Page 1 of 5 HA3032 AUDITING Assessment Details and Submission Guidelines Trimester T2 2020 Unit Code HA3032 Unit Title Auditing Assessment Type Group Assignment Assessment Title “Developing an Audit...

1 answer below »
choosen company : Downer Edi ltd (Industrials)


Page 1 of 5 HA3032 AUDITING Assessment Details and Submission Guidelines Trimester T2 2020 Unit Code HA3032 Unit Title Auditing Assessment Type Group Assignment Assessment Title “Developing an Audit Program for a selected publically listed Company” Purpose of the assessment (with ULO Mapping) Students are required to: 1.1- Identify and distinguish between tests of controls, substantive tests of transactions and substantive tests of balances. 1.2- Identify and understand when the auditor will undertake substantive audit procedures in response to specific assessed risks of material misstatement. 1.3- Understand how assertions relate to account balances 1.4- Understand how to select the most efficient and effective combination of audit procedures that allows them to achieve the audit objective 1.5– Active participation in an “audit team context” with professional group discussions The following Unit Learning Outcomes are applicable: 1. Demonstrate a thorough understanding of the reporting requirements of auditing standards relating to auditors’ reports. 2. Explain how the audit planning process directs the auditor to obtain adequate evidence to support audit findings and address the importance of materiality in an audit; 3. Explain the process of audit planning to determine risk assessments and an overall audit strategy; 4. Explain the auditors’ obligations with regards to understanding the client’s business and internal controls, and assessing business risks. 5. Achieve a high level of competence in applying prescribed auditing techniques in gathering evidence to satisfy audit assertions Weight 40% of the total assessment Total Marks 40 Marks Word limit Maximum 3,000 – 3,500 words Due Date Week 10 HOLMES INSTITUTE FACULTY OF HIGHER EDUCATION Page 2 of 5 HA3032 AUDITING Guidelines on Submission  All work must be submitted on Blackboard by the due date along with a completed Holmes Institute Assignment Cover Page.  The assignment must be in MS Word format, single spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.  Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style. HA3032 Auditing – Group Assignment Specifications Purpose: The aim of this group assignment is to provide you with an opportunity to design a “risk- based” audit program for a real world company and focus on the “Substantive tests of balances”, which involves substantiating the ending balance of an account(s), which is comprised of multiple transactions, as at a certain year-end date. Assignment Requirements and Structure 1. Students are required to form groups of 4 students group members by completing the “HA3032 Group Form details”. 2. Each group of students group have been provided by unit coordinator, a unique ASX listed company to use for progressive analysis in this group assignment. 3. Prepare a detailed audit program Report [3,000-3500 words] for the client/company in a group of 4 students. Students must use a Report Format with an Executive Summary and Table of Contents. 4. Use publicly available online resources for research purposes. Detail Assignment Tasks: Developing an Audit Program for a selected listed Company 1. Gain an understanding of the nature of the entity and its industry and then identify key business risks. After this is completed, assess where the risks of material mis- statements could be in the financial report. Consider the factors affecting both Inherent Risk and Control Risk. Finally, apply the Audit Risk Model [AR = f (IR, CR, DR)] to the selected company. Which risk rating would you apply (Low, Medium or High) to the company’s inherent risk assessment and control risk assessment? How does this affect your assessment of Detection Risk and Audit Risk? 2. Perform analytical procedures of the Statement of Financial Position and of Financial Performance over the last three years using appropriate ratios and/or metrics. Select four key ratios and provide a brief explanation in the report. This should be presented in a table format. 3. Discuss with your group members which account balances are considered “material”. Explain how you calculated materiality for planning purposes and provide appropriate justification for your decision-making. (Note - Use a table format to structure your answers to questions 5, 6, 7 & 8) 4. Select up to ten different material account balances, at least five assets and five liabilities. 5. For each material account balance selected, list the relevant financial report assertions and Page 3 of 5 HA3032 AUDITING explain why the selected assertions are applicable to each account. 6. Design a comprehensive set of audit work steps for each material account balance, which addresses the selected assertions and which will result in sufficient and appropriate audit evidence being collected for your selected client company. (Assume that a predominantly substantive approach is being adopted) 7. Include a sampling plan, which details how you will use sampling for each material account balance to be tested. How many items will be tested for each test? 8. Refer to some or all of the following websites for further information and research processes: http://www.auasb.gov.au/Home, http://www.asic.gov.au/, www.cpaaustralia.com.au, http://www.ifrs.org, Group Assignment Report - Marking Criteria Weighting % Key Business Risk Identification 4 10% Audit Risk Model – Assessment of Inherent Risk, Control Risk, Detection Risk 4 10% Analytical Review of the selected company, including ratio analysis in a table 4 10% Material Account Balance Identification (Minimum 5 x Assets and 5 x Liabilities) 10 25% Assertions identified – Correct Assertions are stated and explanations are noted 4 10% Audit Program – Audit work steps / procedures are clearly stated and listed. 10 25% Sampling Plan for each material account balance with samples sizes. 4 10% Weight 40 Marks 100% HA3032 Auditing Group Assignment - Marking Rubric HA3032 Auditing Group Assignmen t - Marking Rubric Part Excellent Good Satisfactory Unsatisfactory Key Business Risk Identificatio n (4 marks) Relevant Business Risks have been clearly stated and are appropriate after considered analysis. (80% - 99%) Business Risks are well stated and appropriate to the company selected. (65% - 80%) Business Risks are noted and stated, but they are only generic in nature. (50% - 65%) Business Risks have not been adequately addressed. There is insufficient or irrelevant information noted. (0 - 49%) http://www.auasb.gov.au/Home http://www.auasb.gov.au/Home http://www.asic.gov.au/ http://www.asic.gov.au/ http://www.asic.gov.au/ http://www.asic.gov.au/ http://www.cpaaustralia.com.au/ http://www.cpaaustralia.com.au/ http://www.cpaaustralia.com.au/ http://www.cpaaustralia.com.au/ http://www.ifrs.org/ http://www.ifrs.org/ Page 4 of 5 HA3032 AUDITING Audit Risk Model (4 marks) The Audit Risk Model has been very well understood and applied. All risk components are correctly stated and the Audit Risk Model has been applied correctly to the company selected. (80% - 99%) The Audit Risk Model has been correctly understood and all the risk components are noted. The analysis is sound, but detail is lacking. (65% - 80%) The Audit Risk Model has been satisfactorily applied, but either some minor mistakes are noted or there is a lack of detail in some areas. (50% - 65%) The Audit Risk Model has not been understood, considered or analysed in the report. There is minimal or no real grasp of the concept or it is missing from the report. (0 - 49%) Analytic al Review (4 marks) The Analytical review has been very well performed and includes three years of ratios. All four key ratios are appropriate and presented in a table with sound commentary. (80% - 99%) The Analytical review has been well performed and includes four key ratios. They are relevant and presented in a table with some good commentary. (65% - 80%) The Analytical review has been satisfactorily performed. Ratios are noted and there is some commentary , but there are some minor errors. (50% - 65%) The Analytical review is sub- standard. There are ratios missing. There is no commentary or it is poorly written. The requirements have not been understood. The analytical review is missing from the report. (0 - 49%) Material Account Balance Identificatio n (10 marks) Materiality has been correctly calculated using an appropriate base with explanation. Five Asset accounts and five Liability accounts have been selected and they are appropriate to the company. This section is presented in a table. (80% - 99%) Materiality has been correctly calculated with some explanation. Five Asset accounts and five Liability accounts have been selected. This section is presented in a table. (65% - 80%) Materiality has been stated with some explanation. Asset accounts and liability accounts have been provided, but some are not material. Some Formatting is noted. (50% - 65%) Materiality has not been calculated and it is missing. Account balances are either
Answered Same DaySep 20, 2021HA3032

Answer To: Page 1 of 5 HA3032 AUDITING Assessment Details and Submission Guidelines Trimester T2 2020 Unit Code...

Preeta answered on Sep 26 2021
139 Votes
HA3032 Auditing
Audit Program
Contents
Introduction:    2
Key Business Risk:    2
Nature of the entity and industry:    2
Key business risk:    3
Audit Risk Model:    3
Inherent risk:    4
Control Risk:    4
Detection Risk:    4
Risk rating:    5
Analytical Review:    5
Key Ratios:    5
Material Account Balance Identification:    6
Materiality Level:    6
Material Account Balance:    6
Assertions:    9
Audit program:    12
Sampling Plan:    15
Conclusions:    16
References:    18
Introduction:
A business cannot exist without any risk (Nugent and Leidner 2016). There are mainly three types of risks, business risks, non-business risks and financial risks. Financial risks can be further divided
into market risk, operational risk, credit risk and liquidity risk. There are several risk response strategies which can be adopted by a company, it can avoid it, it can accept it, the risk can be monitored and the company can be prepared for it, it can mitigate the risk and transfer the risk (Ciocoiu, Irimescu and Stefpeptenatan 2019). But it is important for business organizations to recognize that risk first in order to take the right risk response strategy.
The main responsibility of the auditor is to find out that the financial statement as prepared by the management of the organization is free from any material misstatement whether due to fraud or due to error (Salem, 2012). But while doing so, the auditor also checks the existing risks in an organization which might have an impact on the financial statement and through auditors the business organizations also identify the risk. Auditors mainly identify the business risks. Both internal as well as external audit can be conducted to identify the risks.
In this report, audit of Downer EDI Ltd or popularly known as Downer group will be conducted to identify the potential business risks.
Key Business Risk:
Nature of the entity and industry:
The organization Downer group is an Australian company. It operates in the construction service industry and provide a lot of related integrated service. It provides engineering and infrastructure management services, rolling stock services, drilling services, mine planning, management services and highway maintenance to the public and private rail, road, power, telecommunications, mining and resources sectors, exploration sectors. It designs, builds and sustains assets, infrastructure and facilities. It operates across Australia, New Zealand, Asia and the Pacific with almost 53,000 employees.
Key business risk:
The business risks which the company is currently exposed to are as follows:
· Economic Risk – Due to recent global pandemic, the economy is highly fluctuating and might go towards recession as per the experts. Due to slow economy, the construction, mining and infrastructure industry has already suffered. The demand for infrastructure in energy, transport, etc. is highly reducing (Bhattacharyay 2010). In this situation, the company might lose some of its potential as well as existing clients.
· Financial Risk – Some financial risks always remain in every business like the debtors amount not being recovered and going to bad debt, unexpected loss, fluctuation in the interest rate, etc (Christoffersen 2011).
· Reputation Risk – It is also very common in all types of companies. The risk always exist that the customers will be unhappy and might attract lawsuit, failure of a product, negative press, etc (Scandizzo 2011). Since the company, Downer is mainly service based so the satisfaction of the customers is very important since a loyal customer will bring more customers.
Audit Risk Model:
The risk of the auditor expressing unqualified opinion based on a material misstatement in the financial statement or weakness in the internal control is known as audit risk (Piercey 2011). The whole audit risk is based on three risks individually, which are inherent risk, control risk and detection risk. The former two risks depend on the organization and the later risk depend on the auditor.
Inherent risk:
Inherent risk refers to the risk of existence of error or omission in the financial statement (Bame-Aldred et al. 2013). Inherent risk in the organization are as follows:
· Account staff often makes mistakes in recording insurance like the premium paid, payments received against a damage, etc.
· Estimates might be wrong regarding provisions, bad debt, etc.
Control Risk:
This risk refers to the fact that the internal control of the company might not be strong enough to detect fraud or error (Jiang and Son 2015). Control risk in the organization are as follows:
· Documents being approved without managers’ duty.
· There is problem in segregation of duties and one staff has too many responsibilities.
· The selection process of the suppliers is not transparent.
Detection Risk:
This risk refers to the failure of the auditor to detect a risk. In this case, the detection risks are:
· Not applying proper audit procedures.
· Incorrect audit testing method.
· Auditor failing to understand business transactions.
Risk rating:
There are multiple risks in all the types of risk, which makes the risk rating quite high for the organization.
Analytical Review:
Analytical review refers to the evaluation of the financial information presented by an organization by drawing a relationship between the financial and non-financial data (Luippold and Kida 2012). This helps the auditor to understand the business of the client and the changes happening in the business so that the potential risks can be identified. Analyzing the ratios of the company is an effective procedure for analytical review.
Key Ratios:
The financial statement of the year 2019, 2018 and 2017 has been analyzed to get the key ratio of Downer.
    Key Ratios
    2019
    2018
    2017
    Current Ratio
    1.08
    1.09
    0.96
    Earnings Per Share
    0.29
    0.08
    0.26
    Debt-equity Ratio
    0.59
    0.50
    0.47
    Return on Equity
    8.19
    2.04
    6.99
Current ratio and debt equity ratio look fine and maintain a similar level. As it is evident, there has been huge fluctuation in earnings per share and return on equity. The level was almost similar in 2019 and 2017 but there was a sudden dip in both the ratios in the year 2018. Both the ratios involve net income and equity. But equity was also used in debt equity ratio and that has not fluctuated. So, the main reason for this can be considered to be fluctuation of net income. The reason for sudden fluctuation in net income needs to be investigated. The amount of equity is high in the company compared to the debts, so the shareholders details need to be checked to find out any related part is the...
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here