Task Solutions Of Long Term Interests Of Stakeholders:ASA701

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Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and Assurance in Australia
Name of the Student
Name of the University
Author â€sNote
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Table of Contents
Answer to Question 1………………………………………………………………………………………………….. 2
Answer to Question 2………………………………………………………………………………………………….. 4
References …………………………………………………………………………………………………………………. 6
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Answer to Question 1
ASA 315 Identifying and Assessing the Risks of Material Misstatement (ASA 315)
requires the auditor to obtain an understanding of the audit client, its business environment,
applicable financial reporting framework and internal controls (ASA 315, 2022). The same is
applicable for the audit of Coles Ltd (Coles). The following discussion demonstrates an
understanding of Coles by considering the relevant aspects.
Coles is aleading retailer of Australia and it operates through more than 2500 retail
stores. It is an omnichannel retailer and it is involved in selling different types of products.
The adopted business structure assists the company in employing more than 120000
employees and engaging more than 7000 suppliers. It has 450000 direct shareholders and its
extensive store network and eCommerce platform enables it in welcoming more than 6
million customers.
A revenue stream is arevenue source of acompany or organization. The presence of
more than one revenue stream can be seen in Coles as it generates revenue from its business
segments. It implies that the main revenue streams of the company are its five key segments,
which are supermarket segment, liquor segment and express segment, flybuys and financial
services. It also generates revenue from other operations including property and enterprise
functions (2021 Annual Report, 2022).
The main products of Coles include groceries, fresh food, and liquor which it sells
through its supermarkets, liquor and eCommerce platforms. It is also involved in selling
convenience products, and it works as acommission agent for retail fuel sales through the
Coles Express network under its alliance with Viva Energy.
Coles is regarded as one of the most trusted consumer brands in Australia, and it has
many businesses which include Coles Local, Coles, Liquorland, Coles Express, First Choice
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Liquor Market, Coles Financial Services and Vintage Cellars. Coles also has a50% stake in
flybuys, which is regarded as one of the most popular loyalty programs with more than 6
million active households (2021 Annual Report, 2022).
Coles operates in the retail industry which is aglobally competitive industry. This is
why itfaces intense competition from other players in the retail industry, such as Woolworths,
Aldi, Lidi, Costco and others. If the company is unable in responding to the competitive
pressure, it could lead to the loss of market share. In addition, such an intense competition
could create pressure on the senior management of the company to maintain the expected
level of profit.
In order to deliver the purpose, three strategic pillars have been prioritised by Coles:
smarter selling through pace of change and competence, inspire the customers with the food
and drink solutions of the best value for making lives easier, and win together with the
suppliers, team members and communities. These strategic pillars help the company in
developing the business strategies.
Coles is managed by its Board of Directors (Board). The main role of the Board is the
demonstration of leadership and approval of the strategic direction of the company in the
long-term interests of the stakeholders and maximisation of the values of the shareholders.
The Board is responsible for monitoring the management of the company in order to attain its
strategic goals plans and expected culture in line with the company â€score values (Board
Charter, 2022).
Coles has arobust corporate governance framework and the Board is responsible for
the governance in the company. The presence of three board committees strengthens the
corporate governance framework. These committees include Audit and Risk Committee,
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Nomination Committee, and People and Culture Committee. The focus areas of corporate
governance in the company include strategy, board, sustainability and risk management.
Answer to Question 2
As per ASA 701 Communicating Key Audit Matters in the Independent Auditor â€s
Report (ASA 701), the auditor has aresponsibility to ascertain the key audit matters (KAMs)
from those matters that needed key attention of the auditor to perform the audit (ASA 701,
2022). In compliance with the requirements of ASA 701, the following discussion identifies
two KAM issues in Coles that took place during the financial year ended 31 June 2021:
1. Impairment of Non-Financial Assets including Intangible Assets
In Coles, ascertaining the impairment of non-current assets including intangible assets
is a KAM-related issues occurred during the year. Determining the non-current assets â€
recoverable amounts, including right-of-use assets, property, plant and equipment, goodwill
and other intangible assets needs the management of Coles to make key judgments. The
evaluation of impairment is complex and the management is needed to exercise key
judgments. The evaluation which Coles â€management completes include various assumptions
and estimates that the market conditions and future performance will impact. This takes into
consideration the possible impact of the COVID-19 pandemic on its income and expenses.
These key estimates and assumptions are used by the management in the areas of forecasting
future cash flows, discount rates, and expected long-term growth rates. On the basis of the
disclosed sensitivity analysis, it is not expected that the alterations to the major assumptions
exercised in testing impairment will result in an impairment of the cash generating units â€
carrying values (2021 Annual Report, 2022).
As per ASA 701 Paragraph 9(a), this issue should be considered as aKAM because
of its potential to material misstatement in the determination of recoverable value of the non-
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current assets including the intangible assets. As per Paragraph 9 (b), this is an area which
involve significant judgement and estimation exercised by the management of Coles. As per
Paragraph 9 (c), this matter requires the auditor to perform the required audit procedures to
address it properly (ASA 701, 2022). For example, the auditor is needed to assess the key
aspects associated with this issue, like ascertainment of cash generating units, discount rates,
long-term inflation and growth rate, forecasting cash flows, and others. In the presence of all
these aspects, this issue should be treated as aKAM.
2. Commercial Income
To the retailers like Coles, commercial income, commonly known as, supplier rebate,
is akey accounting matter. In Coles, the main components of this income are discounts and
rebates that are received from its suppliers. The management of Coles is needed to apply
significant judgments to ascertain the timing and value of when the company recognizes
commercial income through the Consolidated Income Statement. It also requires the
management of Coles to consider certain key aspects, such as each individual rebate
agreement â€s terms, the arrangement â€s substance and nature for ascertaining whether a
reduction in the inventory â€spurchase price is reflected, and the application of the Australian
Accounting Standards and the controls and processes of the company associated with these
arrangements. There are certain estimates which are required in recognizing the certain types
of commercial income; and these estimates are the inventory purchases â€volume, the amount
of the related products that the company will sell, and the remaining balance of inventory at
the reporting date.
As per ASA 701, these matters have the ability to create material misstatement in the
financial statements of Coles. At the same time, this is a matter which requires the
management of the company to exercise significant judgments and estimates. Lastly, the
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auditor is needed to apply certain key audit procedures to address these issues, such as
evaluation of the design and operating effectiveness of relevant controls, and others.
References
Auasb.gov.au. 2022. ASA 315 . [online] Available at:
[Accessed 20
May 2022].
Auasb.gov.au. 2022. ASA 701 . [online] Available at:
[Accessed 20 May 2022].
Colesgroup.com.au. 2022. 2021 Annual Report . [online] Available at:
[Accessed 20 May 2022].
Colesgroup.com.au. 2022. Board Charter . [online] Available at:
[Accessed 20 May 2022].