Preliminary Risk Assessment and Analytical Review of Elmo Software Limited

This document provides a preliminary risk assessment and analytical review of Elmo Software Limited, a leading provider of cloud HR and payroll software in Australia and New Zealand. It includes a computation on planning materiality and a discussion on the quality and effectiveness of independent audit.

Running head : ACC300 AUDITING AND ASSURANCE
ACC300 AUDITING AND ASSURANCE
Name of the Student
Name of the University
Author Note

1ACC300 AUDITING AND ASSURANCE
Table of Contents
AUDITING AND ASSURANCE..............................................................................................2
Preliminary risk assessment of Elmo Software Limited........................................................2
Analytical review of Elmo Software Limited........................................................................2
Computation on planning materiality for Elmo Software Limited........................................2
QUALITY AND EFFECTIVENESS OF INDEPENDENT AUDIT........................................2
Quality and effectiveness of independent audit.....................................................................2
Addressing of the concerns by the regulators, audit professionals and the individual audit
firms.......................................................................................................................................2

2ACC300 AUDITING AND ASSURANCE
AUDITING AND ASSURANCE
Preliminary risk assessment of Elmo Software Limited
Overview of the company
Elmo Software Limited is the leading provider of cloud Human Resource and Payroll
software in Australia and New Zealand. The customer base of Elmo Software Limited
consists of more than 1000 organisations that are spread across 13 different industries
(elmosoftware.com.au/, "Cloud-Based HR & Payroll Software Solutions | ELMO
Software", ELMO(Webpage, 2019) <https://elmosoftware.com.au/>).
Risks that are associated
The firm has a wide variety of risks that are mentioned as under:
 Failure to retain the existing customers and attract new customers: there has been a
noticeable amount of growth of the company in terms of revenue, number of
employees and the base of the customers. On the basis of the projection of Elmo
Software Limited there is expectation of further growth in the future which could
place strain on the current management, operational and financial resources and the
infrastructure that supports the platform of Elmo Software Limited
(elmosoftware.com.au/, "Cloud-Based HR & Payroll Software Solutions | ELMO
Software", ELMO(Webpage, 2019) <https://elmosoftware.com.au/>). Ability to attract and retain key personnel: In the renowned companies, there always
remains a risk of losing the key personnel. There are chances that losing such
personnel or a delay in replacing them might have negative influence on the ability of
the management in the operation of the business and the achievement of the financial
performance targets and the strategic growth objectives.

3ACC300 AUDITING AND ASSURANCE
 Failure of effective management of growth: Elmo Software Limited there has
experienced a noticeable amount of growth of the company in terms of revenue,
number of employees and the base of the customers. On the basis of the projection of
Elmo Software Limited there is expectation of further growth in the future which
could place strain on the current management, operational and financial resources and
the infrastructure that supports the platform of Elmo Software Limited.
There are regulatory, commercial changes that keep occurring in the company,
on which the company has no control, affect the future expansion of the company.
The risk of requirement of more financial resources is always present which affects
the long term, growth of the company. The company may fail to meet the
acquisitions. However it has its own strategic and financial objectives that has helped
in the generation of the synergies and various other benefits (elmosoftware.com.au/,
"Cloud-Based HR & Payroll Software Solutions | ELMO
Software", ELMO(Webpage, 2019) <https://elmosoftware.com.au/>).
 Failure of realisation of benefits from the product research and development: the
company has to bear huge costs in the development of the software and technology. It
takes quite a long time in the achievement of the return on investment. However, it
believes in the employment of the resources towards the innovation of the software
and the technology product. As the quote says that everything comes with a cost, there
remains always a risk that the company may not receive the benefits from such
investments for some years, or for no years at all (Georges Dionne, "Risk
Management: History, Definition, And Critique" (2013) 16(2) Risk Management and
Insurance Review).
 Success of sales and marketing strategy: it is the realisation of benefits from the
investments that is spent on the sales and marketing campaigns that influence the

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future success of Elmo Software Limited. If the company goes through the failure of
such software systems and technology, it will lead to huge losses of customers. Their
legal claims as well as the inability to attract new customers which might have
adversely influence the operating and the financial performance of Elmo Software
Limited (Georges Dionne, "Risk Management: History, Definition, And Critique"
(2013) 16(2) Risk Management and Insurance Review).
Analytical review of Elmo Software Limited
Elmo Software Limited is the leading provider of cloud Human Resource and Payroll
software in Australia and New Zealand. The customer base of Elmo Software Limited
consists of more than 1000 organisations that are spread across 13 different industries. The
local knowledge and support has been a key part of the ongoing success of Elmo Software
Limited.
On the basis of the financial statements which are inclusive of the Statement of Profit
and loss, Cash flow statement and the Balance Sheet, the following ratios are calculated, on
the basis of which an analytical review is being presented.
Working Capital ratio: the working capital ratio, also known as the current ratio, is the ratio
of the current assets to the current liabilities. It is measured to determine the amount of the
current assets that have been used, or are required to meet the current liabilities. The working
capital ratio of Elmo Software Limited is 2.21. It is an indicator that the company has much
more current assets to meet its current liabilities. It has it working capital ratio much above its
ideal ratio, which is a good for the company to retain its financial position in the years to
come.
Debt to Equity ratio: The Debt Equity is the ratio that determine the amount of debt that the
company possesses with respect to the Shareholders fund. It is a ratio that is used to

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determine the financial leverage of the company. The Debt Equity of Elmo Software Limited
is 0.45, because it is a software company, and the assets of the company are not much funded
by debt.
Gross Profit margin: the gross profit margin of a company is evaluated in order to compute
the company’s overall profitability. The Gross Profit margin of the company is 91 percent,
which is a good indicator that the company has the potential to earn better profits in the future
(elmosoftware.com.au/, "Cloud-Based HR & Payroll Software Solutions | ELMO
Software", ELMO(Webpage, 2019) <https://elmosoftware.com.au/>). However it has
incurred a loss, after deducting the operating expenses which says that the company has good
sales but that is not enough to back the operating expenses that are incurred by the company
(Christian Mouillon and Frannois Lherm, "From Assurance To Insurance: Making Audit
Relevant Again" [2016] SSRN Electronic Journal).
Return on Equity: The return on Equity refers to the profitability measure of an entity with
respect to the equity. It is evaluated in order to the potential of the company to used its
investments for the generation of the earnings growth. The return on equity of Elmo Software
Limited is minus 4 percent, which is an indicator that the company is at an alarming stage and
has to bring much innovations in order to perform better in the years to come (Sandra Senft,
Aleksandra Davis and Frederick Gallegos, Information Technology Control And Audit(CRC
Press, 2013).
Computation on planning materiality for Elmo Software Limited
Planning Materiality refers to a convention in auditing that relates to the importance of an
amount, transaction or discrepancies. The International Financial Reporting Standards
Foundation has its objective in the development of a single set of high quality,
understandable, enforceable and globally accepted financial reporting Standards, which are

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based on the principles that are clearly articulated. The audit planning materiality for Elmo
Software Limited is calculated as 2 percent of the Total Assets. The total assets of the
company is 99,329,000, the 2 percent of which is $1,986,580.
QUALITY AND EFFECTIVENESS OF INDEPENDENT AUDIT
Elmo Software Limited is the leading provider of cloud Human Resource and Payroll
software in Australia and New Zealand (Edward Kim, Jee In Jang and Joon hei Cheung, "The
Effects Of Non-Audit Services On Audit Quality, Audit Fee, And Audit Hour With
Controlling For Endogeneity" (2016) 45(2) korean management review). The local
knowledge and support has been a key part of the ongoing success of Elmo Software Limited.
Audit Quality can be defined as the basic and the fundamental and the basic objective
of obtaining reasonable assurance of a financial report that as a whole is free from any kind
of material misstatement. It also aims towards the addressing or communication of the
material deficiencies that are detected, by way of the audit report (Mazlina Mat Zain, Mahbub
Zaman and Zulkifflee Mohamed, "The Effect Of Internal Audit Function Quality And
Internal Audit Contribution To External Audit On Audit Fees" (2015) 19(3) International
Journal of Auditing). The maintenance of audit quality is of absolute importance for the
market and the potential investors.
The independent audit is conducted for the purpose to provide confidence in the
quality of financial reports. The improvement in the quality of audit and the audit execution
consistency is important for the purpose to maintain confidence in the independent assurance
that they provide. If a company fails and the financial statements of the company do not show
a decline in the financial position, then the concerned authorities will question the auditors on
such a mishap (BPP LEARNING MEDIA., ACCA P7 ADVANCED AUDIT AND
ASSURANCE (UK) (BPP LEARNING MEDIA, 2017). Elmo Software Limited is the leading

7ACC300 AUDITING AND ASSURANCE
provider of cloud Human Resource and Payroll software in Australia and New Zealand. The
customer base of Elmo Software Limited consists of more than 1000 organisations that are
spread across 13 different industries. The local knowledge and support has been a key part of
the ongoing success of Elmo Software Limited (Mazlina Mat Zain, Mahbub Zaman and
Zulkifflee Mohamed, "The Effect Of Internal Audit Function Quality And Internal Audit
Contribution To External Audit On Audit Fees" (2015) 19(3) International Journal of
Auditing).
Quality and effectiveness of independent audit
The audit profession plays a vital role in the valuation of a company. It gives the
potential investors the confidence to invest the funds in the company without any confusion
(Robyn Moroney, "Editorial: Regulating Audit Quality - Ramifications And Research
Opportunities" (2016) 20(2) International Journal of Auditing). Elmo Software Limited is the
leading provider of cloud Human Resource and Payroll software in Australia and New
Zealand. The customer base of Elmo Software Limited consists of more than 1000
organisations that are spread across 13 different industries (Hisar Pangaribuan, "AN
EXAMINATION OF VOLUNTARY DISCLOSURE, INDEPENDENT BOARD,
INDEPENDENT AUDIT COMMITTEE AND INSTITUTIONAL OWNERSHIP: FIRM
SIZE AS A MODERATOR" (2019) 2(2) Jurnal Muara Ilmu Ekonomi dan Bisnis).
The local knowledge and support has been a key part of the ongoing success of Elmo
Software Limited. There are various organisation that recognise the role that is played by
audit in the global capital market functioning. The roles that is played by the various
stakeholders get value addition in the process of financial reporting (Joe Christopher,
Philomena Leung and Shane Leong, "Can Employees Be Used To Overcome Independent
Audit Limitations?" (2017) 27(4) Australian Accounting Review).

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The discussions relating to audit quality occur with respect of the alleged failures that
take place in audit. The answer to the question as to why and how an independent audit
occurs, the explicit value is considered for the report of the final audit and the importance of
the procedure of auditing that is consultative (Audit Guide). The concerns that relate to the
audit in Australia, that need to addressed by the regulators, audit professionals and the
individual audit firms are discussed below (Nicolaas Groenewold and James E.H. Paterson,
"Stock Prices And Exchange Rates In Australia: Are Commodity Prices The Missing Link?"
(2013) 52(3-4) Australian Economic Papers).
Most of the Australian Companies face challenges that relate to gathering of sufficient
audit evidence, exercising of due professional care, demonstration of appropriate level of
professional scepticism, interpretation or application of requirements of the Generally
Accepted Accounting Principles, designing of audit programmes and planning engagements.
Moreover, using inquiry in the form of evidences, obtaining of adequate evidence that is
related to evaluating the important management estimates, confirmation of the accounts
receivables, recognising of disclosure of the key related parties, too much reliance on the
internal controls. Furthermore, there are concerns that relate to the Asset Valuation,
Ownership of Assets, representation of the management, and many more (Ziye Zhao and Jing
Zhou, "Independent Directors With Industrial Expertise, Audit Complexity, And Audit Fee"
(2013) 15(1) China Accounting and Finance Review).
Addressing of the concerns by the regulators, audit professionals and the individual
audit firms
The main job of the auditor is to give an attestation that the financial records and the
procedures of accounting comply with the regulatory framework. They undergo the process
of conduction of review of the financial statements and the records in order to confirm the
publicly held companies that meet their legal requirements under the laws. The audit

9ACC300 AUDITING AND ASSURANCE
professionals identifies the root cause of the problem so arouse, made connections with the
organisations and the branches that they possess, went all the way to know their goal and the
objectives and matched how much did they work towards the achievement of such objectives.
The audit profession plays a vital role in the valuation of a company. It gives the potential
investors the confidence to invest the funds in the company without any confusion
(aasb.gov.au/, "Australian Accounting Standards Board (AASB) -
Home", Aasb.Gov.Au(Webpage, 2019) <https://aasb.gov.au/>.).

10ACC300 AUDITING AND ASSURANCE
References
aasb.gov.au/, "Australian Accounting Standards Board (AASB) -
Home", Aasb.Gov.Au(Webpage, 2019) <https://aasb.gov.au/>
Audit Guide
BPP LEARNING MEDIA., ACCA P7 ADVANCED AUDIT AND ASSURANCE (UK) (BPP
LEARNING MEDIA, 2017)
Christopher, Joe, Philomena Leung and Shane Leong, "Can Employees Be Used To
Overcome Independent Audit Limitations?" (2017) 27(4) Australian Accounting Review
Dionne, Georges, "Risk Management: History, Definition, And Critique" (2013) 16(2) Risk
Management and Insurance Review
elmosoftware.com.au/, "Cloud-Based HR & Payroll Software Solutions | ELMO
Software", ELMO (Webpage, 2019)
Groenewold, Nicolaas and James E.H. Paterson, "Stock Prices And Exchange Rates In
Australia: Are Commodity Prices The Missing Link?" (2013) 52(3-4) Australian Economic
Papers
Kim, Edward, Jee In Jang and Joon hei Cheung, "The Effects Of Non-Audit Services On
Audit Quality, Audit Fee, And Audit Hour With Controlling For Endogeneity" (2016)
45(2) korean management review

11ACC300 AUDITING AND ASSURANCE
Lončarski, Igor, "Risk Management (2016)" (2016) 18(1) Risk Management
Mat Zain, Mazlina, Mahbub Zaman and Zulkifflee Mohamed, "The Effect Of Internal Audit
Function Quality And Internal Audit Contribution To External Audit On Audit Fees" (2015)
19(3) International Journal of Auditing
Mat Zain, Mazlina, Mahbub Zaman and Zulkifflee Mohamed, "The Effect Of Internal Audit
Function Quality And Internal Audit Contribution To External Audit On Audit Fees" (2015)
19(3) International Journal of Auditing
Moroney, Robyn, "Editorial: Regulating Audit Quality - Ramifications And Research
Opportunities" (2016) 20(2) International Journal of Auditing
Mouillon, Christian and Frannois Lherm, "From Assurance To Insurance: Making Audit
Relevant Again" [2016] SSRN Electronic Journal
Pangaribuan, Hisar, "AN EXAMINATION OF VOLUNTARY DISCLOSURE,
INDEPENDENT BOARD, INDEPENDENT AUDIT COMMITTEE AND
INSTITUTIONAL OWNERSHIP: FIRM SIZE AS A MODERATOR" (2019) 2(2) Jurnal
Muara Ilmu Ekonomi dan Bisnis
Senft, Sandra, Aleksandra Davis and Frederick Gallegos, Information Technology Control
And Audit (CRC Press, 2013)
Zhao, Ziye and Jing Zhou, "Independent Directors With Industrial Expertise, Audit
Complexity, And Audit Fee" (2013) 15(1) China Accounting and Finance Review