ASA 701 COMMUNICATING KEY AUDIT MATTERS
Mar 16,22ASA 701 COMMUNICATING KEY AUDIT MATTERS
Question:
For the purpose of the furtherance of this report, the company that has been selected Woolworths Limited. Being the company listed in the Australia Stock Exchange and is one of the ASX lists of top hundred listed companies. The company has been into the existence from the last hundred years and since then the company has been into the retail sector.
Industry Detail and Its Nature
The industry in which the company is operating is the retail sector. As per the latest index, the company is the number two company in the retail industry which has the more income. The company is operating across Australia and New Zealand. The company has its headquarters in Sydney, Australia. The industry under which the company is operating provides all the products for the home at one place and the store commonly known as the departmental store (Woolworths Limited official website, 2017). The major emphasis under which the company is operating as listed in financial report of the company is – to identify the customer preferences, to generate the higher revenues from the drinks, and then from the business of hotels and to become the best retailer of the country having the adequate systems and objectives.
ASA 701 – AN ANLAYSIS Causes
The global financial crisis have been started from the mid of the year of two thousand and seven and has been persisting till the end of the year two thousand and nine ((Bajada and Trayler, 2010). These crises have been started from the collapse of the largest companies namely Lehman Brothers, One Tel and HIH Insurance. The collapses have been occurred due to the accounting fraud committed by the company and also the improper functioning of the management of the company. In case of the Lehman Brothers the accounting fraud is the adoption of the reverse repo method due to which their reported profits keep going on higher value and when the saturation point is reached then the company has been forced to provide the actual figures of the net loss which has created a wave of the shock in the industry (Xu, 2011).
These collapses have provoked the standard setting bodies tom develop an auditing standard through which the stakeholders can have the idea as to what is happening in the company or any material misstatement reported by the auditor, etc (Cordos and Fülöpa, 2015). To overcome these types of crises and collapses, the new auditing standard has come into place.
ANALYSIS OF ANNUAL REPORT
The auditor of the company has disclosed the key audit matters in the financial report of the company for the year ending the month of June two thousand and seventeen. The key audit matters are mentioned below:
Home Improvement Business
During the period under review, it has been observed by the auditor that due to the closure of the operations of one of the segment of the company namely Home Improvement Business many components of the same are required to be checked in detail as it involves the complex accounting treatment of each and every component. Each and every component of it has different accounting as well as valuation treatment. Due to this complexity, the auditor has specified the same in the audit report.
Big W Segment
Under this segment, the company has charged the high value of impairment amounting to thirty five million dollar which has resulted in the immediate downfall of the carrying amount of the asset so concerned. Impairment has been charged because of the fact that the carrying amount has exceeded the recoverable amount. In this the company has calculated the recoverable amount on the basis of the cash flows which the company has determined using their own estimate clubbed with the discount rate adopted by the company. Due to the management discretion of estimating the cash flows and which in turn have led to the immediate downfall of the carrying amount, the event shall be reported as the key audit matter.
Stock
In the financial statements of the company, the amount has been provided on account of the damaged inventory and that too on the premise of the estimates of the future cash flows that the company will generate out of the available stock. The company has emphasized on the provision also on account of the goods which are slow moving and the seasonal one. Thus, it is of key matter because of the fact that the forecast has been made by the management at its own discretion.
Discounts
In the normal course of business, the company is in receipt of discounts from the parties who supplies the goods and accordingly the accounting of the same is required to be done effectively. The same has to be done for the rebates. The company has been receiving the rebates and discounts from the suppliers but the accounting for the same needs to be checked with the contracts if any with those parties.
IT Environment
It has been mentioned by the auditor that the system that the company has installed in the organization is very complex and it shall be checked in detail and due to this complexity, the item has been reported as the key audit matter.
CONCERNED RISKS
On reading the annual report of the company along with the independent auditors report and also specifically the key audit matters as communicated by the auditors, following are the two risks that have been noticed and have the material effect on the financial position and financial performance of the company.
- Big W – The segment of Big W has been considered as the high risky area. It is because of the fact that the segment is not able to generate the higher amount of revenue and moreover value of the assets coming under the head of Big W has been impaired with the heavy amount Further the company has not even decided to close this segment of business rather mentioned in the report as to continue the same with low value and low revenue. Thus, this segment is at high risk.
- Information technology system is the major risky area. It is because through this system only the management of the company gets the various forms of reports along with the exception reports. As the system installed in the company is complex in nature therefore it has been very difficult for the auditors to conduct the audit in such a complex environment and therefore, it has been considered as second major risky area in accordance with the ASA 701.
EVENTS HAVING IMPACT ON AUDIT
The new auditing standard number 701 has specified the matters which are regarded as the significant event or the transaction. In accordance with the paragraph number nine of the auditing standard 701, the auditor is required to determine the matters or the events which requires the urgent attention of the auditor while conducting the audit. These matters so identified shall be from the matters as communicated with the persons which are charged with the governance. While determining such matters, the auditor is required to consider the following:
- Areas which are classified as the higher risk of providing the material misstatement or any other significant risk which are duly determined using the provisions of the auditing standard number three hundred and fifteen.
- Areas which requires the significant auditor judgment and also the significant judgment of the management of the company. These areas include the estimates of accounting which involves the high estimates of uncertainty.
- The effect that the significant transaction or event will have on audit for that particular period (AASB, 2015)
Following are the events or the transaction which have the material impact and effect on the audit for the financial year ending two thousand and seventeen:
- One of the significant events which have affected the audit for the concerned year is the accounting treatment of the assets reported under the Big W segment. It is because the company has impaired all the assets to then value equivalent to its recoverable amount as at the end of the accounting period. The auditor as per the provisions of the new auditing standard has conducted the audit like has discussed with the management regarding the valuations of the future cash flows, the discount rate adopted by them, methods adopted for the valuation of the future cash flows and analyzing the sensitivity of the segment if there has been change in discount rate by some percentage, etc (Kachelmeier, Schmidt and Valentine, 2016). Still the auditor thinks that it has some sort of complexity and has material impact on the financial health of the company and therefore the same shall be reported to the users of the financial statements also including the stakeholders of the company. Therefore, it has been reported in the auditor report of the company (Xu, 2013).
- Second of the significant event has been observed is the closure of the segment – home improvement business. The event alone has been regarded as the most significant event and has mentioned as the key audit matters in the auditor report. It is because of the fact that the event has led to beginning of so many events which have made the accounting as well as treatment of the event more complex in nature. The simultaneous events that have happened are the immediate sale of Hydrox holdings Limited and then for the clearance of the stock the agent has been appointed – GA Australia Limited for the defined amount of four hundred and ninety two million dollars, then contracting through the sale deed of shares, giving the call option to the company – Home Investment Consortium and then the accounting for the impairment of the assets of this segment – Home Improvement. There are other related events to which ate necessary and have led the exit of the business of Home Improvement from the company. As there is the list of many events and due to this complexity, the auditor has considered the event and transaction are of significance and therefore, the same has been reported and have posed material effect on the audit.
(McKee, 2015).
CONCLUSION AND RECOMMENDATION
There has been collapses which have occurred in the past decade and which have further led to the financial crisis on the global basis. By following the global financial crisis the government has sought to have such standard which ensures the high transparency in the financial statements of the company so as to cater the needs of the stakeholders of the company as well as the management of the company. Due to this, the standard setting bodies has come up with the new auditing standard number 701 on communicating the key audit matters in the audit report. It has provided as to which transaction or event is required to be reported in the audit report. In this report, the analysis of the annual report of the company for the financial year ending June 2017 has been selected and the company – Woolworths Limited has been chosen.
The detailed analysis have been made with respect to the key audit matters and in regard to the different type of risks mentioned. In order to conclude the report, the new auditing standard has given the path for the auditor so as to disclose all the significant transaction or event which will be helpful to the users of the financial statements.
The recommendation on high degree for the company will be to have the adoption of the clear and precise accounting policies and estimates and the procedures to enable the auditor to conduct the audit in best manner.
REFERENCES
AASB, (2015), “ASA 701, Communicating Key Audit Matters in the Independents Auditors report”, available on
Bajada, C. and Trayler, R., 2010. How Australia Survived the Global Financial Crisis. The Financial and Economic Crises: An International Perspective, Edward Elgar: Cheltenham, UK and Northampton, USA, pp.139-154.
Cordos, G.S. and Fülöpa, M.T., 2015. Understanding audit reporting changes: introduction of Key Audit Matters. Accounting and Management Information Systems, 14(1), p.128.
Kachelmeier, S.J., Schmidt, J.J. and Valentine, K., 2016. The disclaimer effect of disclosing critical audit matters in the auditor’s report.
Masytoh O, (2010), “The analysis of determinants of Going Concern Audit Report”, Journal of Modern Accounting and Auditing, Vol 6(4), pp 27-36.
McKee, D., (2015). New external audit report standards are game changing. Governance Directions, 67(4), p.222.
Thomson, J., (2008), “Five lessons from the Spectacular fall of Eddy Grooves”, available at
Woolworths Limited official website, 2017, “Annual Report 2017” available on http://www.woolworthslimited.com.au accessed on 08/05/2018.
Xu, Y., 2011. Audit reports in Australia during the global financial crisis. Australian Accounting Review, 21(1), pp.22-31
Xu, Y., 2013. Responses by Australian auditors to the global financial crisis. Accounting & Finance, 53(1), pp.301-338.
Answer:
Introduction
COMMUNICATING KEY AUDIT MATTERS
Student Name:
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Table of Contents
Introduction. 3
Discussion. 3
Conclusion. 5
Reference list 6
Introduction
These answers describe the Woolworths Limited companies ten years status. The Woolworths Limited company is one of the biggest retail companies in the top result. In those years the company faced many problems and they also tried to overcome those problems and improve their services. In 2010 the financial crisis happened and its effects on the company’s economics. The ten years strategy, planning, developments are also described in the answers. The answers also define how many stores they have their employees and their turnovers. The company’s annual reports are also described in the answer sheet. It also provides some information about their companies and their revenue. This answer describes Woolworths Limited companies tenth year journals and their up and down that the company faces.
Discussion
The company Woolworths Limited is a top-listed company in these competitive markets and it’s also an ASX top- listed company. This company is a retail company and it is the number two retail company right now. This company mostly operates in Australia and New Zealand. In those years they developed their services, foods, drinks and many more things (Marx et al., 2021). In 2010 the financial crisis happened and its effects on the company’s economics. After facing this crisis the Lehman brothers try to improve their company management (Masojada, 2021). They make a better plan for their future and accounting fraud is a method that reports the companies’ higher values. It provides the net loss on this company and it allows them to create waves to present new stocks. This crisis also helps the company to develop itself. Their annual report is also described in the report and their financial statements are also described in the report. This information is also provided at the company’s website that is a major operation of the segments of the Woolworths Limited (Thorlakson, Hainmueller & Lambin, 2018). The home improvements business maintains its audit and provides the perfect audited report for the company. After the segment, the company improved their high-value amount and the thirty million dollars that consent of the assets. After that, the company calculates its cash flow and provides the discount rate of the company. In 2010 the Woolworths Limited company also launched a macro own brand and satisfied every costume. The ingredients are so good that the customers feel home-cooked. In 2011, the company first launched the first master home improvement store for their customers. After that 2012 Woolworths Limited also promoted their products in the e-commerce markets. They also provide the health care products for the company. Woolworths Limited company creates values that set us apart that are woven through Woolworths Limited company business. Woolworths Limited company has had a tough Business Journey in the past ten years (DOLachapelle, Burke, Brotherton & Leung, 2018). Woolworths Limited is popular for its quality, sustainability and that makes the company more competitive. In those ten years, they also improved their productivity, innovation and creations. In 2014 their price reduction of the customers was $125 billion. Woolworths Limited company priced an additional 57,000 and the work hours also added each and every week. The customer service levels will increase to more than 63,000 hours in the next financial year.
Figure 1: Revenue analysis
Source: (Masojada, 2021)
The Woolworths Limited company refurbishes more than 70 stores in the per annum for improving their future. It’s also better than the other competitors. Refurbishments are designed by the local customers’ preferences and it is going to prioritise some arrears where the Woolworths Limited company sees the great opportunities to grow their customers. The Woolworths Limited company also continues to develop their new stores and built 20-30 new stores in the year. It creates new lines for the Woolworths Limited company (Marx et al., 2021). In the nowadays 2019 and the 2020 in covid-19 situation the Woolworths Limited company develop their policies. However, it also affects their economies but they improve themselves. In this covid-19 situation, this Woolworths Limited company provides healthy products for their customers and satisfies their customers enough. They also improve their online services and make a great relationship with their customers (DOLachapelle, Burke, Brotherton & Leung, 2018). It helps them to gain more customers for Woolworths Limited company. In this present time, they also improved their online services and make a great relationship with their customers. It helps them to gain more customers for Woolworths Limited company. Increase their employees’ numbers and their employees’ numbers are more than 28264 employees. In 2021 The Woolworths Limited company demerges their other Endeavour Group business (Latiff & Marimuthu, 2021). Endeavour Group Limited is also a retail company under ASX. Now, the company also provides new gaming platforms, nightclubs, cafes and many more. After these ten years, they improve their management and their customers’ reviews. They provide their financial statement to understand their market rates (DOLachapelle, Burke, Brotherton & Leung, 2018). The Woolworths Limited company also creates their new ideas and they also follow their customers’ advice to produce their customers’ useful products (Marx et al., 2021). In those ten years, they innovate their new and healthy products as per their customers’ reviews. They also improve ether marketing strategy management strategies and now they develop themselves and become one of the popular companies in the Australia. Now the company is the top retail company at the ASK list based.
Conclusion
After analysing these answers, it can be concluded that The Woolworths Limited company faced many consequences in those ten years. However, Woolworths Limited companies develop their services and improve their productivity. Woolworths Limited company has had a tough Business Journey in the past ten years. Woolworths Limited is popular for its quality, sustainability and that makes the company more competitive. Woolworths Limited company has had a tough Business Journey in the past ten years. Woolworths Limited company is popular for its quality, sustainability and that makes the company more competitive. After improving themselves then they make a perfect success for them.
Reference list
Marx, W., Lane, M. M., Hockey, M., Aslam, H., Walder, K., Borsini, A., … & Jacka, F. N. (2021). Diet and depression: future needs to unlock the potential. Molecular psychiatry, 1-3. DOI: https://doi.org/10.1038/s41380-021-01360-2
Masojada, M. (2021). The South African retail landscape. Marketing to South African Consumers, 87-109. Retrieved from: https://openbooks.uct.ac.za/uct/catalog/download/29/52/1576-1?inline=1
Thorlakson, T., Hainmueller, J., & Lambin, E. F. (2018). Improving environmental practices in agricultural supply chains: The role of company-led standards. Global environmental change, 48, 32-42. DOI: https://doi.org/10.1016/j.gloenvcha.2017.10.006
DOLachapelle, U., Burke, M., Brotherton, A., & Leung, A. (2018). Parcel locker systems in a car dominant city: Location, characterisation and potential impacts on city planning and consumer travel access. Journal of Transport Geography, 71, 1-14.I DOI: https://doi.org/10.1016/j.jtrangeo.2018.06.022
Latiff, N., & Marimuthu, F. (2021). WATER-RELATED SuSTAINABILITY REPORTING PRACTICES AMONGST SOuTH AFRICAN MINING AND NON-MINING CORPORATIONS. DOI: 10.21511/ee.12(1).2021.10
