Audit Report on BSF Ltd.: Financial Risks, Social Responsibility

This report provides a detailed analysis of an audit assignment for BSF Ltd., a research company facing challenges with its fish feed project and financial performance. It examines the auditor's approach, including risk assessment (inherent, control, and detection risks), and the factors considered before accepting the audit. The report addresses concerns regarding journal entries for research and development transactions, particularly the accounting of a substantial grant from CSIRO. It also explores the company's claims of social responsibility and environmental friendliness. The auditor's role and responsibilities are clarified, emphasizing the focus on financial aspects and the avoidance of material misstatements. Finally, the report touches upon the company's efforts to increase revenue through bacteria-based feed research and the importance of patenting innovative ideas.

2. Management Summary / Abstract / Introduction
From the last two decades, BSF Ltd. has been an ASX Listed research company into the research
operations. The company has a plant with capital expenditure of around $360 million and therefore
has been investing heavily on its feed research. This feed research was based on the high value
piscavorian fish. But the project failed to be executed and at the same time it failed to thrive.
Therefore, efforts were put for working towards conversion of a 30 kg plant into a 1 kg high value
fish feed. Further one third of the fish were found to be dead which was strongly disproved by
various environmentalists and the CBC (2016).
The diversion of the human quality food crops directly into the growing fishes was seen to be as
critical issue as diversion of low values fishes into the production. This issues was seen to be critical
as it affects the well-being of the poor population and in turn proves to be beneficial for the rich
ones. (Enduta, A., Jusoh, A., Ali, N., & Wan Nik, W. B., 2011). Due to this issue, the cases of
starvation and malnutrition are seen to increase.
Most of the issues have openly being accepted by the company and now the company is working on
the uses of bacteria for the production of fish feeds from recaptured methane gas, sugar cane
residues and wood chips. Although the company is believed to have gained some success but the
project is coming out to be highly capital intensive. In order to comprehend the same, $160 million
AUD in research and $200 million AUD on development cost have been invested by the Company if
the Company official reports have to be believed. Furthermore, in order to spend at least $100
million AUD on aquaculture feeds annually, CommonwealthScientific and Industrial Research
Organization, Federal Government Australia has granted the organization a whopping $500 million
AUD.
In 2013, a total of $500 million AUD investment was done on the research and development
department and a further $200 million AUD were committed for the alternate aquaculture feeds
development cost.Further it was seen that a market value of patents were expected in the company
and generated around $700 million
Company expects a market value of patent so generated at $700 millionif sold in next two years or
$200 million AUD for ten years if produced and sold at a discounting rate of 8%.
3. Steps to undertake before accepting to do an audit and apply them to BSF Ltd:
A thorough knowledge of all the business operations must be known by the statutory auditor so as
to make sure that all the audit procedures involved in the must be known by him due to knowledge
of being in the frame of reference and this would be beneficial in exercising his professional

judgement (Cortez and Hay, 2014). This will be beneficial in educating the auditor in various
operations like:
a. Assessment of all the risks and identification of the problems
b. Audit should be planned and performed effectively and efficiently
c. Evaluation of the audit evidence.
Without the commensurate benefit a lot of time will be taken in order to produce a conventional
audit procedure. All the vital parts of the BSF Ltd must be understood by the auditor of the
company. The understanding of all the businesses requires that all the promoters and their intention
must be clear and in accordance with the business.
It is the auditor’s responsibility so as to interactwith the operation managers which will be helpful in
the working patterns. When all the internal control systems are evaluated it would be helpful for all
the auditors to make sure that substantive procedures can be determine along with the nature,
extent and its timings. In this particular case, the previous audit reports must be referred regularly.
All the ideas and concepts must be referred with the previous auditors which would play a critical
role and will be helpful in development of a basic idea regarding all the gaps in the company.
4. Inherent risk of BSF estimated at 90%, control risk at 5% and detection risk at 80%, should your
audit firm accept the audit assignment of BSF Ltd
The audit risk of any assignment is seen to a multiplicative factor of control risk, inherent risk and
the detection risk. For assessing the inherent risk, a professional judgement must be used by the
auditor for evaluation of the many factors like unusual pressure on the management, lowering
quality of the accounting systems etc. with respect to the experience of the audits as compared to
the audit engagements and all the changes taking place in the since last project. In this organization,
there is a need for the auditor to assess all the risks so as to make sure the integrity of the
management, managerial personnel and their turnover, experiences and their knowledge along with
this the motivational situations in the management are seen to misstate all the financial statement
leading to unsatisfactory financial performances. Furthermore the technological upgradation is also
prone to the nature of the entity of the business. It has been estimated that the inherent risk is
estimated to be around 90% implying the simple fact that the decision making of the company is not
satisfactory in nature and requires a lot of attention. Furthermore various risks are seen to be
involved in the top managerial decisions. All these facts have been quite evident from the result of
the failure of projects in the 2013 session. Additionally the limitation of the mind set was seen in the
company due to making short profits making it one of the biggest set for the organization. All the
operations of the company were associated with the control risks.

With the absence of all the important and vital controls of the entity the quantum of all material
misstatements were seen leading to the risk. The case study already stated that the control risks
were around 5% implying that assignments done in the second as well as bottom level are done in a
reliable manner. All these facts have made it clear that the risks cannot be controlled.
The risks which cannot be detected by the auditor in the financial statements are termed as
detection risks. The detection risks are further increased during the period where voluminous
transactions are performed and the auditor is not able to vouch for the bills and supportive. In the
present case, it can be seen that the transactions are being done almost daily making it complicated
for all the auditors to rely on the financial statements of whole organization. Therefore the auditors
are left with the option of relying on independent auditors or the joint auditor. It is always observed
that the detection risks are extremely high and are simply not acceptable in any organization leading
to disappointment amongst the stakeholders.
The assignments must be taken or not depends on the inherent risks but due to various
qualifications and the disclaimers the auditors are able to incorporate their audit reports for
justifying all the assumed responsibilities. The auditor has the capability of assuming the company’s
responsibility in case he is able to manage the inherent risk therefore we can say that the progress of
the company is in accordance with the progress of the auditor leading to high efficiency in decision
making process and the working of the management. In case of any confusion and the risk of
inherent controls the auditor should not accept the assignment.
5. List of items to be included in Audit program for BSF Ltd. General Coverage plus specific items
Audit program usually involved the factors like audit documentation, plan, scope of work along with
the usage of techniques (Stoel et al, 2012). The BSF Ltd requires Stock Exchange compliances and
various other reporting requirements. These compliances and all their files and information need to
be verified and reviewed from time to time. Along with this there is a necessity for checking the
Memorandum of Association so as to make clear the object clause. In case this object clause is
associated with the research and development department there is a need for the auditor to assess
the adequacy of the human resource along with their compatibility. Internal control system must be
checked on the timely basis along with which all the qualification parameters must be validated and
verified. The management needs to identify with the control measure and auditor’s approval on
prevention of the leakage of information is highly critical. Therefore the research must be performed
with high level of confidentiality and a service level agreement must be documented. ISO audits
must be checked for high quality and safety purpose along with checking the safety measures for the
employees working in the laboratories.

6. Concerns which the Auditor should have for full set of Journal Entries of the Research and
Development transactions from 2013 and 2016 including grant from CSIRO. How CSIRO grant
should be accounted. Allocation of Research and Development costs between expenses and
patents / capital
With a grant of over $500 million AUD from the Commonwealth Safety and Industrial Risk
Organization in 2013, there is a need of accounting in a proper manner. All the important and higher
levels risks and problems while accounting, can be solved by the request letter. In case the prime
motive of this grant was availing of the capital investment then it must be done for reducing the cost
of procuring also. Furthermore, there is a need of a long discussion with the management regarding
the deferred benefit of the grant, then this can be taken as an income deferred in the annual
accounts. First of all the grant must be added to the reserve in the revenue statements and then
later on, in the coming years it can be booked as the income in the same. The revenue items for the
organization involve the research expenditure and development expenditure. The research
expenditure is to be added in the year of accrual / payment and any expenditure so as to avail
benefits in future needs to be amortized as well as capitalized to life.
7. In addition to company’s GPFS, describe their research to be socially responsible and
environment friendly. Is the statement true and fair?
The company was not able to conduct a better and thorough research for their plant based on the
fish feed. Furthermore the failed to take into account all the risks and concerns which were prone to
be raised by the CBC and the environmentalists as the research was primarily on profit based. The
management failed to understand that the reports had to be sustainable in nature and should have
covered almost all the target people and population. Moreover, the policies were not seen to be
sustained for long if they were specifically for a target group and it had to be balanced in its manner.
All the assignments and projects relating to the environment and the living organisms should be
reported with utmost case. The responsibility of the auditor is to focus on the finance part and the
activities impacting the revenues. Social acceptance, human beings and environment are not the
criteria for which he is responsible. The Director is responsible for taking care of all these things and
the auditor is not to be mentioned in these scenarios. The prime responsibility of the auditor is to
take care of the risks, revenue leakages and finally to make sure that no material mis-statements are
present. (Limperg, T. ,1985).
8. The company is finding out various ways for surviving and increasing its revenues like researches
on the bacteria based feed for the aquatic life. Furthermore the organization has prepared
projections and has been seen to forecast profitability on the execution of this idea. Hence there is a

need to patent such innovative ideas. Therefore the promoter is responsible for justifying its work to
the stakeholders and the Stock Exchange bodies and auditor is not even included in the scenario.
The management has used this prospectus so as to solicit funds from the fund providers in the
public. In order to market this product and further to procure fund the idea must be incorporated in
at least a 20 sheet page book. This book must be lucrative and should contain all the relevant ideas
of the project. The only responsibility of the auditor will be to sign true and accurate financial
statements.

References
Enduta, A., Jusoh, A., Ali, N., & Wan Nik, W. B. (2011). Nutrient removal from aquaculture wastewater
by vegetable production in aquaponics recirculation system. Desalination and water treatment, 32(1-
3), 422-430..
Cortez, P., & Hay, D. (2014). Privacy Disclosure and Auditing: An Exploratory Study. Available at SSRN
2271871.
Stoel, D., Havelka, D., &Merhout, J. W. (2012). An analysis of attributes that impact information
technology audit quality: A study of IT and financial audit practitioners. International Journal of
Accounting Information Systems, 13(1), 60-79.
Limperg, T. (1985). The social responsibility of the auditor. Limperg Instituut.