This question consists of separate phases that walk you through various aspects of a fictional 'audit' of Loblaw Companies Limited (Loblaw). Loblaw is an actual Canadian company and the information included in this question is extracted and summarized from Loblaw's corporate disclosures.

Loblaw is a major Canadian grocery and pharmacy retailer. Additional detail on Loblaw's activities is included in Exhibit 1. Loblaw is headquartered in Toronto, Ontario. Loblaw is a publicly traded company, which trades on the Toronto Stock Exchange under the symbol 'L'.

Scenario:

Assume you are competing for an entry-level job at PricewaterhouseCoopers (PwC) LLP's Toronto office, having just completed your Master of Accounting degree. PwC Toronto is Loblaw's auditor. PwC provided two exhibits to assist you in answering the screening questions listed below. You want to impress the selection committee with your knowledge of auditing/assurance and your ability to apply general auditing/assurance concepts to Loblaw's particular circumstances.

PwC will assess your written communication skills primarily through a separate writing assignment. Thus, for this exercise, you may use point form, tables, or other formats to efficiently and effectively communicate your auditing/assurance competence.

The following Exhibits are available to assist you in understanding Loblaw's operations (all information is taken from Loblaw's 2021 and 2022 Annual Reports or Financial Statements for the years ended January 1, 2022 and December 31, 2022 - note Loblaw's year-end ends on the Saturday closest to December 31 each year, not on a specific date):

Exhibit 1 - Overview of Loblaw's activities and accounting policies

Exhibit 2 - Consolidated Statement of Earnings and Consolidated Balance Sheets for Loblaw (2022, 2021, 2020)

questions.

Completing the Audit & Reporting

12. According to CAS 701, Key Audit Matters are required to be communicated in the independent auditor's report. These are matters that "in the auditor's professional judgment, were of most significance in the audit of the financial statements".

a. Based on the information you have available about Loblaw's context and financial statements, identify two matters you believe would be key audit matters.

b. Explain why you consider each of these two matters to be a key audit matter

c. What information needs to be included in the independent auditor's report related to key audit matters?

13. If Loblaw wanted to provide their stakeholders with assurance about their performance against specific corporate targets for Environmental, Social and Governance matters:

a. Identify two CPA Canada Assurance Handbook standards under which PwC could provide such assurance. Explain why each would be appropriate.

For each engagement type you identify, indicate and explain:

b. What level of assurance you would recommend?

c. Whether you believe such an engagement should be a direct or an attest engagement?

d. What type of engagement would you recommend to Loblaw? Why?

Exhibit 1

Overview of Loblaw's Activities

Loblaw is a leading Canadian food and pharmacy retailer. Loblaw describes its purpose as 'helping Canadians Live Life Well'. Loblaw pursues this goal through five distinct operating divisions: Discount (e.g. No Frills, Real Canadian Superstore), Market (e.g. Loblaws, Your Independent Grocer, T&T), Shoppers Drug Mart, PC Financial (offering banking and credit cards) and Joe Fresh (clothing options for women, men, and children).

Loblaw is Canada's largest private-sector employer, with a workforce of over 200,000 individuals. Loblaw is a publicly-traded corporation. It trades on the Toronto Stock Exchange under the trading symbol 'L'. Galen Weston, Junior, is both Chairman of the Board and President of Loblaw. Loblaw is majority-controlled by publicly-traded George Weston Limited, which in turn is majority-controlled by the Weston family of Toronto. Galen Weston, Senior is Chairman and CEO of George Weston Limited. Loblaw leases property from Choice Properties, another company owned by George Weston Limited. Some inventory items are also purchased from a subsidiary of Weston.

In both the grocery and health and wellness sectors Loblaw describes itself as an 'omni-channel retailer', operating under multiple store banners in person and online (including Loblaws, Real Canadian Superstore, No Frills, Your Independent Grocer, T&T Supermarket, Shoppers Drug Mart, and Pharmaprix, among others). Loblaw is also known for its private label products, including No Name, President's Choice, Blue Menu, and Life Brand items. Loblaw has an extensive customer loyalty program - PC Optimum, and the company is known for its extensive use of technology and data analytics to both manage its business operations and its customer relations.

Throughout the pandemic Loblaw grew its online businesses, including PC Express, BeautyBOUTIQUE, and Joe Fresh online. Moving forward, Loblaw has established ambitious goals for itself for fighting climate change and advancing social equity.

Loblaw's Management's Discussion and Analysis section of the annual report describes a number of operating and financial risks to which the company is exposed. These include risks related to the company's extensive reliance on its information technology systems, risks associated with Loblaw's distribution and supply chain, employee attraction and retention risks, and risks related to possible healthcare reforms, food, drug, product and services safety matters, the highly competitive nature of the Canadian retail environment, and regulatory compliance requirements. In terms of financial risk, the company is exposed to liquidity, exchange rate, interest rate, credit and commodity price risks.

Loblaw reports critical accounting estimates and judgments in the following areas: decisions over which entities are controlled and therefore consolidated, the net realizable value of inventories, whether impairments to the values of goodwill, intangible assets, fixed assets and right-of-use assets are needed, the liability associated with the PC Optimum customer loyalty program, and possible impairments of credit card receivables related to PC Bank.

Loblaw leases certain of its retail stores, distribution centres, corporate offices, passenger vehicles, trailers and IT equipment. Leases of retail stores are a substantial portion of the Company's lease portfolio. Retail store leases typically have an initial contractual period of 10 to 15 years with additional renewal options available thereafter.

Loblaw's intangible assets consist principally of various brand names, trademarks, and customer relationships related to loyalty programs and the prescription files of pharmacy clients. Software programs are also included as intangibles; these include both software purchases and development costs for customized software programs.

Goodwill relates primarily to the acquisition of Shoppers Drug Mart and T&T Supermarket Inc.

Loblaw's inventories are valued at the lower of cost or net realizable value.

Fixed assets consist primarily of buildings and building improvements, equipment and fixtures, and leasehold improvements.

Transactions with related parties include inventory purchases from a related party as well as lease payments made to Choice Properties, a separate company also owned by George Weston Limited. Amounts due to parent company George Weston Limited and due from Choice Properties are included in trade payables and other receivables on Loblaw's balance sheet at year end.

The Chief Executive Officers of Canada's largest grocery retailers, including Loblaw's CEO Galen Weston, Junior, were called to the House of Commons Standing Committee on Agriculture and Agri-Food in March 2023 to respond to questions about food price inflation and whether recent grocery price increases indicate grocery retailers have been gouging Canadian consumers. The sector has been under intense public scrutiny recently and food retailers have been accused by some of generating record-high profits at the expense of consumers who have been struggling with inflation - a phenomenon termed 'greedflation'.

Exhibit 2

Extracts from Loblaw's Financial Statements (2020 - 2022)

Loblaw's Consolidated Statements of Earnings
Fiscal year	2022	2021	2020
Year end date	31-Dec-2022	01-Jan-2022	02-Jan- 2021
(millions of Canadian dollars)
Revenue	56504	53170	52714
Cost of merchandise inventories sold	38528	36436	36725
Selling, general and administrative expenses	14634	13797	13624
Operating income	3342	2937	2365
Net interest expense and financing charges	683	495	742
Earnings before income taxes	2659	2442	1623
Income taxes	665	466	431
Net earnings	1994	1976	1192

Exhibit 2 (continued)

Loblaw's Consolidated Balance Sheet
Fiscal year	2022	2021	2020
Year end date	31-Dec-2022	01-Jan-2022	02-Jan- 2021
(millions of Canadian dollars)
Assets
Current assets
Cash and cash equivalents	1934	2440	1937
Credit card receivables	5153	4390	4086
Inventories	5855	5166	5195
Other	434	641	324
Total current assets	13376	12637	11542
Fixed assets	5696	5447	5540
Right-of-use assets	7409	7175	7207
Intangible assets	6505	6402	6870
Goodwill	4323	3949	3948
Other longterm assets	838	1004	766
Total assets	38147	36614	35873
Liabilities
Current liabilities
Trade payables and other liabilities	6226	5485	5481
Loyalty liability re PC Optimum	180	190	194
Long term debt due within one year	727	1002	597
Lease liabilities due within one year	1401	1297	1379
Other current liabilities	1564	1222	1112
Total current liabilities	10098	9196	8763
Long term debt	7056	6211	6449
Lease liabilities	7714	7542	7522
Other liabilities	1823	1928	2020
Total liabilities	26691	24877	24754
Equity
Share capital	6686	6852	7045
Retained earnings	4461	4591	3813
Other equity components	309	294	261
Total equity	11456	11737	11119
Total liabilities and equity	38147	36614	35873