Analysis Of Key Audit Matters In Independent Auditor’s Report Of Retail Industry – Consumer Staples Sector Companies In ASX Top 100 List

Industry and company details

Global crisis impact all the industries and companies across the Globe. Auditing and Auditor has major role in happening of global crisis. The auditor is not bound to report important and significant matters which in turn create potential risks to the business in future before introduction of ASA 701. After Global crisis, international accounting bodies comes together and framed the standard ASA 701 which deals with reporting of Key Audit Matters which creates potential risks to the business. This report has framed with an intention to assess whether the new standard on Auditing serves the purpose for it is develop. Also, this report helps in analyzing whether ASA 701 provides all the necessary information to existing and potential stakeholders so that they can secured investment and better decision making. For fulfilling the listed aims, Retail Industry – Consumer staple sector has been chosen and all the companies of this sector which are The a2 Milk Company, Grain Crop Limited, Treasury Wine Estate, Coca-Cola Amatil, Woolworths Limited and Wesfarmers Limited, listed in ASX top 100 list has been chosen (ASX, 2017).

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The report has been prepared using appropriate headings and subheadings. The first of the report explains the industry and their related company’s information. The next part of report provides the assessments new auditing standard -701 and its required disclosures. The third main part of the report describes how the annual report of the selected companies complies with requirements of the new standard so that purpose of providing all information to stakeholders will achieve. The report has been ended with proper conclusion and recommendations. The information for preparation of report has been from annual reports of the companies which are available on their website and other related information available on reliable sources.

The industry which has been chosen for the purpose of the report is Retail Industry-Consumer Staples. The industry is dealing with huge no of the customers as it is involved in supply of products and services which are required in day to day workings. This sector has been selected because it is consider as Global industry classification sector. This industry deals in primary products which are required in daily use like food, beverage, tobacco and other items of household. The main reason for choosing this industry is that the demand of the products of this sector will never be slow even in economic distress time. The investors are generally interest in investing this sector and related companies because the stock price of this sector remains similar over period of time. So, the role of Key Auditing Matter has enhanced in this sector as it deals with large no of stakeholders.

Companies Chosen among selected industry  

For preparation of effective report, three companies among the sector have been chosen out of six in detail. So the analysis of annual report of these three companies can be done in detail. All the companies are listed in ASX Top 100 lists so that its compliances statements are same.

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The first company is Wesfarmers Limited which is one of the biggest players of this sector. The company was incorporated in 1914 and having a shareholder base of 530000. The company is operating in diverse business operations which include super market, hotels, liquor, convenience stores, home improvements, department’s stores, office supplies etc.

Invention of ASA 701 – Its reasons

The second company is Woolworths Limited which is second largest company in retail industry-consumer staple sector. The company has enhanced its operations in Australia and New Zealand. The company has 3000 stores and 205000 employees who work to provide services to 29 million customers across the globe every week.

The third company which has been chosen for the study is Grain Corp Limited from customer staple sector. The company was incorporated in 1917 and operates in food ingredients and in agribusiness. The company is operating mainly in four segments that is Malt, Marketing, Oils, Storage and Logistics. The company is mainly operated in Australia, Asia, New Zealand, United Kingdom, and Europe.

Global crisis starts in 2007 persists till 2008 across the globe effecting economies of all the countries in the world. Global crisis occur with the collapse of big shot companies such as Lehman Brothers, ABC Learning, One Tel and HIH Insurance. The crisis occurred due fraud in accounting treatment for certain items which has been adopted by the companies and the same has been informed or reported in annual statements of the company (Bajada and Trayler, 2010). The main reason for collapse of big companies’ was inappropriate working of management of company as well improper reporting by auditor which includes ignoring the significant potential risks factor in audit report. For example, In case of Lehman Brother, the company is adopted a wrong accounting policy of reverse repo as result of which the profits of the company become higher ad in actual it is a liability not a income for the company and the same fact has not been reported in the auditor report (Xu, 2011). This situation invoke the invention of new auditing standard ASA 701, which is required to report future significant potential risk factors which helps the stakeholders to safeguard themselves. And the new auditing standard ASA 701 is developed after 2008 crisis which enhances roles and responsibilities of auditor of the company (Cordos and Fülöpa, 2015).

The key audit matters are matters which have significant impact on the financial statements of the company as per the professional judgment of the auditor (AASB, 2015). These key audit matters are communicated to those charged with governance. The auditor of the company will determine following areas as Key Audit Matters which require communication to those charged with governance:-

  • As per ISA 315, areas identified having significant risks and involving auditor has to put his judgment
  • Areas in which auditor is unable to obtain sufficient appropriate audit evidence (Thomson, 2008).

Areas having significant deficiency in the internal control system of the company requiring modification in audit planning (Masytoh O, 2010)..    

As key audit matters are listed in the independent auditor’s report of the company, the auditor report of the company selected from the retail industry is required to be analysed as to whether the companies operating under the retail industry are representing their financial statements in true and fair manner with the necessary compliance of the new auditing standard 701 on key audit matters communication. Following has been the company wise detail of key audit matters:

The independent auditor’s report has included the following key audit matter which requires the attention of the stakeholders as well of the company. These are:

  • The first matter that has been mentioned in the audit report of the company is related to the impairment of noncurrent assets which includes the intangible assets. It is clear that although the impairment is checked regularly but it is the very complex task in the sense that it includes judgments, estimates and the assumptions that the company will made only for the future of the company. It is mentioned that the Curragh’s recoverable amount is very sensitive in relation to the changes in the discount rates. These changes can on onetime will lead to the impairment and on other time will lead to the reversal of impairment of the assets of the company including the intangibles. Thus, majorly with regard to this key audit matter has been reported so as to make aware the stakeholders of the company (Wesfarmers Limited official website, 2017).
  • The second matter has been the rebates provided by the suppliers of the products and services. These have been mentioned as the commercial income in the books of accounts and the financial statements of the company and has been considered as the key audit matter because of the commercial terms of each individual rebates and of the recognition timing. Both require deep analysis and accordingly the auditors has reported the same in key audit matters.

Meaning and Explanation

The auditors have mentioned the following event in the annual report for the financial year ending 31st of March 2017 as key audit matter:

  • First event is related to the main segment of the company which is known by the name of Big W. In the segment of Big W the company has the policy to give the heavy discount to the customers who buys only from that store of the company. The major event that has occurred is the impairment that the company has charged during the year. The amount of the impairment charged is the dollar thirty five millions approximately. It is the huge amount of impairment charged to any business in the one year (Xu, 2013). The auditor has mentioned it as the major event only because of the fact that the accounting treatment of each and every item and the complexity that has been involved in the computation of the cash flows and the discount rate applied by the company. As per the annual report of the company, the cash flows are estimated using the past experiences and the past results of the segment. The auditor has the doubt that if this is the case then the impairment would have been done earlier. As the same impairment has the material effect on the share price of the company and in turn has the effect on the earnings of the shareholders and hence the same shall be reported to the stakeholders and shareholders of the company (Kachelmeier, Schmidt and Valentine, 2016).       
  • Second event is related to the segment which the company has closed all of a sudden. The segment name was – Home Improvement business. It has not been closed in one step rather it has been processed through the various stages which includes the sale of the Hydrox Holdings Limited, appointment of the agent for the purpose of clearing the stock – GA Australia Limited and then entering into the Home Investment Consortium and so on. All the events are related to the closure of the business and auditor has reported the same only because of two reasons (McKee, 2015). First reason is that there has been the lot of complexity in the accounting treatment and the second reason is that it is very useful information for the lenders and the investors.    

The auditors have mentioned the following event in the annual report for the financial year ending 31st of March 2017 as key audit matter:

  • First matter is regarding the sufficiency of the customer claims. The company is into the process of storage and transportation of the grains on behalf of the customers. The customer claims arises as and when the damage or the loss arises either during the services or had not made available at the time when the customer requires it. Due to these storage and handling activities, the claims from the customer can occur at any time. The auditor has considered the same as the key audit matter on the ground of the estimate that the company made for the potential future grains that the company will purchase in order to settle the obligations. The auditor has mentioned on the basis of the volume of the purchases the audit has been conducted and reported for the purpose of the interest of the stakeholders (Grain Corp limited , 2017).
  • Second matter is assessment of the impairment of the goodwill. It has been considered as the key audit matter only because of the fact that the goodwill was of the high amount to the tune of $427.20 million as on 30thof September 2017. Under this the company has made the assumption regarding future cash flows and discount rate and checks for the impairment at the end of every year irrespective of the fact of the presence of the indicators of the impairment. The auditors have adopted the procedures necessary for the same and accordingly check the activities relating to the identification of the cash generating units, basis of estimation of future cash flows, discount rate and etc.   

The financial crisis that have started in the mid of 2007 and have went through till the year of 2009 and has affected not only the banking industries but also the industries from other sector which includes the retail sector as well. The retail sector has been facing the varying responses regarding the performance only because of these financial crisis due to which the pace at which the work shall go has not done in that manner. Therefore, to bring the transparency new ASA has been developed and come into place and have been presented for the benefits of the stakeholder.

The above analysis have detailed that the companies operating in the retail industry has been providing the key audit matters in the independent auditors and has been disclosing all the assumption and the challenges if any faced by the auditors of the company during the audit has been mentioned in respect of that particular matter. Thus, each and every company shall provide the key audit matters in the financial report so as to make the stakeholders aware about the nature of the company’s activities and accordingly. Through this majorly the accounting and disclosing fraud if any shall be disclosed in the timely and accurate manner.        


The independent Auditor’s report has been the major part of the financial statements which gives the useful insights to not only the users of the financial statements of the company but also to the management of the company so that the useful and meaningful decision can be made. A change has been made with the introduction of the new auditing standard number 701 – communicating the key audit matters in the independent auditor’s report. In this report the importance of this ASA has been detailed with reference to the companies engaged into the retail sector and that too from the list of the top 100 listed companies in the Australia Stock exchange. The industry is the retail sector industry. The reporting made by the auditors in the retail industry has been analyzed with reference to the type of the disclosure made and the reasons for it. In order to conclude the report, the detailed analysis has been made of new auditing standard and has come up with the new facts and the data.

It is recommended for all the auditors of the company to mention the key audit matters in their independent auditor’s report so as to enable the stakeholders of the company to take the useful decision and also make the authorities aware so that the financial crisis would not happen again.


AASB, (2015), “ASA 701, Communicating Key Audit Matters in the Independents Auditors report”, available on  accessed at 08/05/2018.

ASX Website, 2017, List of Top 100 ASX listed Companies online available at accessed on 19-05-2018.

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.

Grain Corp Limited official website, 2017, “Annual Report 2017” available on accessed on 08/05/2018.

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    accessed on 08/05/2018.

Woolworths Limited official website, 2017, “Annual Report 2017” available on accessed on 08/05/2018.

Wesfarmers Limited official website, 2017, “Annual Report 2017” available on 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.