Answer To: ACCT6006 Assessment 3 Group Case Study Page 1 of 6 ASSESSMENT BRIEF Subject Code and Name ACCT6006...
Akash answered on Nov 21 2021
AUDITING THEORY AND PRACTICE
Table of Contents
Introduction 3
1. Identify at least three inherent risks that you would have to consider for each company in the audit planning phase and justify your answer. Cite the relevant ASAs/ISAs to support your answer. 3
2. Which audit procedures and/or tasks would you have planned to carry out in response to the inherent risks identified above? Cite the relevant ASAs/ISAs to support your answer. 6
3. Carry out an analytical review on the financial statements of these companies in the planning phase and identify areas of concern (high risk, problem areas) or comfort. Identify at least three areas for each company and justify your answer. 7
4. Which audit procedures and/or tasks would you have planned to carry out in response to the high risks or problem areas identified above? Alternatively, in relation to which area would you have minimised your evidence gathering procedure? 10
5. Discuss ethical and legal responsibilities/liabilities of the auditors in case they would have given an inappropriate audit opinion. Discuss safeguards available to the auditors. 11
Conclusion 12
References 14
Introduction
In terms of professional judgment, key audit matters can be called those matters that gives a true and fair view as regards to consolidated financial position of the Telstra and Woolworths as on 30th June 2019. This report also delves deep into the consolidated financial performance of these two companies for the year ended on that date. For being compliant with the Australian Accounting Standards as well as the Corporations Regulations Act 2001, different auditing matters and techniques have been addressed and discussed contextual to the audited financial report on a comprehensive level. Furthermore, personal, systematic and critical opinion thereon have been formed to identify inherent risk, applicable audit procedures applicable for mitigation of such risks and analytical review of the financial statements identifying areas of concern or comfort. This report also explores the substantive audit procedures for addressing the risks identified pertinent to basis of audit report.
1. Identify at least three inherent risks that you would have to consider for each company in the audit planning phase and justify your answer. Cite the relevant ASAs/ISAs to support your answer.
The susceptibility to risk of material misstatement in absence of proper control is known as inherent risk. In the opinion of Knechel and Salterio (2016), the auditors use their judgement, knowledge and approximation as regards to the type of transactions the concerned company is having, the assets owned by the company, nature of financial instruments used and above all the nature of industry it is participating in. Here, the audited financial statements and annual reports of Telstra Corporation Ltd and Woolworths Group Ltd have been illustrated.
For Telstra, the balance sheet shows a strong position of net assets worth $14,530 million (Telstra, 2019). Hence, such high revenue generating entity inherently have more complex financial calculations and presentation which are more likely to be misstated. Here, as identified by Nicoll (2016), auditors should be more vigilant about line items like cash in hand, technological assets and inventory stock. By nature, cash in hand at the end of an accounting period is more susceptible to manipulation (theft or incorrect input) than a bulk stock inventory item. As the company is continuously making new and newer developments and investments in technologies and IT assets, Telstra sustains a higher risk of having huge amount of obsolete inventory or slow-moving products than other companies having a more labour-intensive approach. The last five-year financial trend analysis shows that Telstra did not perform well as compared to its competitors. In that case, as opined by Hay, Stewart and Botica Redmayne (2017), auditors must ensure that no misstatement or untrue picture has been exhibited solely meeting certain covenants. If a company, in past, has reported any particular balance or historical cost improperly, it tends to have a greater incentive to misstate it again.
Source: William Jr., Glover and Prawitt (2016)
Similarly, the complexities involved in case of Woolworths are mostly related to the large, frequent and ever-changing financial rules and regulations. The large number of employees (about 1,15,000) and outlets and service providing centres in 995 locations across Australia are naturally demand for more clear, concise and comprehensive process of computation and assessment (Woolworths, 2019). Woolworths have complicated and longstanding relationships with multiple parties as over the years it has acquired a number of grocery brands like Roelf Vos, Purity and Safeway. The Woolworths Group acquired the last Safeway store in 2017 (Woolworths, 2019). Such merger, acquisition and amalgamation have resulted in involvement with several entities at once demanding control of off-balance sheet entities and special-purpose vehicles. Furthermore, the supermarket giant has large numbers of client relationship, investors and stakeholders at different organisational structure level. Hence, as stated by Minnis and Shroff (2017), auditors must be careful about related parties as they are notoriously less loyal and transparent than separate entities. Furthermore, non-routine transactions or accounts may involve inherent risk. Any unique or unusual event in the current year or past financial years, such as accounting for acquisition of another company or fire damage require the auditors to focus more diligently. Henceforth, besides control risk and detection risk, inherent risk is the most pernicious of all other major risk components.
2. Which audit procedures and/or tasks would you have planned to carry out in response to the inherent risks identified above? Cite the relevant ASAs/ISAs to support your answer.
By utilising the following techniques, the above-mentioned inherent risks for both Telstra and Woolworths might be eliminated:
Theft or Fraudulent Reporting: Any susceptibility or...