HI6026 Audit Assurance and Compliance Assignment Sample
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Introduction
In order to enhance the internal control in the organisation, it is essential to concern in the auditing process. It allows the organisation to minimise the chances of fraud in the financial statement. It is because the main purpose of the auditing process is to identify the validity and reliability of the financial transaction that are recorded in the company financial statements such as income statement, balance sheet and cash flow statement (Caanz, 2016). In this way, the main purpose of this report is find out the requirement of the auditing process and need of expertise in the auditing in the business process of DIPL. This report also identifies five factors that would influence on the deter determination of the preliminary figure for overall materiality for the 2017 audit of DIPL.
Answer 1: Requirement of using the expert in the audit of DIPL
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Necessary Issue |
Condition / Decision need to involve audit audit expert relates to this issue |
| · At the same time, company is also involved digital business activities. For this, it has a digital library for its clients that provide the facilities them (Ferrell & Fraedrich, 2014). In the context of the payment methods, it is found that company pay in the different currency. In this, DIPL buys the material from Asian countries. In order to make payment to supplier, DIPL pays them in their country currency.
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· As concerning of this condition of the company there is needed to use the audit expert. |
| · At the same time, company is also involved digital business activities. For this, it has a digital library for its clients that provide the facilities them (Ferrell & Fraedrich, 2014). In the context of the payment methods, it is found that company pay in the different currency. In this, DIPL buys the material from Asian countries. In order to make payment to supplier, DIPL pays them in their country currency.
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· As concerning of this condition of the company there is needed to use the audit expert. |
| · By the help of evaluating the financial performance of the company, it is found that total assets of the company are 12930000, 15903900 and 26147991 for the financial year 2015, 2016 and 2016 respectively. It shows that there is high growth of increasing the total assets in the financial year 2017 as compared to year 2016. Due to this, it is essential to know the reason behind this because it is required to identify that whether there is any fake entry of assets or not (Franzetti, 2010).
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· As concerning of this condition of the company there is needed to use the audit expert. |
| · Furthermore, it is found that in the 2017, deferred revenue is 697500 that were zero in the last financial year. Hence, it is also important for the DIPL to identify the reason and justification behind the deferred revenue in the year 2017.
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· As concerning of this condition of the company there is needed to use the audit expert. |
| · In the same concern of this, interest bearing liabilities are also evaluated in 7500000 in the financial year 2017 that was null in the 2015 and 2016. Due to this, a high growth is found in the total liabilities of the company. Income statement of DIPL shows that the revenue from the operation of the company are 34212000, 37699500 and 43459500 for the financial year 2015, 2016 and 2017. But, on the other hand, profits after tax of the company are 2359190, 2291362 and 2972183 for the financial year 2015, 2016 and 2017. It represents that there is irrelevancy in the revenue and profitability of the company. | · As concerning of this condition of the company there is needed to use the audit expert. |
On the basis of the above discussion, it can be said that DIPL will be necessary to use the work of an expert in the audit of DIPL. It will be helpful for DIPL and its management and stakeholder to cause of the changing the financial element in the way.
Answer 2: Preliminary figure for overall materiality
The below that table identifies that five major factors that have influence on the determination of the preliminary figure. The section B of the table explains the reason behind the factors identified that are relevant to calculation of the preliminary figure for overall materiality. The section C of the tables shows how these factors will influence the preliminary figure for overall materiality of auditing process of DIPL.
| a.) Factors | b.) Explanation | c.) Influence upon preliminary overall materiality |
| 1. Qualitative information – Qualitative information is associated with the qualitative characteristic of the business. Qualitative characteristic of the business are used by the auditors to conduct an overall analysis of the business. It provides the almost overall analysis of the performance of company. Qualitative characteristics contain the significant information on the business that is helpful for the business owner to make the further decision (Furnham and Gunter, 2015).
2. Extent of business – In the business environment, it can be seen that there are various kind of the companies on the basis of the extent of business. It this, the extent of the business can be recognised as the boundary of the business where the company is doing business. Mainly, the companies do business in tow extent such as domestic and international extent. DIPL is doing business at the international level because it purchases raw material from Asian country and also has digital library that enables it to sell in the outside (Gay and Simnett, 2015). 3. Quantitative information – The mean by the quantitative information in the business from the information are presented in the financial statement of the company. The financial statement of DIPL includes the balance sheet, income statement notes to the financial reports. These financial statements determine the economic performance of the company with depicts its ability of the generating the profitability by the operation. At the same time, the quantitative information plays significant role in determining the overall performance of the company. 4. Objectives of internal control set by the management – The objective of the internal control set by the management is a significant factor that would influence your determination of the preliminary figure for overall materiality for the 2017 audit of DIPL. However, the main objective of any organisation behind the set of the internal control in the organisation is to reduce the chances of the fraud activities with the financial statement of the company (Gul & Fung, 2014). 5. Purchase and sales process of the company – It is also a main part of any business because without the sales and purchase process business is not possible. In the determination of the preliminary figure for overall materiality for the 2017 audit of DIPL, auditor also analyse the sell and purchase process with evaluating the each aspect carefully. DIPL purchases 50% raw martial from Australia and 50% raw material from the outside. Hence, the different process in purchasing can affect the preliminary figure for overall materiality.
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1. Qualitative information – In the audit process, the role of Qualitative information of the business plays important role because qualitative information factors determines the nature of business for which the calculation of the calculation of the preliminary figure for overall materiality is being proceed. In this, several questions can be asked by the management and employees of the company by the auditors including the size and market position, reputation, capital structure, type of institutional ownership, labour or capital intensiveness and regulatory risks / opportunities (Moroney et al., 2014).
2. Extent of business – This factor also has the ability to influence of the calculation of the preliminary figure for overall materiality that is why to say this is an important factor in the calculation preliminary figure for overall materiality is not wrong. On the basis of the extent of the business, it is possible that there may be difference in the calculation of preliminary figure for overall materiality. Due to this, extent of business is concerned as the factors that would influence the preliminary figure for overall materiality. 3. Quantitative information – In order to calculate of the preliminary figure for overall materiality, there is need of quantitative information because it is not possible to calculate the preliminary figure for overall materiality without the quantitative information (Moroney et al., 2012). It is highly important because the calculation of preliminary figure for overall materiality is based on the available quantitative information. The validity and result of the preliminary figure for overall materiality in the auditing process depends on the quantitative information presented in the financial statement of the organisation. 4. Objectives of internal control set by the management – The objectives of internal control set by the management and extent of achievement of these objective. By the help of this factor, auditor can measure the organisation performance to achieve the predetermined objectives. 5. Purchase and sales process of the company – The organisational process regarding the sales and purchase of the material, good and service is also a reason of influence in the calculation of the preliminary figure for overall materiality (Pitt, 2014). In this, complexity and nature of supplier are concerned.
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1. Qualitative information – Preliminary figure for overall materiality can be influenced by the quantitative information if the auditors found error and doubt. Error and doubt means that there is lack of the proper non financial information at the workplace. Due to this, it is important for DIPL to provide the all significant information to increase the score of the preliminary figure for overall materiality (Sandretto, 2011).
2. Extent of business – The extent of the business of the DIPL is large because companies is dealing in the international market and making the payment of different currency. Due to this, it is possible that auditor understands there may be some error in the financial statement. It will lead to the low score of preliminary figure for overall materiality. 3. Quantitative information – It can be seen that all significant financial and quantitative information are presented in the financial statement of DIPL. But, there is lack of the proper information on the cash flow of the company (Whittington & Delaney, 2011). Due to this, auditor can concern during the calculating the preliminary figure for overall materiality. 4. Objectives of internal control set by the management – It is also significant factor that shows the firms’ ability to minimise the chances of the fraud in the business. A high concern of the management toward the internal objective can increase the score of the preliminary figure for overall materiality in the auditing process (Zeng, 2012). 5. Purchase and sales process of the company – In influencing the preliminary figure for overall materiality, the role of the sales and process of the company is important because complexity of this process leads to influence in the preliminary figure for overall materiality. A simple process will lead high score in the preliminary figure for overall materiality in audit process of DIPL.
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Conclusion
From the above discussion, it can be concluded that in the audit process, preliminary figure for overall materiality is a significant step because it represents the maximum amount by that an auditor believes the statements are misstated and still not impact on the decisions of reasonable users. In the auditing process of DIPL, during the preliminary figure for overall materiality, there are some factors that would be concerned that are qualitative information, extent of business, quantitative information objectives of internal control, set by the management and purchase and sales process of the company.
References
Caanz, S. (2016) Auditing And Assurance Handbook 2016 Australia. Australia: John Wiley And Sons.
Ferrell, O. C. & Fraedrich, J. (2014) Business ethics: Ethical decision making & cases. USA: Cengage learning.
Franzetti, C. (2010) Operational Risk Modelling and Management. USA: CRC Press.
Furnham, A. and Gunter, B. (2015) Corporate Assessment (Routledge Revivals): Auditing a Company’s Personality. UK: Routledge.
Gay, G. and Simnett, R. (2015) Auditing and Assurance Services in Australia, Sixth Edition. Australia: McGraw-Hill Education.
Gul, F. A. & Fung, S. (2014) Hong Kong Auditing: Economic Theory & Practice. Hong Kong: City University of HK Press.
Moroney, R., Campbell, F. & Hamilton, J. (2012) Auditing, Google eBook: A Practical Approach. USA: John Wiley & Sons.
Moroney, R., Campbell, F. & Hamilton, J. (2012) Auditing, Google eBook: A Practical Approach. USA: John Wiley & Sons.
Pitt, S. A. (2014) Internal Audit Quality: Developing a Quality Assurance and Improvement Program. USA: John Wiley & Sons.
Sandretto, M. J. (2011) Cases in Financial Reporting. USA: Cengage Learning.
Whittington, R. & Delaney, P. R. (2011) Wiley CPA Exam Review 2012, Auditing and Attestation. USA: John Wiley & Sons.
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