Assessment 3 Assessment Type: Case Study Assignment. Maximum word limit of 2,500 words Purpose: This assessment will allow students to demonstrate their understanding of auditing standards,...

Contents
Accounting Standard for the risk of material misstatement    1
Part-1    1
Industry Analysis-    1
Environment analysis –    2
Company Analysis –    2
Part 2-    4
Recommendations    5
Conclusions    5
References    6
Accounting Standard for the risk of material misstatement
As per the accounting standards, AS 2110, the auditors need to ensure that the key material issues which are related to the income statement and the balance sheet which could materially impact (Shelton, S.W., Whittington, O.R. and Landsittel) the message that the statements are willing to convey. The auditor needs to identify the risks and ensure that enough procedures have been followed, enough sensitivity analysis, scenario analysis, statistical procedures ( Schultz Jr, J.J., Bierstaker, J.L. and O’Donnell, E. )have been undertaken by them so the shareholders and investors can assess the impact of any changes in the assumptions (Shelton, S.W., Whittington, O.R. and Landsittel) taken into account by the management and provide a clear picture to them.
Part-1
Industry Analysis- 
The firm is in the financing business of the home loans.  This firm provides the loans to the people who need the home right now but does not have upfront cash for the same. 
Assuming that like every other home financing firm, they do not accept the deposits, they need to raise the money from banks or non-banking financial institutions, in order to lend the money to the home buyers.  In return the financing company, can claim the rights on the house, since they deal in the mortgage backed securities, in case of the defaults. In case no default takes place, the firm will be able to make money from the difference of the interest rate that they paying for borrowing the money and the interest rate that they charge to the home buyers for providing the loans. 
They need to set aside some provisions for the loans in order for the defaults due to one reason or another.  This might include the job loss, unexpected losses, other credit requirements etc.  When such event occurs, the home financing company takes the custody of the home and sells it in the secondary market or might sell it to someone asset restructuring firm. However, this might not yield the market prices due to the urgency of the event and hence, there will be some losses to the financing company.
This is how the industry works. Now the auditing firm needs to understand the industry thoroughly and the trends that have been present recently.  Accordingly, they need to take the judgements (Blay, A.D., Sneathen Jr, L.D. and Kizirian, T.) when the financial statements are prepared and based on the same the siding firm needs to ensure that there are no misspecifications as far as the reporting is concerned and no investors or shareholders, who trust the financial statements, are misguided. 
Environment analysis –
Environmental analysis play a major role in the strategic planning of the organization and more importance should be given to this while devising a long term strategy for the same.
As far as the economy and environment analysis is concerned, the auditors need to understand the changing consumer trends for the home loans at a holistic level.  How the trends around the income per capita,  GDP growth,  disposable income is changing which can give us a good set of insights around the home financing industry and how it can impact the growth of the industry and how it can impact the defaults and loan losses in the industry. 
Also, the auditors need to keep a close eye on the inflation, infrastructure activity, unemployment data, foreign exchange data, political stability, extensive PESTEL analysis to assess the impact of these external variables on the business.
Company Analysis –
As compared to the other firms in the industry and industry as a whole, the firm has been growing significantly at a faster pace. For these higher revenue and subsequently higher profits, we need to assess the practices followed by the firm.
Key matters –

1. HS has been consistently more profitable than the industry average by marketing mortgages on properties in a prosperous rural area which has experienced considerable growth in recent years. HS packages and sells mortgages to large investment trusts. Despite recent volatility of interest rates, HS has been able to continue selling its mortgages as a source of new lendable funds.
a. First and foremost, the firm has been tapping the markets which are located in the rural and suburban areas where due to faster infrastructure development, the growth in the home buying by these population and loan requirements for them is higher and hence, the firm is generating higher revenue.
b. Audit firm needs to take into the account of the...