HA3032 Auditing: ADSLOT LIMITED Financial Statement & Audit Analysis

This report presents an audit analysis of ADSLOT LIMITED, an ASX-listed company with international operations. It examines the company's business operations, investment activities, financing, and financial reporting practices, adhering to Australian Accounting Standards. Analytical procedures, including solvency, profitability, liquidity, and efficiency ratios, are applied to assess the company's financial health. The report identifies material account balances, such as cash, property, receivables, and payables, and discusses relevant assertions and audit risks associated with these balances. Audit steps to obtain sufficient evidence are also outlined. The analysis reveals a high cash outflow from investing activities and net losses, suggesting the need for improved financial management and investment strategies. The report concludes by emphasizing the importance of adhering to accounting standards and proper audit procedures to ensure transparency and accurate financial reporting.

ADSLOT LIMITED
Audit and Assurance
Audit analysis
Name of the Author
Student Id-

Table of Contents
Introduction................................................................................................................................1
Adslot Limited...........................................................................................................................1
a) Business Operations...............................................................................................................1
b) Investment and Investment activities.....................................................................................1
c) Financing and Financing activities........................................................................................2
d) Financial Reporting Practices................................................................................................2
Analytical Procedures................................................................................................................2
Material Account balances.........................................................................................................4
Material account balances, relevant key assertions, reasons of relevancy and the audit steps to
obtain sufficient appropriate audit evidence..............................................................................4

Introduction
There are several business and financial complexity which may result to increased
inherent risk in preparation of the financial statement of company. It is evaluated that if
proper audit and assurance program is implemented then it will increase the overall outcomes
and efficiency of the business at large. The financial Report in current study targets the audit
practices and procedures that enable an auditor to obtain sufficient and appropriate audit
evidence. Main focus is on the key assertions placed by management regarding account
balances, being existence, completeness, rights & obligations and valuation. The risk that
might exist even when the management have asserted about the account balances is stated
with the substantive procedures to reduce the chance of risks being ignored. Various
analytical procedures have been briefed regarding the details of company. Client chosen for
the study is ADSLOT LIMITED, an ASX listed company. The initial part of report deals
with the business of the client and its investing and financing activities. Later on, the above
things are discussed in the report (Morgenstern, et al. 2017).
Adslot Limited
a) Business Operations
Being a listed company in Australian security exchange, Adslot has its operations set in New
York, London, Shanghai, Munich, Sydney, Melbourne and Auckland. Company aims at
revolutionising the next generation media. The main business operations are termed, Adslot
media, Symphony and premium publishers. To focus on transparency, effective cost managed
media solutions, strong control over media and a direct approach centred media, adslot media
division is there. Symphony on the other hand aims at utilising the existing data to create
more value and providing customised made solutions to overall agency requirements. In
order to eliminate middlemen and provide automation of input output processes, premium
publishers have come into picture. Overall efficiency is improved through this ((Arens, et al,
2016).
b) Investment and Investment activities
The company’s investment in property, plant and equipment is comprised by computer
equipment, plant & equipment and leasehold improvements. All these property, plant and

equipment are depreciated on straight line basis. The investment in same has increased by an
extent of around 200% in financial year 2016-17. The intangible property comprises of
domain name, intellectual property, software, goodwill and research & development
expenditure. The table below shows the statistical data regarding company’s investment
activities (Arens, et al, 2016). This investment of the company in different units shows that
company has objective to expand its business on international level.
AUD 2016-17 2015-16 2014-15
Investments in property, plant, and equipment (177,950) (58,140) (40,786)
Proceeds from sale of fixed assets 2,750
Purchases of intangibles (4,524,194) (2,911,523
)
(3,638,707)
Receipt of R&D tax incentive relating to capitalised
assets
1,583,175 1,716,792 1,741,136
Cash outflow from investing activities (3,116,219) (1,252,871
)
(1,938,357)
After analysing the investment strategies of the company, it could be inferred that
company has seen high amount of cash outflow. If Company do not curb this amount of
investment then it will negatively impact the business liquidity in determined approach. This
high level of cash outflow from the business might impact the sustainability and liquidity
position of company in long run (Morgenstern, et al. 2017).

c) Financing and Financing activities
Study of company’s financials and annual reports show that the company’s financing is done
entirely through its own funds being reserves and retained earnings. There is no liability on
company on account of long-term debt. Just short-term payables exist on account of day to
day working of the entity. The table below shows the financing activities on account of share
issue proceeds and for the payment of equity raising costs for financial year 2016-17, 2015-
16 and 2014-15: These financial activities reflects that company has been gaining momentum
throughout the time and increased its overall outcomes (Vasarhelyi, Alles, and Kogan,2018).
AUD 2016-17 2015-16 2014-15
Proceeds from issue of shares 18,054,640 4,600,000 6,523,200
Payments of equity raising cost (1,219,342
)
(237,135) (370,441)
Net cash inflow from investing activities 16,835,298 4,362,865 6,152,759
(Morgenstern, et al, 2017).
d) Financial Reporting Practices
As Adslot limited is publicly listed company in Australia, it’s bound to formulate its
financial reports and statements as per the Australian Accounting Standards and frame the
financials as per going concern concept. The same is being followed by it. The accounting
has been framed by Australian Accounting Standards Board in line with International
Financial Accounting Standards (IFRS). Being a corporate player, certain guidelines of
Corporations Act 2001 are also followed. The major statements prepared by the company
involve, statement of profit and loss & other comprehensive income, Statement of financial
position, Statement of cash flows, Statement of changes in equity etc. All these have been
prepared on a consolidated basis. Financial segments divided on the basis of geographical
locations have also been presented. The financial reporting frameworks reflect that company
has established harmonization its domestic and international reporting frameworks by

complying with the IFRS rules and regulation (Morgenstern, et al. 2017). The financial
activities of company reflect that company has been increasing its investment in financial
activities which will eventually add value of its business. Company being international listed
company has established harmonization in its domestic and international reporting in
effective manner. Company has also complied with the international accounting policies and
standards have been followed while valuation of employee benefits account. In addition to
this, in context with the taxation rules and regulations, auditor should insist on the
presentation of net deferred tax figure in balance sheet and ask questions about the dual
representation of both deferred tax asset and liabilities (Morgenstern, et al. 2017).
Analytical Procedures
Analytical procedures help an auditor to identify the potential risk areas and understand the
various reasons behind the same. This audit procedure does comparisons among the
following (Zhao, et al. ., 2017).
 Entity’s financial information of the same financial years or different financial years
 Entity’ financial information with other company’s financial information in same industry
 Entity’s financial and non-financial information
These procedures highlight immediately the areas where drastic changes have taken place
over a period of time. These critically evaluate the financial information and help to provide
useful conclusions. The table below shows a few ratios performed over company’s financials
(Davies, 2017).
RATIO ANALYSIS
Solvency ratios This ratio is most popular when it comes at
analysing whether a company would be able
to carry on its business in long run by
paying off its liabilities. It comments on the
creditworthiness of the company. Various
ratios in this category are debt to equity,
debt to asset and financial leverage ratio. As
there is no interest-bearing debt, it’s not

much useful to compute debt to equity and
debt to asset ratio.
Financial leverage ratio is computed by
dividing average total assets by average
total equity. This ratio had been 1.12, 1.14
and 1.09 in financial year 2014-15, 2015-16
and 2016-17. This ratio being low also
depicts that the company is not using debt in
its financing because a high leverage ratio
shows more use of debt.
Profitability ratios Profitability ratios show the income
generating capabilities of a company in
relation to its revenue, balance sheet assets,
operating costs and shareholders equity.
The net margin percentage had been -
109.81%, -106.25% and -146.11% for
financial year 2016-17, 2015-16 and 2014-
15. This shows the net loss company has
made. Along with net loss, the company is
making operating losses too. . The operating
margin stands to be -177.7% in financial
year 2016-17, -162.4% in financial year
2015-16 and -159.8% in financial year
2014-15.
Liquidity ratios Liquidity ratio comments on the sufficiency
of company’s current assets to meet the
current obligations when they fall due.
Some people confuse working capital as a
liquidity ratio, but it’s actually not. Main

liquidity ratios include current ratio and
quick ratio/ acid test ratio.
Current ratio is obtained by dividing the
current assets by current liabilities. Current
ratio for financial year 2016-17, 2015-16
and 2014-15 had been 5.52, 2.28 and 2.19 in
the respective years. This ratio, if too high
shows the inefficient stocking of current
assets and if too low represents inability to
make payments for dues. Standard current
ratio stands at minimum of 1 (Kangari,
Farid, and Elgharib, 2012).
Quick ratio, on the other hand is obtained by
dividing all the current assets except stock
and prepaid expenses by current liabilities.
It tells the ability of a company to generate
liquid cash when required. Quick ratio had
been 5.44, 2.22 and 2.15 for financial year
2016-17, 2015-16 and 2014-15. Quick ratio
does not vary much with the current ratio
and hence shows quick liquidity at
company’s end.
Though the ratios seem fine, but as
company is generating loss, the company
must invest the idle cash in income
generating investments to reduce the losses.
Efficiency ratio Efficiency ratios comprise of receivable
turnover, inventory turnover, fixed asset
turnover, asset turnover etc. Receivables
turnover show the number of times the

company collects cash from the debtors and
other receivable accounts. A very low
receivables turnover shows company’s
inefficiency to collect cash in time. The
company’s receivable turnover had been
4.56, 3.67 and 3.16 in financial year 2016-
17, 2015-16 and 2014-15. This is very low
than it should be (Khwaja, Awasthi, and
Loeprick, 2011.)
This financial ratio analysis has reflected how well company has increased its financial
performance throughout the time. However, company needs to lower down its financial
leverage by redeeming its debt portion in its business. It has been observed that if company
lower down its financial leverage then it will eventually impact the overall cost of capital and
destruct return on capital employed of company (Kiviluoto, and Bergius, 2012).
Material Account balances
Account balances refer to the items of statement of financial position. Auditor has identified
certain account balances belonging from both assets and liabilities side that are considered
material. These balances are considered material because of the level of activity involved in
them (Morgenstern, et al. 2017). They affect the balance sheet figures entirely and any
misstatement in them, if comes in the knowledge of users can definitely affect the decisions
taken by the users of financial information. These account balances will be assessed by using
the proper accounting and auditing test which will assist in determining the material facts
which company followed while recording the financial transactions in the books of account.
However, by using the proper audit test, company could strengthen the transparency and
reporting framework of organization (Laitinen, 2012).
The table below depicts the various account balances belonging to current assets and
liabilities that are material:
Asset Cash & cash equivalents

Property, plant and equipment
Deferred tax assets
Trade receivables
Intangible assets
Liability Trade payables
Deferred tax liabilities
unearned revenue liability
Current employee benefit provision
Non- current employee benefit provision
These assets have been selected on the basis of its material use in the busienss, investment
made in the business functioning and increased external factors on the changing value of
these assets and liabilities. There is a chance that company might not have followed proper
process and work system which may directly impact the value record system of these assets
in the financial assets of company (Ooghe, & De Prijcker, 2008).
Material account balances, relevant key assertions, reasons of relevancy and the audit steps to
obtain sufficient appropriate audit evidence
ACCOUNT
BALANCE
KEY ASSERTION AUDIT RISK
(RELEVANCY OF
KEY
ASSERTION)
STEPS TO
OBTAIN
SUFFICIENT AND
APPROPRIATE
AUDIT

EVIDENCE
Cash & cash
equivalents
Existence:
Cash reported in the
books of accounts do
exist in possession
of the company and
in the company’s
bank accounts
There are chances
that the cash
reported in the books
is not the true figure.
Some level of
absconding and theft
might have taken
place leading to
reduction in cash
after the books are
made.
Arbitrary changes in
duties:
Auditor should
change the duties of
staff relating to cash
collection, cash
handling and cash
deposition.
Employees shouldn’t
be informed before
their duties are about
to be changed. This
helps in keeping a
check on one
employee’s work by
another. This way
any absconding or
theft could be
brought in the light
of the management
and auditor could
also gain evidence
regarding same.
Property, plant &
equipment
Existence :
The assets recorded
in the balance sheet
with their
descriptions exist in
Risk of assets entries
made in books
without any physical
property being
present exists. (i.e.
asset is not held by
Physical
verification:
A checklist of all the
assets should be
made in accordance

a form similar to the
mentioned in
company’s premises
the entity or the
asset is either sold,
but still shown as
under company’s
property.(Askary,
Goodwin, and Lanis,
2012.).
with the entries
made in the books of
account and physical
inspection of the
property lying in the
company’s premises
should be made. The
checklist shall serve
as a guide in
verifying the
property present and
recorded and vice-
versa (Perry, 2011).
Deferred tax assets Completeness:
The amount
mentioned as
deferred tax asset is
the net result of the
figure brought
forwarded from
previous years and
shown after being
adjusted with all the
temporary
differences that
occurred or reversed
this financial year
(Morgenstern, et al.
2017).
In order to evade
taxes, the deferred
tax figure could be
altered to
misrepresent the tax
amount
(Morgenstern, et al.
2017).
Auditor should insist
on the presentation
of net deferred tax
figure in balance
sheet and ask
questions about the
dual representation
of both deferred tax
asset and liabilities
(Morgenstern, et al.
2017).
Intangible assets Rights & obligation: The intangible Inspection: