The Importance of Communicating Vital Auditing Matters

The auditing directive of ASA 701 lay down its suggestion concerning the directions involving communication of important matters of audit which is predominantly found in the independent report of the auditors (Stewart and Shamdasani 2014). Essentially, the auditing standard of 701 is largely dealing with the responsibility of the assessors to converse about the chief subject of audit to the assessor and making the proposal of dealing with opinion of the auditor regarding the matters to be communicated. The main objective of the communicating auditing materials is to improve the value of communication regarding the chief auditing matters to assist in delivering additional data to the users of the financial information to assist them in understanding the auditing materials. Recently the auditing directive of ASA 701 in its report of “Communicating Key Audit Matters in the Independent Auditor’s Report”has stated the necessity of this report in the environment of financial crisis (Booneet al. 2017).

The present study assists in taking the detailed assessment of the financial crisis and associated liability of the evaluators. The phase of varying financial unevenness could basically assist in understanding of numerous theories of crisis. Actually, there are indicators of different challenges arising especially from the political, economic and social environment. As stated by Joskow(2014) the international financial crisis directs the phase of economic strains, chaos which simultaneously states the disbelief in the financial structure. This reflects the considerable fall in the stock exchange transactions and chaos of marketplace dealings.

Government and the international organizationsnamely Woolworths Limited can make an attempt in rising beyond the adverse effect of the financial crisis by applying the process of international financial reformation (Waldman and Jensen 2016). Consequently, this helps in preserving the transparency, improvement in regulations of numerous accounting securities, correct market regulations, upholding the integrity of the financial market which can strengthen the overall cooperation among the organizations. As per the ASA 701, the auditing standard organization diversifies the necessities and provides the applications and explanatory materials regarding the communication of the vital auditing matters particularly in the independent auditor’s report (Louwerset al. 2015).

The standards of audit can be implemented in the auditing of financial report of Woolworths Limited for the particular financial year or alternatively assessing the half-yearly financial reports under the “Corporation Act 2001”(William, Glover and Prawitt 2016). Auditing of financial reports of Woolworths Ltd or other financial declarations can make the use of the ASA 701 for financial reporting of the business firm on or after December 150, 2001.

Auditing Standards and Regulations for Financial Reporting of Woolworths Limited

The ASA 701 can assist in transacting with the responsibilities of the auditors of Woolworths Limited to respond the vital auditing matters (Arenset al. 2016). Nevertheless, in determining the vital auditing matters the auditors of Woolworths are under obligation of determining the matters that are corresponding with the individuals that are assigned with the organizations responsibilities of governance. Such subject matters have initiated the attention of the auditors in conducting the auditing work.

During the ascertainment process, the assessor is under the obligation of considering the varied areas of high risk comprising of material misstatement or else they are required to consider risk that is detected in the financial report of Woolworths Ltd under the ASA 315 (Eilifsenet al. 2013). Such method of determination needs sufficient judgement of auditor related to the financial declaration together with the vital management viewpoint with high varied accounting estimates ambiguity. Particularly the assessor is required to determine the subjects which is mentioned in the ninth paragraph of the auditing standard in the assessment report of the financial report of the present period. Therefore, this can be regarded as the vital auditing matters.

As evident from the notes stated in the financial report of the Woolworths Ltd highlights regarding the compliance statement, basis of preparation, consolidation basis, varied use of estimates, judgement and estimates and significant accounting assumptions.

The financial report of the Woolworths Ltd highlights consolidated and the financial report of the firm is prepared according to the “International Financial Reporting Standard”under the “International Auditing Standard Board” (Arens, Elder and Beasley 2014). As stated by the council of financial reporting standards the financial reports numerous requirements have been stipulated under the Corporation Act of South Africa regarding the JSE limited listing requirements. Along with this, the group significantly combines with the different subsidiaries. Such matters could assist the investors in maintaining the compliance concerning the financial presentation of the statement along with the auditing and assurance.

The financial report of the Woolworths Ltd highlights the policies of accounting which can be subsequently put into the use by investors for understanding the financial state of affairs of the company. The basis of preparing the financial report together with the group consolidated financial statement is prepared both in terms of the historical cost and under the going concern. Therefore, this helps in understanding the diverse opinion provided under the regulation of ASA 570 (Cohen and Simnett 2014). Alternatively, the uncertainty of material relating to the diverse incidents or business affairs may assist in shedding the uncertainty regarding the business functions as the going concern under the regulations of the ASA 570. An important consideration in this regard is that a key auditing matters is required to be communicated in the auditor’s report so as to assist them in understanding the ability of the firm to function as the going concern (Chandler 2014).

Assessment of Material Misstatement Risk for Woolworths Limited Financial Reports

The report of the auditor in the financial report of the firm Woolworths Limited states that as per the view point of the auditor, both the consolidated financial statement and the individual financial report to effectively present the fair view of numerous material aspects in both the consolidated statement in respect of the financial information of the company (Knechel and Salterio 2016). This comprises of the consolidated as well as the distinct financial performance for consolidated financial reports and separate statement of cash flow especially for the span of 52 weeks. This generally complies with the standards issued by the International Financial Reporting Standards along with the obligations of the Corporations Act of South Africa. This can be considered as the vital or important auditing matters which are necessarily required to be communicated to the investors. Communicating the auditing matters to the investors helps in better presentation of the financial position of the organization (William Jr et al. 2016).

All over again, other reports that is needed by the firm in accordance with the regulations of the Corporation Act accounts for the audit of the consolidated as well as the separate financial assertion for the period of 52 weeks (Messier, Glover and Prawitt 2014). The report that is presented by the committee of audit along with the director’s report is put into the use with the objective of identifying the material inconsistencies amidst presented report and it consequently does not essentially state a specific viewpoint on the organization reports. As a result of this in the present situation it can be viewed as the vital auditing matters that require to be communicated necessarily in accordance with the responsibilities of the directive (Waldman and Jensen 2016).

As rightly put forward by Arens et al. (2014), material misstatement risk can be referred to as a risk in which financial pronouncement of a business entity have been inappropriately mentioned to a specific material degree. Nevertheless, the risk can be analysed by the evaluator by at diverse levels and this includes both the inherent risk and control risk. Arens et al. (2016) recommends that inherent risk indicates towards susceptibility of financial report of a firm to misstatement because of error otherwise fraud and this does not consider different control mechanisms of the company. Conversely, control risk necessarily refers to risk associated to material misstatement that necessarily cannot be averted or else detected by means of internal control mechanisms of particular reporting entity. Additionally, at the stage of financial reporting, the material misstatement threat can be regarded to be more prone during the time when there are higher chances of scam. Nevertheless, during the period when material misstatement threat is observed to be considerably high, the overall rate of risk detection can be decreased. In essence, this essentially can augment the entire amount of evidence gathered from diverse procedures. Consequently, this can reduce the audit risk of the firm Woolworths Limited.

Application of ISA 260 in Communicating Governance Practices for Woolworths Limited

As correctly mentioned by Boone et al. (2017), firms have the need to adhere to auditing standard International Standard for Auditing Standard-ISA 260 that indicates towards the obligation for communicating the ones charged with specific governance practices declared by the AAS-(Auditing and Assurance Standards Board). In actual fact, the board is accountable for the system/procedure of internal control for the complete group. Fundamentally, material losses, exposure or pecuniary misstatement along with compliance breaches have been recorded to the directors of the corporation for the economic year. Essentially, this can be referred to as a significant matter since this particular viewpoint detects that the business corporation is day by day becoming more complex and there are different new fields of revelation to certain risks that might perhaps call for the attention of the company’s administration. Essentially, there also subsists an uninterrupted stress and emphasis on making sure that environment within each division is appropriately comprehended and at the same time sealed at the required level (Cohen and Simnett 2014).

The annual declaration of the corporation Woolworths limited reflects that directors of the reporting entity have evaluated the budget of the entire group with estimated flow of cash during the year 2017 and details of insurance agreement of the complete group. Nevertheless, founded on present assessment results and on milieu of the current financial condition and current lending facilities, management of the company (board members) remain satisfied about the fact that the company satisfied the conditions of a going concern (Earley 2015). In addition to this, the board members of the firm also remained satisfied that the particular group have continued to assume base of going concern for the purpose of preparation as well as presentation of the yearly financial pronouncements. Essentially, this procedure of communicating primarily key audit matters thereby assists the entire administration of the corporation in arriving at suitable judgements and preparation of financial assertions.

The evaluators of a firm have the necessity to take into account appropriateness of deployment of definite suppositions of a specific going concern through the course of preparing monetary declarations. Also, the evaluators also have the obligation to judge material unlikelihood related to capacity of entities to continue operations as a going concern. Additionally, in uncertain circumstances of global financial crisis, there is reduced necessity for particularly acquirement of credit along with illiquidity during the period of short term (Eilifsen et al. 2013). Nevertheless, this consequently can indicate towards different prospective issues that can help in influencing option of continuance of business components as essentially a going concern. In accordance to the regulations of the Auditing Standard that is ASA 570 (specifying going concern), there is necessity for stating risk evaluation process along with associated actions, assessment of management’s analysis, stage beyond analysis of the administration, additional examination procedures during the time when diverse incidents else wise conditions are detected. The necessities of auditing regulation ASA 570 also comprises of communication with specifically the ones responsible for maintenance of governance of organizations (Gay and Simnett 2014).

Conclusion

Hayes et al. (2014) suggests that evaluation of pecuniary pronouncements of the corporation Woolworths Limited reflects that a specialised treasury committee was created in the organization for supervising treasury activities of the group (Stewart and Shamdasani  2014). Essentially, the entire group was liable to make sure that there is suitable governance of different functions else wise operations. The audit committee offers supervising duties from the perspective of the entire board as well as from the stance of Companies Act of the nation South Africa. Essentially, this chiefly can be related to assessors, internal controls along with the monetary legislations, rules along with governance actions (Messier et al. 2014). In particularly, the entire committee correctly regulated all these affairs as instituted in the reference terms that are analysed and authorized by the company’s board on an annual basis, arranged in a line to the directives of the audit committee. In effect, this aids users of financial assertions to comprehend whether the company is satisfying the obligations of going concern (Joskow 2014). The working group of the firm evaluated the assessment of the going concern of the complete group and suggested to the entire board that the entire group can turn out to be a going concern in the future. Furthermore, the pronouncements of the company recommends that it is necessarily solvent and can make available dividend. Essentially, this needs to be communicated for comprehension of the actual or real financial health of the business entity Woolworths Limited.

The overall strategy refers to different ways of allocation of resources. This in succession can be fittingly utilized for particular audit regions, timing of different procedures in audit along with materiality (Junior et al.  2014).

The evaluators have the necessity to gain clear understanding as regards organizations together with business environment in which company operates. The auditors also have the requirement to concentrate on specific zones of pecuniary declarations for detection of material misstatement (Kend et al. 2014). The evaluators also have the necessity as well as special consideration for diverse sections of monetary pronouncements that contains adjustments in the area of accounting, impairments of different recorded asset value, and changes in share capital with debt preparations among many others (Knechel and Salterio 2016).

Conclusions and Recommendations

In conclusion it can be hereby stated that auditors have the need to summarize strategies and consequently amass validation to support diverse kinds of management. Diverse financial pronouncements are appropriate within the constraints of materiality. Consequently, for the purpose of articulating this type of opinions, the evaluators have the need to appraise all the facts to conclude that all the material pecuniary pronouncements can be appropriately maintained. In essence, professional disbelief in the financial declarations of Woolworths Limited can hold back the judgement of the evaluators concerning the validation that are essential to attain the specific position. Furthermore, accounting principle is basically prescriptive plus functionary in features. On the contrary, the directives for assessment have to be behavioural in nature since the examination and mechanisms are descriptive and depend entirely on the judgements of appraisers. In effect, the appraisers are also estimated to be self-governing and supervise diverse .clientele both in actuality and appearance. Therefore, the evaluators also have the necessity to be objective and assessors have to observe the process of validation of audit procedure. 

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