A120 Identifying Risks through Understanding the Entity - Audit Programme
Verified
Added on  2023/06/03
|4
|1414
|165
AI Summary
Complete the A120 audit programme for identifying risks through understanding the entity for Comvita Limited. Document the audit work done in the format of audit workpapers and complete the conclusion based on the audit procedures completed.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Scenario Brien& Associates Chartered Accountants (BA) is a registered audit firm based in Auckland. Five of the sixpartners in the firm are licensed auditors in accordance with the Auditor Regulation Act 2011. AstheManagingPartner,Mr.Brienwantstogrowthefirm’sauditandassurance practice.Considering the partners’ extensive experience in auditing FMC reporting entities, Brien has identifieda potential audit client; Comvita Limited, which is listed on the New Zealand Stock Exchange (Note: the entity and its auditoris unaware of Brien’s interest in acquiring the audit). Independence confirmations from all the audit partners of Brien &Associates showed that there are no independence threats in existence between the partners, their families and related entities, and the aboveentity. Brien’s instructions to the audit teams are to evaluate the engagement risk of acquiring the audit of the Comvita Limitedfor the 2018 financial year end. In addition, the audit team is to identify risk factors and assess inherent risk, through performing risk assessment procedures and gaining an understanding of the group.Each audit team will prepare power point slides highlighting the inherent risks. The audit procedures are to be performed in accordance with the requirements of New Zealand auditing standards (ISA(NZ)). BA audit methodology for calculation of planning materiality is shownbelow.The base selected is the one determined to be the driver of value to the business. BaseBaseBase Profit before tax5%Gross profit2%Equity1% Revenue0.5%Total assets0.5% Instructions Audit teams of 3-4 students are to be selected as set out inthe Audit Team Selection and Operation section on the following page. Each audit team is required to complete audit programmes (A100, A110 and A120) and work papers for three sections of the audit file for one entity. The audit team may utilise the group’s annual and interim financial statements and other publicly available information in completing the audit programmes.
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Error! No text of specified style in document.Error! No text of specified style in document. Required 1.You are required to complete the audit programme : A120 Identifying Risks through Understanding the Entity(40 Marks) For the audit programme, you must: i.Document the audit work done in the format of audit workpapers. Cross reference each workpaper to the audit programme in the W/P ref column. ii.Sign off each procedure in the audit programme to show that it has been successfully completed.Enter Yes or No and the auditor’s initials in the PSC?/(Y/N)Initials column. iii.Complete the conclusion, with reasons, based on the audit procedures completed. Notes 1.Marks will be awarded for correctidentification and analysis, interpretation of standards and applicationto the audit of the entity; do not just repeat the organisation’s information. 2.Use the APA referencing system to acknowledge all information from other sources, includingannual and half year reports, financial statementsand website. Refer to: http://libguides.unitec.ac.nz/apareferencing. Confidentiality For the purposes of this assignment, you are to utilise publicly available information ONLYon Comvita Ltd. You are NOT to approach the company, auditors or any of their personnel directly. McKnight & Associates Chartered Accountants Page2
Error! No text of specified style in document.Error! No text of specified style in document. Identifying Risks through Understanding the Entity1(40 marks) A120 Prospective Entity Period ending Objective:To obtain and document our understanding of the entity for the purpose of identifying areas of inherent risk. PSC = Procedure successfully completed Understanding of the entity and possible sources of risk in relation to the following factors: W/P ref. PSC? (Y/N) (Initials)Conclusion Industry, Regulatory & Other External Factors (5 Marks) a)Key industry/sector indicators, trends, constraints and changes b)Impact of economic factors such as interest rates and inflation c)Legal and regulatory requirements d)Key customers, suppliers and competitors 1 2 3 4 Yes Yes Yes Yes Based on the assessment of the business environment, the competitors, customers and suppliers, the past trends and economic factors like interest and inflation, it can be said that the company has been successful in improving in terms of business performance and it has been ethical and corporate governance complaint company in the past. Nature of the Entity & Accounting Policies(based on the latest financial reports of the entityand other publicly available information)(25 marks) a)Management team’s competence, integrity and operating style b)External advisers c)Identification of related parties and transactions d)Financing sources and agreements e)Investments f)Key accounting policies with risk elements g)Significant accounting elements requiring accounting estimates and judgments h)Any other areas of risk. 5 6 7 8 9 10 11 12 Yes Yes Yes Yes Yes Yes Yes Yes With respect to the nature of the entity and the method of accounting being practiced by the organization based on the annual report of the company, it can be said that the company has followed all the relevant accounting policies and prepared the annual financial statements as per New Zealand IFRS. The disclosures with respect to related parties, investments, sources of financing, accounting estimates and judgements and significant accounting policies have all been stated carefully and transparency has been ensured. So, there is minimal risk in this regard. Objectives, Strategies & Related Business Risks (5 marks) a)Nature of business plans and the risks involved b)Entity expansion or disposal plans or changes in products/services c)Any new investments planned (including capital expenditure). 13 14 15 Yes Yes Yes Considering the growing competition in the food industry in New Zealand, the business plans for the upcoming period and the risks are to be assessed and it needs to be checked if the company is having proper plans in place to cope with the same. The risk of acquisition, merger and demerger needs to be separately discussed with the management. Conclusion as a result of understanding the business and completing the procedures above (5 marks) Specific areas of inherent risk of material misstatement are identified as: The specific areas where there is a risk of material misstatements is the internal control and the processes which is being used by the company as there is no conclusive evidence on the same. On the other hand, the costs have increased in greater magnitude or proportion as compared to the overall sales and hence it needs to be assessed if there is no material misstatement involved in the same. The overall assessment of inherent risk at financial statement level is rated as follows: (select one) Low RiskModerate RiskHigh Risk Basis of conclusion: The overall level of inherent risk can be said to be moderate as there is no minimal issue with respect to reporting and the accounting requirements, it is only the internal control, strategy and the control of costs that needs to be assessed well as there seems to be a gap in all these aspects. Prepared by ___________________Dat e __________Reviewed by____________________Date_______ _ 1New Zealand Institute of Chartered Accountants. (2011).New Zealand Audit Manual and Toolkit 2011. Wellington: Author. Page3
Error! No text of specified style in document.Error! No text of specified style in document. Marking Schedule Possible Marks Actual Marks A120 Identifying risks through understanding the entity Industry, regulatory and other external factors ** Nature of the entity and accounting policies ** Objectives, strategies and related business risks ** Conclusion 40 5 25 5 5 TOTAL40 Page4