Essay: Analysis Of Annual Report Of Retail Food Group Limited." (57 Characters)

Critically evaluation of the audit reports for 2016 and 2017

Discuss about the International Journal Of Behavioral Nutrition And Physical.

The purpose of this report is to analyse the annual report of the RFG for determining various aspects of the group related to the audit. The various aspects that are going to be reviewed and analysed in the report include elements such as the type of audit report issued by the auditor, the assessment of the internal control of the entity, the business risks that are associated with the operations of the entity and various ethical considerations in respect of identification of the deficiency in their system (Dojeiji et al. 2017).  For the purpose of determination of these factors, the annual report of the company for the year 2016 and 2017 will be critically analysed. Based on the findings of the analysis a conclusion will be drawn in respect of the audit practices of the present auditor and the appropriateness of the audit report being issued by him.

The various audit reports that are being issued by the auditor can be segregated into four parts. They are as follows:

1. Clear/ unqualified-

This report suggests that the entity has prepared its financial statements following the statutory requirements and the guidelines issued by several governing authorities. It further suggests that the financial statements of the company reflect the true and fair view of the financial performance and the position FO the entity (Morland et al. 2017). In addition to that, the cooperation of the management with the auditor has been excellent and no restriction whatsoever was placed on the independence of the auditor.

1. Qualified report-

This suggests that the financial statements of the company had some misstatements and the management of the company refused to rectify the same. This states that certain elements of the financial statements do not show the true and fair view of the financial performance and position of the company. In addition to that, it also signifies that some restrictions were placed on the independence of the auditor during the performance of his duties (Berg and Moré 2016).

1. Adverse opinion-

This suggests that the financial statements of the company do not show the true and fair view of the entity and the quantity of material misstatement in the financial statements is immense. In addition to this, it also reflects that there was significant restriction placed on the independence of the auditor while he was pursuing his duties.

1. Disclaimer of opinion-

This is the worst audit report of all. This suggests that the financial statements were prepared in such a way that the auditor was not able to authenticate majority of the transaction. In addition to that, the management did not cooperate with the auditor at all. No significant and appropriate information was shared with the auditor and t was not possible for the auditor to conduct the audit at all. Hence, the auditor refused to place any comment on the financial statements of the company (Cohen and Jackson 2017).

As per the opinion of the auditor

In respect of the financial statements prepared by the company following are the opinion given by the auditor respectively for the year 2016 and 2017. Deloitte has conducted the audit of the company.

2001. The financial report that has been prepared by the Retail Food Group Limited is fully compliant with the regulations as specified in the Corporation act 2001. The compliance of the report includes:
2002. The financial statements give a true and fair view of the entity’ financial position as on 30^th June 2016 and the performance recorded by it for the year ending on that date (DeWeese et al. 2018).
2003. The financial statements prepared by the entity comply with the Australian Accounting standards and the Corporation Regulation 2001.
2004. The financial statements as prepared by the entity are also in full compliance with the guidelines of the International Financial Reporting Standards.

In the year 2017, the audit of the company was conducted by PWC. The opinion presented by them is as follows:

The financial statements of the Retail Food Group Limited and the various entities controlled by it are in full compliance with the guidelines of the Corporation Act 2001. The compliance of the company included the following:

2017. The financial statements of the group give a true and fair view of the financial position of the group as on 30^th June 2017.
2018. The financial statements are I full compliance with the Australian Accounting Standards.

The reports issued by both the auditors are clear report. The report presented by both the auditors is completely appropriate. The reason being that the company is in full compliance with the corporation act and the financial statements of the company have been prepared in accordance with the guidelines of the Australian Accounting Standards (DeWeese et al. 2018).

The internal control is very essential for the proper and legitimate functioning of the company. The reason being that the amount of resources with every entity is very limited. It is the responsibility of every entity to make sure that the resources that are available with it are utilised optimally. If the internal control mechanism of the entity will be very weak, there will be significant amount of leakage of vital resources from the entity (Ciravegna and Brenes 2016). The leakage may take place due to theft, in appropriate operation of the information and even vital resources in the form of information may leak out of the entity. Hence, the Retail Food Group for ensuring the optimum utilisation of the resources available with it has incorporated several internal control measures within the framework of its operations. They are as follows:

1. Cash-

The entity makes sure that the cash balance as per the system and the cash present in the cash box of the company tally every day. This is one of the most crucial internal controls of the company. In absence of it, there would be regular cash embezzlement by the employees of the company (Piscopo 2016). This could lead to serious outflow of cash. The company also makes reconciliation statement that matches the cash in hand of the company with that of the passbook of the bank of the company.

1. Payroll-

The payment to be made to the employee of the company is completely automated. The bank accounts of each employee are linked with the system of the company. Immediately after the payment becomes due to them cash is directly transferred to them by wire transfer in their bank accounts. The reason for this being that the possibility of embezzlement in the form of extra money paid to the employees by the Human resource manager and the other officer in exchange of commission can be stopped.

1. Software rights-

Providing an assessment of the internal control environment of Retail Food Group

Only qualified and the skilful employees of the companies are granted the right to access the system of the entity. The reason being that the operations of the complex software installed by the company for the full automation of the key operations of the company can be very hard to operate by an individual who is not well trained.

The various weaknesses that are present in the internal control system as applied by the entity in its operations are as follows:

1. Cash-

In respect of the cash, the company must check that the person counting the drawer at night and the person making the deposit in the morning must be different. The company must ensure that the person making the bank reconciliation statements and the person making the deposits in the bank are different (Trafialek et al. 2016). Otherwise, the purpose of preparation of the bank reconciliation statement will be violated completely.

1. Payroll system-

At present, it is possible for the CFO and the human resource manager of the company to enter influence the payroll system by fabricating the details of an employee who is non-existent (Jones et al. 2017). In order to prevent this company must install a system wherein the payment made to the employee is liked with responsibility that has been given to them in terms of operations of the business.

1. Software rights-

At present, it is very much possible that the person who has the access to the system controls of the company is also subjected to the accounting cycle and operations of the company. The employee with complete access to the full system can easily override any segregation that has been put in place by the management in respect of the duties assigned to the individuals.

Audit risk is referred to the phenomenon wherein the adult forms the opinion that the financial statements of the entity have been prepared in accordance with all the statutory requirements that are applicable on the organisation including the various standards applicable on it. However, the reality is that there is significant material misstatement present in the financial statements of the entity (DeWeese et al. 2016). The reason for the existence of this audit risk is the sampling of data implemented in the audit by the auditors. According to the auditing principles, the auditor need no go through each transaction while performing his substantive procedures. The audit risks have to aspects they are detection risk and materiality risks. In case of detection, risk there is a possibility that the auditor may kit be able to locate the presence of the material misstatements at all. Materiality risk is associated with the fact possibility that the auditor may consider a material item as non-significant part of the financial statements (Zanabria et al. 2017).

Assessing the business risks associated with Retail Food Group

Several business risks that can significantly influence the audit of the entity in respect of   RFG Ltd. are as follows:

1. Supply chain risks-

Due to the disruption in the supply chain of the company, it is facing risks of incapacity to deliver value addition to its customers. This may result in the group recognising the revenue to be generated from the sale of goods and services to the customers prior to substantial transfer of risks and rewards associated with the product. Hence, the auditor might fail to recognise the propriety of the sale made by the company (Byker Shanks et al. 2015).

1. Changes in the market trends and consumer demand-

The changes in the market trends are affecting the demand for the product of the company. This can sufficiently affect the inventory valuation of the company and the inventory ratio of the company. The audit must be very cautious in evaluating the real value of the closing stock of the company and note if there has been any irrelevant or unnecessary change in the valuation method of inventory of the company (Eyler et al. 2015). This might be an effort to shield the negative impact of the trends on the closing stock of the company.

1. Food safety / OHMS-

There efforts made by the group in terms of its manufacturing pursuits are presently inadequate. The inadequacies can result in a significant impact on the health and safety incidents of the customers of the company. The auditor must assess that the efforts made by the company in this respect is aligned with the concern regarding the safety and wellbeing of its customers. The auditor must recognise the impact of the inefficiencies shown by the company in this respect on the financial statements of the company.

1. The policy of giving out a franchise under its umbrella:

It was found that the company was letting out the franchises that were earning losses to individuals claiming that these stores will earn them huge returns in the future. The terms and the facts presented by the selling agents of the company were completely misleading. Hence, the company must ensure that the terms and the facts presented to the purchaser of the franchise of the company must be accurate and the valuation of the same must be done based on real facts (Charreire et al. 2014).

1. Payment made by the company to its workers or the payments made by the franchise to the workers of the company-

It has recently been found that the workers who are employed in the franchise of the entity all across the country were underpaid by their respective franchises. The company must ensure that it collects enough evidence and installs enough internal control measures to avoid such events in the future (Black et al. 2014).

The ethical principles in the activities of the company are needed to be addressed very objectively. The reason being that the company must understand that the resources FO the society have been entrusted on it for the purpose of vernation of value for the shareholders of the company. If the company is fully negligent towards the needs of complying with the ethical issues it will not be able to generate value for its stakeholders due to the actions taken against it by the statute and other governing bodies overlooking its operations (Hammons and Oliver 2014). Some of the ethical issues faced by the company are as follows:

• Food and dining-

1. The company provides alcohol to its customers. This is facilitating drunken driving, addiction, domestic abuse and other mal practices. The company is faced with the ethical issue of how much alcohol to serve, whom to serve and when the people need to be cut of
2. The company primarily serves food that is liked by the customer. This often means that the food contains high amount of sugar, salt, fat and too many calories (Black et al. 2014).
3. The company needs to be fully honest about the ingredients of the food that is served by it. It should reveal that the ingredients are not natural if they are not. The company sometimes have to use artificial ingredients in place of the natural ones. An honest confession regarding the same can hurt the customer footprint of the company (Crandall and O’Bryan 2015).

• Operations:

1. The company must start making use of the principles of composting, recycling, proper disposal of the oil, and reduce the moon-food waste component of the company and reduce the power consumed by it.
2. The company must take care of the safety of the consumers by utilising several methods such as not storing the flammables within the premises of the outlets and installation of emergency exists for the consumers in case of any mishap (Calvin et al. 2017).

• Customers:

1. The company is faced with the ethical issue of getting involved in the personal issues of the customers within the premises of the restaurant. The reason for not involving itself in such situation is that it might hurt their sentiments and thereby reduce the footprint of the restaurant (Elson et al. 2015).
2. The company regularly hosts VIPs. In case some of them misbehaves or indulge into actions that disturbs the others the company fails to address such issues (Henriques et al. 2017).
3. The company is faced with the ethical issue of whether it should project the image of the company as a nice niche place for the rich and the well to do or as a restaurant that is accessible by all.

• Recruitment of staff:

1. The company is faced with the ethical issue of employing immigrants who do not have proper documents just for the sake of saving costs and to remain competitive in the market. The company must understand the implication of its actions on the domestic population of the country (Caspi and Friebur 2016).
2. The company sometimes hire the employee for menial jobs even if it is known to the company that they are addicts or have committed some crimes. This is against the principles of the company as the same can save the cost so the company but can cause serious problems in the future for the customers of the company (Vandevijvere et al. 2014).

The deviations that the company come commits in respect of adhering with the ethical principles has a direct bearing on the financial statements of the company violation committed by the company in respect of the ethical principles on it results in the birth of significant audit risks. These risks will have to be objectively monitored by the auditor. The reason being that failure to comply with any sort of guideline suggests that there was failure on the part of someone within the entity. This failure led to the violation of the various guidelines that were being made applicable on the company (Martin et al. 2017). In the recent times, there have been many instances wherein strict actions were being taken against the companies who failed to the various ethical guidelines being made applicable on them. As an s result, the company was made to pay severe amount of compensation and it lead to massive destruction of the goodwill of the company. As the goodwill of the company fell the share prices FO the company also fell along with it. Hence, the auditor must be very cautious about any of the breaches in the ethical principle by the company (Zenk et al. 2017).  

Conclusion:

After going thought him annual report of the company, it has been observed that the company has been able to prepare its financial statements in compliance with the Australian Accounting Standards and the various legal obligations applicable on it. In addition to that as per the opinion of the auditors, a clear report has been received by the company. However, at the same time threats present numerous audits in the structure of the business of the entity. In addition to this e, financial business risks there are several ethical issues that are being faced by the company. The ethical issues that re Bing faced by the company at present have been segregated into serval group such as the operations of the company, the food and dining offered by the company, the customers of the company and the recruitment of the staff of the company. The company immediately needs to address these issues in order to avoid any action being taken against it by the regulatory bodies of the country.

Reference

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