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2. Management Summary / Abstract / IntroductionFrom the last two decades, BSF Ltd. has been an ASX Listed research company into the researchoperations. The company has a plant with capital expenditure of around $360 million and thereforehas been investing heavily on its feed research. This feed research was based on the high valuepiscavorian 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 valuefish feed. Further one third of the fish were found to be dead which was strongly disproved byvarious environmentalists and the CBC (2016).The diversion of the human quality food crops directly into the growing fishes was seen to be ascritical issue as diversion of low values fishes into the production. This issues was seen to be criticalas it affects the well-being of the poor population and in turn proves to be beneficial for the richones. (Enduta, A., Jusoh, A., Ali, N., & Wan Nik, W. B., 2011).Due to this issue, the cases ofstarvation and malnutrition are seen to increase.Most of the issues have openly being accepted by the company and now the company is working onthe uses of bacteria for the production of fish feeds from recaptured methane gas, sugar caneresidues and wood chips. Although the company is believed to have gained some success but theproject is coming out to be highly capital intensive. In order to comprehend the same, $160 millionAUD in research and $200 million AUD on development cost have been invested by the Company ifthe Company official reports have to be believed. Furthermore, in order to spend at least $100million AUD on aquaculture feeds annually, CommonwealthScientific and Industrial ResearchOrganization, Federal Government Australia has granted the organization a whopping $500 millionAUD.In 2013, a total of $500 million AUD investment was done on the research and developmentdepartment and a further $200 million AUD were committed for the alternate aquaculture feedsdevelopment cost.Further it was seen that a market value of patents were expected in the companyand generated around $700 millionCompany 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 asto make sure that all the audit procedures involved in the must be known by him due to knowledgeof 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 variousoperations like:a.Assessment of all the risks and identification of the problemsb.Audit should be planned and performed effectively and efficientlyc.Evaluation of the audit evidence.Without the commensurate benefit a lot of time will be taken in order to produce a conventionalaudit procedure. All the vital parts of the BSF Ltd must be understood by the auditor of thecompany. The understanding of all the businesses requires that all the promoters and their intentionmust 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 inthe working patterns. When all the internal control systems are evaluated it would be helpful for allthe 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 criticalrole 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 youraudit firm accept the audit assignment of BSF LtdThe audit risk of any assignment is seen to a multiplicative factor of control risk, inherent risk andthe detection risk. For assessing the inherent risk, a professional judgement must be used by theauditor for evaluation of the many factors like unusual pressure on the management, loweringquality of the accounting systems etc. with respect to the experience of the audits as compared tothe 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 themanagement, managerial personnel and their turnover, experiences and their knowledge along withthis the motivational situations in the management are seen to misstate all the financial statementleading to unsatisfactory financial performances. Furthermore the technological upgradation is alsoprone to the nature of the entity of the business. It has been estimated that the inherent risk isestimated to be around 90% implying the simple fact that the decision making of the company is notsatisfactory in nature and requires a lot of attention. Furthermore various risks are seen to beinvolved in the top managerial decisions. All these facts have been quite evident from the result ofthe failure of projects in the 2013 session. Additionally the limitation of the mind set was seen in thecompany due to making short profits making it one of the biggest set for the organization. All theoperations 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 materialmisstatements were seen leading to the risk. The case study already stated that the control riskswere around 5% implying that assignments done in the second as well as bottom level are done in areliable 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 asdetection risks. The detection risks are further increased during the period where voluminoustransactions are performed and the auditor is not able to vouch for the bills and supportive. In thepresent case, it can be seen that the transactions are being done almost daily making it complicatedfor all the auditors to rely on the financial statements of whole organization. Therefore the auditorsare left with the option of relying on independent auditors or the joint auditor. It is always observedthat the detection risks are extremely high and are simply not acceptable in any organization leadingto disappointment amongst the stakeholders.The assignments must be taken or not depends on the inherent risks but due to variousqualifications and the disclaimers the auditors are able to incorporate their audit reports forjustifying all the assumed responsibilities. The auditor has the capability of assuming the company’sresponsibility in case he is able to manage the inherent risk therefore we can say that the progress ofthe company is in accordance with the progress of the auditor leading to high efficiency in decisionmaking process and the working of the management. In case of any confusion and the risk ofinherent 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 itemsAudit program usually involved the factors like audit documentation, plan, scope of work along withthe usage of techniques (Stoel et al, 2012). The BSF Ltd requires Stock Exchange compliances andvarious other reporting requirements. These compliances and all their files and information need tobe verified and reviewed from time to time. Along with this there is a necessity for checking theMemorandum of Association so as to make clear the object clause. In case this object clause isassociated with the research and development department there is a need for the auditor to assessthe adequacy of the human resource along with their compatibility. Internal control system must bechecked on the timely basis along with which all the qualification parameters must be validated andverified. The management needs to identify with the control measure and auditor’s approval onprevention of the leakage of information is highly critical. Therefore the research must be performedwith high level of confidentiality and a service level agreement must be documented. ISO auditsmust be checked for high quality and safety purpose along with checking the safety measures for theemployees working in the laboratories.