Assessment Task 1:
Description:
Since re-listing in 1993 Woolworths has been one of Australia's most successful and largest retailers driven by the adoption of its 'Fresh Food People' and 'Everyday Low Prices' (EDLP) strategies. Woolworths (WOW) is a retailer with primary activities in Supermarkets. WOW's other operations include: BIGW discount department stores; Consumer Electronics through Dick Smith, Powerhouse and Tandy; Petrol through the Woolworths/Caltex alliance; and Hotels. Supermarkets are also operated in New Zealand (InvestSmart, 2012). Woolworths reported NPAT up 5.1% to $2.12bn for the year ended 30 June 2011.
In this task, you will be provided with a copy of Woolworth's 2011 annual report. Based on the annual report and your research of the company (company website, media reports and analyses), answer the following questions:
Q1. What is the purpose of an annual report? Explain its significance to the business.
Q2. What company's objectives and obligations of reporting would you identify from the report?
Q3. Who is the auditor?
Q4. What are the main items covered in the auditor's report
Q5. What are the main items covered in the directors' statement?
Q6. What are the main items addressed in the corporate governance statement
Q7. What risk management policies are discussed?
Q8. What does the company say about corporate ethical standards?
Q9. Provide examples from the accounts of the accounting principles of materiality, comparability, conservatism and consistency.
Assessment Task 2:
Description:
This exercise is aimed at developing and understanding of the audit and reporting process and skills in planning and conducting audits of balance sheet items including assets, liabilities, income, and expenses based on general auditing principles.
This task provides an opportunity to;
- Develop/enhance an understanding of the balance sheet accounts
- Analyse the relationships between balance sheet and income statement accounts
- Develop and apply audit techniques for certain balance sheet accounts
- Use analytical procedures and approaches in auditing
You will be provided with a sample balance sheet; alternatively you may use the balance sheet used in the previous tasks.
As an actual audit of balance sheet will require an examination of actual financial data such as bank statements, receipts, transactions, and actual reconciliations, in this task, you will assume a "preparatory" role of an auditor and develop an audit strategy ("how to" approach) for auditing balance sheet of a client organisation. You may use the organisational context used in the previous task (Assessment Task1).
Organisational context is the key as it provides a basis for management decisions and financial/investment activities.
Using and organisational context, prepare an audit strategy; how will be audit following balance sheet items; Cash and Bank Balance
Account Receivable Fixed Assets Liabilities
Investment (or Loans) In addition;
- Describe the purpose and significance of the audit
- Include an overview of legal (legislative) and compliance (AASB) information and references to specific laws/regulations and standards pertaining to financial reporting and auditing
- Describe company's responsibility for reporting, governance and record-keeping as a public company
- Outline governance and internal control issues that will be relevant to the audit
- Audit procedure and auditor's approach to audit (specific tasks that the auditors will perform)
- Analytical procedures (e.g. variation, trend, ratio) to be used and their significance
All in all, you above strategy should establish the foundation for a comprehensive audit plan in the subsequent assessment tasks.
There is a range of literature available on audit of balance sheet. However, you will need to devise your own audit strategy while maintaining the general auditing principles. All external sources must be cited using an appropriate referencing system.
Assessment Task 3:
Description:
In this summative task, you will be required to assume the role of a member of an audit team appointed to audit the financial reports of one of the ASX listed companies. This is an individual task. However, your trainer/assessor will play the role of audit team leader and provide you with necessary instructions and information to complete this task. Ideally, this task should be completed in parts in tandem with the relevant learning sessions during the allocated assessment times.
Read the following company brief and complete the given task. You may have to research more company information.
Company Brief:
Fortescue Metals Group Ltd (FMG) is world's forth largest iron ore production and exploration company with assets located in Pilbara region of Western Australia. Concerns about Fortescue's ability to pay back its gross debt of about $US9 billion ($A8.57 billion) have come to a head in recent days with the iron ore spot price falling below $US100 ($A95.24), leaving the company no longer profitable (thewest.com.au). Company's shares tumbled approximately 14 per cent to $2.99 in early September 2012 after the company asked its lenders to give it financial breathing room by waiving all its debt covenants for the next 12 months. Concerns were raised about Fortescue's ability to service its debt.
Fortescue is owned by its flamboyant CEO Andrew "Twiggy" Forrest (32% ownership), estimated to be worth $9.41 billion at the height of the commodity-fuelled boom in 2008. Forrest was still Australia's richest person as recently as 2010. However, his wealth has halved in the past five months leading to September 2012 to just over $3 billion; a fact directly link to company's performance.
Task:
As part of the audit team appointed to audit Fortescue's 2011 financial reports and identify any inconsistencies in its reporting and internal controls, you have been delegated with the task to prepare a draft audit plan and template for team's review. Prepare an audit plan and template covering the following elements;
- Executive summary
- Company brief and market/industry developments
- Audit purpose and objectives
- The legal and statutory requirements relevant to the financial audit
- Auditor's role, responsibilities and ethical guidelines
- Audit methodology
- Audit strategies and line of enquiry
- Materiality estimation and allocation
- Control environment evaluation (Summary of company's financial policies and internal control
systems)
- Risk assessment and contingency plans
- Audit test program
- Audit timeline, milestones and evaluation
- Matters to report to management
- Data storage, access and security procedures
The above must be covered in the audit plans and could be used as guides for headings/sections of the plan. The audit plan should be word-processed and written as a formal document for presentation to senior management and the audit team.
You will need to prepare two separate documents; The Audit Plan and the Audit Template.
You may take example of an audit plan template. However, they should be used only as reference and straight cut-and-paste should be avoided. All external sources must be cited using the Harvard Referencing System. If needed, attach copies of reference documents used as appendices.
- Risk mitigation strategies are suggested based on likelihood and severity of anticipated risk
- An audit test program includes verification and validation processes/methods for audit data
- Data storage, access control and security procedures are suggested in line with legal and regulatory requirements
- An audit template is prepared using an appropriate style (referenced)
- The audit template includes essential audit areas, functions, and reporting; and is consistent with a sample/generic audit template
- Evidence of synthesis and use of unifying concepts in own language and style throughout the plan
- Cited all external sources using an appropriate referencing system