates, analyzing the suppliers those have promotion-based credit, analyzing sample focused on materials of new contracts, legal counsel enquiry along with the related business representatives. For this reason, it turns out to be likely to segment like processes like control tests, substantive detail evaluation and substantive balance along with tests related with analyticalprocesses.
• Discontinued operation in the region of Curragh- In the recent year, Wesfarmers Company has made increased attempts in getting rid of its coal mine within this region that is worth$700 million (Van Akkeren&Tarr, 2014). The agreement includes a process of analyzing sharing value associated with metallurgical coal cost in the future years. This is also recognized that the company has attained an increased profit after tax of around $250 million from its discontinued operations within the coal mine. This considers certain trading outcomes within the efficient disposal point along with disposal gain. Moreover, this is the cause for which the audit of the company has considered it as an important matter. In dealing with such matter, Ernst and Young has realized the sale along with purchase agreements as well as related documents in analyzing the calculation of disposal gain post-tax (Wesfarmers.com.au., 2018). In addition, this has also evaluated certain considerable inputs related with post-tax sales gain computation based on which this is ascertained that there are non-recognized liability and asset values (Bugeja, Czernkowski& Moran, 2015). The final step encompass association with the tax specialists in taking into consideration the tax impacts of divestment and at last, certain disclosures related with the company’s financial statements are considered.
• Burnings UK and Ireland (BUKI) discontinued operations- n the first half period of the current year i.e. 2018, Buki has recognized an amount of $953 million as the impairment charges while on 25^th May’18, Wesfarmers has sold the business at a very nominal price. In the financial statement of 2018, the company has recorded a loss of $1.66 billion from such operations that has been discontinued which also includes the impairment charges which has been realized in the initial half-year of 2018(Junior, Best & Cotter, 2014). Moreover, it also includes the trading result of actual disposal point and the loss associated with the same. It is the very reason which prompted Ernst & Young to consider it as the most crucial matter in FY2018.  In order to deal with this particular matter Ernst & Young has considered the precision of the impairment cost along with the assumption as well as methodology analysis. In addition, growth rate including the terminal ones, inflation as well as discount rate is reported within the annual report of Wesfarmers having commodity prices anticipation.The auditor has also taken notice of the agreement associated with the purchase and sale in order to evaluate the disposal gains after payment of the taxes. Furthermore, it also assessed the inputs of the post-tax loss after the sale and post the same, the derecognized assets and liability values are also ascertained. In the next step, a tax specialist is brought into picture to consider the effect of the tax after sale and then the disclosure of financial statement is considered.

Audit Commission

The annual report analysis of the company signified the company’s management has maintained an audit and risk committee within Wesfarmers. The responsibilities fulfilled by them includes maintaining efficiency of internal control in, analyzing usefulness of assets through maintaining integrity of annual report information (Susela Devi& Helen Samujh, 2015). The committee of the organization is observed to include few important executive directors including J.A. Westacott and D.L. Smith Gander. The committee also has a responsibility of including efficiency of financial reporting, analysis and review of commercial incomes that is necessary in “audit risk management”.

Audit Opinion

The auditor independence information offered by Wesfarmers indicated that the organization prepared its remuneration section in adherence to “Section 300A of the Corporations Act 2001”guidelines. In addition, based on the viewpoint of Ernst and Young, the financial statements are prepared and represented in a way that every Australian accounting standards-based reporting along with different norms are suitably followed by the Wesfarmers. For this reason, in such scenario, Ernst and Young issued an unqualified audit viewpoint.

Management and Auditor Responsibilities Difference

Based on the recent yearly report of Wesfarmers, the responsibilities fulfilled by the directors and management are different from that of the part of the auditor. This is observed to be apparent at the time of developing and indicating effectiveness of the financial statements. The directors along with the company’s management are needed to entertain that the financial statements are developed for offering suitable overview regarding the “2001 Corporations Act” along with the accounting standards existing within Australia. In addition, the directors have the responsibility to analyses the ability of the company to carry out functioning in increasing concern basis at the time of developing the financial statements(Liu, 2015). On the other hand, the auditors attain some responsibilities which is not aligned with the responsibilities of management and directors.

The auditors are associated in evaluating and analyzing the financial reports reported by the companies for analyzing that such factors are devoid of the financial frauds, errors, material statements along with others. Certain important responsibilities of the auditors encompass recognizing along with analyzing the uncertainties related with material misstatements andattaining suitable knowledge considering internal control (Santos, Ponte &Mapurunga, 2014). This also facilitates in analyzing the analysis of accounting policies along with indicating the suitability related with increasing concern base regarding accounting employed by the directors. Conversely, the auditors are responsible for evaluating the development along with financial statements presentation as well as attaining enough examples focused on audit.

Material Based Events

It is deemed important to indicate that two considerable events for Wesfarmers that took place for the recent year. In such case Coles demerger is also carried out in the current year in March (Bodle, Cybinski&Monem,2016). Conversely, Ernst & Young have not considered the event attaining material value as it is anticipated not to attain any material effect on the company’s financial statements. The Wes farmer Company’s board of directors has announced totally aligned ordinary dividend of around 120 cents each share because of which the overall amount of the yearly dividend to be offed to the stakeholders might be 223 cents for each share in the year 2018 and the dividend is yet is to be offered to the shareholders (Ipino&Parbonetti, 2017).

Analysis of Material Information by Auditors

Relied on the perception of the third-party stakeholder, it is deemed important that Ernst and Young has been increasingly effective in evaluating the material information of Wesfarmers Limited relied on the financial statements. This is caused based on the auditing ad reporting regulations mentioned within “APES 110, auditing standards of Australia as well as Corporations Act 2001” (Perera, 2016). On the other hand, the auditors attain some responsibilities which is not aligned with the responsibilities of management and directors. In addition, it can also be indicated that the auditor has disclosed four major audit factors within the financial statements along with decreasing their impacts as well. These factors focus on the fact that Ernst and Young have been increasingly effective for dealing with material information.

Lack of Material Information

In alignment with the yearly statements of Wesfarmers Limited in the year 2018 it is also important that the auditors Ernst and Young did not fail to encompass certain material factors or information attaining material collationregarding the company’s financial reporting. Every information is elaborated and represented in a better manner by the Wesfarmers auditors concerned with the material factors which can have drat effect on the operations of business (Kabir & Rahman, 2016). Wesfarmers have also entertained that the needed compliance for Ernst and Young with all the important standards for attaining certain non-audit services. Rather than that, Wesfarmers have offered the auditor with certain type of work which encompass the work review of auditor itself for undertaking certain management decisions. For this reason, it can also be indicated that there is lack of under or partially reported along with material information within the Wesfarmers yearly financial statements.

Questions for Follow-Up

At the duration of the general meeting within Wesfarmers Company, several relevant questions might be asked to the shareholders of the company (Hardy, 2014). Such questions are briefly explained in the following points:

• Is there existence of any auditor those are associated with financial reports auditing within the company?
• What are the factors those are considered by the audit partner in carrying out auditing process in companies?
• What are functions fulfilled by the companies audit services?
• What are the ways in which you make sure that the materiality levelwithin the major audit matters are explained in Wesfarmers Company’s annual report?

Conclusion

From analysis of the annual report of Wesfarmers it was gathered from the paper that at the time of offering better audit services, all the auditing companies requires to make sure that the important guidelines along with norms associated with auditor’s independence. In other words, it must also be indicated that the auditors requirebeing associated with the audit partner in which they offer certain better audit-based operations. The paper also revealed that the auditor has disclosed four major audit factors within the financial statements along with decreasing their impacts as well. These factors focus on the fact that Ernst and Young have been increasingly effective for dealing with material information. It has also been revealed that based on the viewpoint of Ernst and Young, the financial statements are prepared and represented in a way that every Australian accounting standards-based reporting along with different norms are suitably followed by the Wesfarmers. For this reason, in such scenario, Ernst and Young issued an unqualified audit viewpoint. Conversely, the auditors are responsible for evaluating the development along with financial statements presentation as well as attaining enough examples focused on audit.

References

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