ACCT20075 Auditing And Ethic Corporate Planning Essay

Question:

Review the statement of cash flows. Which category of cash flows provided the majority of cash inflows?

Which category had the greatest outflows?

Identify the primary cash receipts and cash payments during the year.

What were the main non-cash financial and investing activities?

Using the results of questions 2 and 4, evaluate the going concern risk of this company.

What audit procedures would you recommend to address this risk.

Answer:

Introduction

Organization is accompanied with the complex set of activities in which various functions are undertaken to achieve the set objectives and goals. Every Organizaiton needs to follow proper IFRS rules and standards while preparing their financial statements. Auditors are the person who checks the true and fair view of the financial assets and books of account of company. These auditors assists in evaluating whether company has complied with the all the applicable laws and international accounting standards while formulating the business transactions and books of accounts. The main motive of the audit and assurance program is to strengthen the transparency and pass the report that company has complied with the applicable accounting standards while formulating the financial statements. In this report, Telestra (TlS) has been considered in this report. The financial statement of company and undertaken audit and assurance program of company has been evaluated in this report. This current report focuses on the audit and assurance materiality concept and audit process which needs to be considered by auditors while audit and accounting. The financial statement of Telestra (TlS) has been evaluated to determine whether company has complied with the auditing and accounting standards. After that, cash flow statement and cash inflow and cash outflow have been assessed to determine the highest and lowest flow of cash from the business.

Answer to section-1

This section focuses on the materiality concept of account and audit which divulges the concept that quantity that could result to differences in the user’s opinion. Materiality concept strengthens the assurance on the prepared accounts of company. However, as per the accounting and auditing standards and associated business risk, it is found that there are some inherent errors and frauds in the financial statement of Telestra (TlS) which could not be detected by the audit procedure. Nonetheless, omission and misstatements occurs in the financial statement result to materiality amount. As per the ASA 320 and 322 it is divulged the concept of materiality in planning and performing audit focuses on or emphasis upon the auditor’s responsibilities and assurance towards the true and fair view of the financial statements of company (Telestra Company, 2017). It is analyzed that rightness of materiality and application of the audit concept is based on the professional judgement of the auditors and accountants. The auditors could use the maternity concept while determining the inherent risk in the financial statement of company (Louwers, et al. 2015). For instance, it is analyzed that the certain account balances or the class of financial transactions recorded in the financial statements. In the materiality concept, it is given that auditors could set low amount of materiality level when the risk level of company is kept high and vice-versa. This type of materiality level set up in the process is called the performance maternity. The materiality level is set up for instance, 1% of revenue, and 5% of revenue .5% TO 2% of revenue or expenses. It is analyzed that Telestra (TlS) has been facing high fluctuation in its profit earning capacity. In order to analysis the maternity concept the major key indicator would be profitability, changes in the equity share and other qualitative aspects of organization. The materiality level is determined on the basis of industry performance, market condition, misstatement and fraud and errors in the financial statement. After evaluating and analysing the annual report of company, it could be inferred that Telestra Company has fluctuation of 22% in its net profit which have reflected that company has changes in its business outcome throughout the time. Company had net income of 2,888, 4,019 in 2013 which increased to 3,808, 4,049 in 2017. However, due to the changes in the taxation policies and accounting standards, company had to reduce the recording of the unnecessary expenses in its income statement (Telestra Company, 2017). The materiality level set up in the process was set up or assumed to be AUD 1500000. The main highlight and details shown in the notes to account of the financial statement of company reflected that company had to diversify its business in other business sectors with a view to strengthen its profitability. In addition to this, company also established harmonization in its domestic and international accounting frameworks. Company had to undertake the different amendment accounting standards and tax policies while preparing its financial statement with the changes in time (Telestra Company, 2017). It would not only strengthen the true and fair view of financial statements but also assists in increasing the transparency of the business transactions (Mala, & Chand, 2015).

Answer to section- 2

Audit is accompanied with the several processes and work system which is implemented to evaluate and analysis the fair view of the prepared financial statements. Auditors pass their disclaimer on the checked financial statement in their audit report as may be they found. The preliminary analytical review are applied or used at the planning stage of audit to identify the basic information about the company. There are different international financial standards and laws are followed by the auditors while auditing the accounts of company. As per the AASB 300, planning of the audit of the financial report of company states those auditors needs to evaluate the viability and risk associated with the business functioning of Organizaiton. In addition to this, AASB 520 is also assessed to determine the analytical procedure which will assist auditors to analysis the nexus between financial and non-financial information. This information will be useful for auditors to determine whether company is having sustainable business practice or not in long run. However, the analysis of the financial statement could be done by undertaking the financial ratio and other financial analysis tools of company (Argenti, 2016).

KEY RATIOS

2014

2015

2016

2017

CURRENT RATIO

1.20

0.86

1.02

.86

FINANCIAL LEVERAGE

2.85

2.87

2.73

2.90

Net profit ratio

39.70

21.32

14.85

37.59

RETURN ON ASSETS (%)

8

8.5

9.5

9.7

RETURN ON EQUITY (%)

10

11

11.5

12.5

RETURN ON INVESTED CAPITAL (%)

9.5

8.5

7.5

10.5

RECEIVABLES TURNOVER

7.4

744

7.56

7.95

Debt to equity ratio

.98

1

1.02

1.05

After evaluating the financial performance and business growth of Telestra Company, it could infer that company has increased its business profitability and liquidity position in long run. However, with the increase in the debt funding, company might face issue related to high financial leverage (Dow, Kevin Weidenmier, Marcia, & Shea, Vincent 2013). It is analyzed that company needs to lower down its financial leverage if it wants to sustain in market for longer time. Furthermore, dividend payment of company should also be increased then only it could attract more stakeholders. It is analyzed that company should focus on increasing the capital value investment in its operating activities and current assets if it wants to increase its overall profitability (Elder, Beasley, & Arens, 2011).

KEY RISK AREA

AUDIT ASSERTION

AUDIT PROCEDURE

Fixed assets such as building, machineries and plants

Existence test

The existence test needs to be undertaken to evaluate the financial statement of Telestra Company to identify whether the plants, machineries and other fixed assets shown in the accounts are real in existence till the reporting date. This test is used to identify the true and fair view of financial statement of company (Karapetrovic, and Willborn, 2010).

Receivable

Right and obligation test

Company may undertake the benefit of embezzlement in its books of account by showing wrong receivables in its books of account. . This risk is reduced by auditors by undertaking the management representation letter.

Overall sales of company

Occurrence of events

Auditors need to assess whether the sales shown by Telestra Company is true or not. They need to assess the invoices and books of account for evaluating the true and fair view of sales.

CURRENT LIABILITIES

COMPLETENESS

The main risk of recording of the current liabilities could be that Telestra Company might not record total liabilities which may reflect the falsified statements. Auditor needs to detect this issue by following proper audit program (Kunz, 2017).

Answer to section- 3

Review and assess the consolidated financial statements of company

The cash flow statement of Telestra Company is accompanied with the operating cash inflow, investment cash inflow, and financial cash inflow activities. The cash inflow from investing activities of company has been negative AUD $ 3,91million. It reflects that company kept higher cash outflow due to its increased business investment. The financing activities have also tended to be the activity that entails the majority cash outflow. The major cash outflow from the business activities of organization was AUD 5050 million. It reflects that company had to face issue with its high cost of capital due to increased cash outflow.

Primary cash receipt of company

The main cash inflow from the primary cash receipt of Telestra Company would be sale of investment, sale of property and plant, proceeds from the sale of shares and bonds.

The primary cash payment of company would include purchase of property, payment to debt holders, and investment in other companies for buying their shares for investment purpose (Louwers, et al. 2008).

Non-cash financial and investing activities

Telestra (TlS) company has kept non-cash financial activities such as write off on debts, credit loss to its debtors. On the other hand, non-cash investing activities includes acquiring assets from other company by entering into strategic alliance without any consideration.

Going concern risk of Telestra (TlS) and audit procedure

It is analyzed that company invested in buying new machines and plants with a view to expand its business in other market segments. However, changes in policies and accounting rules may also reflect the viable risk in the recorded statements in the books of accounts of organization. Auditors could gather sufficient and appropriate audit evidences which could be used to ascertain the true and fair view of the data reflected in the books of account of company (Rezaee, et al. (2018). Assertion test is also taken by auditors while auditing the financial statement of company

Review Of Audit Report

After evaluating the audit report of Telestra Company, it is inferred that auditors have given non-qualified audit report stating the same that company has complied with all the applicable auditing and accounting standards. However, details description about the payment and business transactions has been given in the notes to accounts of company. Auditors have given no disclaimer report and classified the financial statement reflecting true and fair view.

Conclusion

The auditor of company needs to analysis the risk of fraud and error which might result to compromise with the true and fair view of financial statements of company. The audit report of Telestra Company and management representation letter given by the board of directors have reflected that company has shown true and fair view of financial statement and also shown that all the assets and liabilities are recorded at their market value.

References

Argenti, J. (2016). Corporate planning and corporate collapse. Long Range Planning, 9(6), 12-17.

Dow, Kevin E., Weidenmier, Marcia, & Shea, Vincent J. (2013). Understanding the links between audit risks and audit steps: The case of procurement cards.(Report). Issues in Accounting Education, 28(4), 913-921.

Elder, R.J., Beasley, M.S. & Arens, A.A., (2011). Auditing and Assurance services. Pearson education., 77(6), pp.69-73

Graham, L., Bedard, J., & Dutta, S. (2018). Managing group audit risk in a multicomponent audit setting. International Journal of Auditing, 22(1), 40-54.

Karapetrovic, S. and Willborn, W., (2010). Quality assurance and effectiveness of audit systems. International Journal of Quality & Reliability Management, 17(6), pp.679-703.

Kunz, R., (2017). Accounting practitioners' perspectives of professional skills and audit capabilities of first year trainee accountants (Doctoral dissertation, University of Pretoria).

Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services. McGraw-Hill Education.

Mala, R., & Chand, P. (2015). Judgment and Decision?Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective. Accounting Perspectives, 14(1), 1-50.

Rezaee, Z., Sharbatoghlie, A., Elam, R. & McMickle, P.L., (2018). Continuous auditing: Building automated auditing capability. In Continuous Auditing: Theory and Application (pp. 169-190). Emerald Publishing Limited.

Telestra Company, 2017, annual report, Retrieved from

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