The object of this assignment is to assist students to develop critical analysis skills in relation to materiality used for the audit, analytical review, audit procedures and forming an opinion.
Assume you are part of the audit engagement team for your chosen listed company. The most recent annual report is the draft annual report for your company. You MUST only use the annual report of the company that you have been allocated. You can find the annual report online on either the company’s website or the ASX website at https://www.asx.com.au/asx/research/listedCompanies.do
Click on the company code you have been allocated. You should use the group annual report if that is available. For example, in this screenshot of Westpac you can see on the right hand side, there is a pdf document available for 2019 Westpac Group Annual Report. (this is an example only, do not use WBC for your report).
There are three sections to this assignment. Each section includes a component for communication skills. Communication with clients is an imperative necessity for auditors and excellent writing skills are expected from professional accountants, therefore please write your answers carefully and clearly
- Determine the level of materiality to be used for the audit of the group accounts for the year ending in 2019. Your answer should include a discussion of the nature of materiality, and a description of what materiality represents in terms of the audit of a set of financial statements, and should discuss the different bases and considerations employed in arriving at materiality. Explain the rationale behind your choice of a certain level of materiality. Provide a quantitative estimate of materiality for your company.
- Review the various draft notes and disclosures accompanying the draft annual report. Highlight those that may have significance to the audit, eg. Contingencies, and outline the audit procedures that you will need to perform.
- The partner has requested you to prepare a preliminary analytical review on the information provided by your company. The partner suggests that as a minimum you address key balance sheet and profit and loss ratios over the period 2016 to 2019. Based on these results and the nature of your company’s business and its markets, outline the apparent trends and changes in these ratios, the key risk areas for the audit and the matters that will have to be addressed in the audit plan. Give examples of relevant assertions and at least one audit procedure for each assertion.
- 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 your review of the cash flows, evaluate the going concern risk of this company. What audit procedures would you recommend to address this risk.
- Review the audit report of the 2019 financial report. State what type of opinion was expressed? Are there any additional sections or paragraphs indicating any audit issues? If any, describe the nature of these issues in detail.