Advanced Auditing and Assurance - Doc

Running head: ADVANCED AUDITING AND ASSURANCE
Advanced Auditing and Assurance
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1ADVANCED AUDITING AND ASSURANCE
Executive Summary
The depictions associated to Vectus’s “corporate governance” arrangements with three
factors illustrating the reliance on the overall control environment can be identified with
compliance with third edition “Australian Securities Exchange (ASX) Corporate Governance
Council’s Corporate Governance Principles and Recommendations”. Secondly, appropriate
accounting standards in addressing financial reporting risks is considered to be a major strength
to trace any issues pertaining to material misstatements. Furthermore, Vectus strives to
continuously improve the risk management and internal control environment. Despite of the
substantial auditing risk associated to going concerns, Vectus has been proactive enough in
mitigate the going concern risks. The audit assessment has included significant non-routine
forecast of the cash inflows and outflows thereby including the expected impact of planned
capital raising for timing and quantum. It has been further depicted that auditing procedure has
updated the understanding of management’s main process of determining whether the spending
on research and development has been able to meet “AASB 138 recognition criteria”. The
auditing team has considered meeting with the management and discussing on the assessment of
judgment areas especially in the current stage of the research and development.

2ADVANCED AUDITING AND ASSURANCE
Table of Contents
Answer to Question No. 1...............................................................................................................3
Answer to Question No. 2...............................................................................................................6
Answer to Question No. 3...............................................................................................................8
References and Bibliographies......................................................................................................10

3ADVANCED AUDITING AND ASSURANCE
Answer to Question No. 1
Audit risk could be defined as the risk, in which the auditor provides in appropriate audit
opinion on the financial statements (Hsieh, Lin and Chang 2018). Hence, audit risk might
constitute of any factor leading to material misstatement or omission in the financial statements.
Thus, identification of significant business risks result in the detection of audit risk. In case of
Vectus Biosystems Limited, the four accounts or areas of concern comprise of the following:
Liabilities:
Considerable concern could be observed in the liability section, which is represented in
the balance sheet statement of the organization. This is because there is high possibility that
Vectus Biosystems Limited might have understated its liability, since no recognition or
disclosure of any provision is made in the financial statements of the organization. Moreover, the
contingency-related disclosures might not reveal significantly the precise net amount to be
recovered from the tax authority. Finally, it has been identified that there is no presence of long-
term borrowings in the annual report of the organization; thus, it is a rising concern for carrying
out the audit work.
Table 1: Liability disclosure of Vectus Biosystems Limited for the years 2016 and 2017

4ADVANCED AUDITING AND ASSURANCE
(Source: Vectusbiosystems.com.au 2018)
Financial results of the subsidiary:
There is greater chance that the financial results of the subsidiary of Vectus Biosystems
Limited might be manipulated. The intention is to influence the market price of shares before the
sale of the transaction is made (Niemi et al. 2018). It has been observed that Vectus uses a
technology called Accugen, which is owned by its wholly owned subsidiary, Accugen Private
Limited. This particular technology is considered to fetch benefits related to accuracy, time and
cost. Vectus invests in this subsidiary for commercialization purpose, which might understate or
overstate the overall worth of the subsidiary. Moreover, high probability is inherent that the
organization might commit mistakes in the total worth of the subsidiary.
Sales revenue:
It has been identified that Vectus Biosystems Limited has made significantly lower
revenue in both 2016 and 2017. The firm presently recognizes sales revenue depending on
certain estimates in relation to its operating sites. These estimates might lead to biases and the
assumptions made might not be realistic in nature by taking into consideration the selling price
(Contessotto and Moroney 2014). Due to this, the effects of provisional pricing and any future
revisions might not be disclosed adequately in the income statement of the organization.

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2016 2017
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000 $75,066
$49,337
Sales revenue pof Vectus Biosystems
Limited
Figure 1: Sales revenue of Vectus Biosystems Limited for the years 2016 and 2017
(Source: Vectusbiosystems.com.au 2018)
Assets:
There is high chance that the assets of Vectus Biosystems Limited might be overstated
due to the depreciation of property, plant and equipment, which needs to be expensed
immediately in the income statement of the organization. The cost incurred in the existing period
might not be recoverable as well due to which the assets of the organization might be overstated
significantly. Moreover, it could be observed that the current asset base of the organization is
significantly higher in contrast to non-current assets. There is greater chance that the cash and
cash equivalents have been overstated to present an effective liquidity position of the business.

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Table 2: Asset disclosure of Vectus Biosystems Limited for the years 2016 and 2017
(Source: Vectusbiosystems.com.au 2018)
Hence, based on the above evaluation, it could be inferred that these four areas are the
significant concerns for Vectus Biosystems Limited, which need to be taken into consideration
before the auditor undertakes the audit work.
Answer to Question No. 2
The board of Corporate Governance for “Vectus Biosystems Limited (Vectus or the
Company)” is relied on the best corporate Governance practices which are seen to be related to
the different types of the initiatives which are seen to be relied on the principles are suggested by
“Australian Securities Exchange (ASX) Corporate Governance Council’s third edition of the
publication, Corporate Governance Principles and Recommendations”. Based on the assessment
of corporate report to the board of Vectus has a definite “Audit and Risk Management
Committee”, which is seen to be responsible for reviewing and monitoring “financial, audit and
risk management processes and reporting”. The committee comprises of three nonexecutive
directors and majority of the directors on not made up of independent directors because

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Company believes that the most suitable qualified directors with greater expertise in financial
control and accounting are not non-independent directors (Vectusbiosystems.com.au. 2018).
Vectus makes sure that the reports of the company are properly maintained before getting
the final approval are done for the financial statements of a particular FY. In addition to this, it
needs to be noted that the CFO and CEO is responsible for reviewing the financial statements
and making sure that they comply with appropriate accounting standards so that the financial
depictions are true and fair as per the financial position and performance. In addition to this, the
opinion of CEO and CFO is able to confirm that the system for the “risk management and
internal control” is relied on effective operations as per the financial reporting risks. Based on
recommendation 7.2 of the “corporate governance” statement, it can be clearly inferred that
management is responsible for implementing, designing and reporting to the company’s risk
adequacy elements associated to the internal control system. It is further understood that the
management takes the initiative of addressing to the risk and audit management committee for
the significant risks which are being monitored by internal compliance of the control systems
(Griffiths2016).
It has been further depicted that Vectus does not have a particular audit function.
Significant improvement in the process is ensured by conducting effective risk management and
Internet control monthly review. This review is done as per the actual variances associated with
the expenses and revenues. Therefore, the likelihood of potentially reliance is depicted with the
following factors for the company (Vectusbiosystems.com.au. 2018).

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i. Compliance of the company with the latest “Australian Securities Exchange (ASX)
Corporate Governance Council’s” CG recommendations and Principles
ii. Appropriate adherence of the company with the accounting standards in addressing
financial reporting risks
iii. Incessant improvement process pertaining to “internal control environment and risk
management”
Answer to Question No. 3
The assessment of various types of key audit matter and key audit risk have shown how
the company has a history of making losses in 2017 which made it exposed to increased risk to
such extent that its ability might be lost, if intends to operate in the form of going concern. The
main depictions of the report have stated that there is greater loss magnitude in relation to the
cash level and net assets in the organization. Thus, it is considered as a probable risk related to
the going concern principle. Despite of the significant auditing risk associated to going concerns,
Vectus has been proactive enough in improving the financial condition and adopting a better
approach towards audit assessment. These initiatives provide the rationale to undertake the audit
(Vectusbiosystems.com.au 2018).
In order to mitigate the going concern risks, the audit procedure has included
considerable assessment of estimating cash inflows and outflows to be generated in future. As a
result, it takes into consideration the estimated effect of the planned accumulation of capital in
relation to quantum and timing. In addition to this, the company has used the pertinent group
knowledge, the sector and present standing for the capital raising initiatives thereby addressing
the different types of concerns (Vectusbiosystems.com.au 2018).

9ADVANCED AUDITING AND ASSURANCE
In order to provide response for the considerable judgments considered to ascertain if
research and development is recognized in compliance with appropriate standards of accounting,
meetings with the management need to be held for carrying out the audit work. The meeting
would be on the various types of accounting norms having association with the expenses along
with the capitalization of cost of research and development of the organization. Moreover, the
major process of the management has been updated with the help of the auditing procedure
determining whether the spending on research and development has been able to meet “AASB
138 recognition criteria” (Vectusbiosystems.com.au 2018). There have been further meetings
between the management and the audit team and for evaluating the areas requiring special
attention especially in the present research and development stage.
It needs to be observed that the information accumulated from other sources at the time
of auditing procedure such as development of the product and nature of contracting the key
suppliers did not identify any inconsistency with the management’s conclusion. It is depicted to
be likely that in future, the research and development department of the group will be able to
meet the criteria for capitalization. Moreover, the identification and assessment of the material
misstatement is depicted with the effectiveness of internal control of the group. The appropriate
accounting policies for that ensure that the accounting estimates are approved by the directors of
the company (Vectusbiosystems.com.au 2018).

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References and Bibliographies
Contessotto, C. and Moroney, R., 2014. The association between audit committee effectiveness
and audit risk. Accounting & Finance, 54(2), pp.393-418.
Curtis, E.M., Moon, R.J., Harvey, N.C. and Cooper, C., 2017. The impact of fragility fracture
and approaches to osteoporosis risk assessment worldwide. Bone, 104, pp.29-38.
Elsayed, A.A., 2017. The Audit Risk Model, the Signal Detection Theory, and the Information
Manipulation Theory.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Hsieh, Y.T., Lin, C.J. and Chang, H., 2018. Audit Firm Office Size and Client Acceptance
Decisions.
Irene, M. and Bunyasi, G., 2017. Effects of Risk Assessment and Internal Audit Standards on
Financial Performance of State Owned Corporations in Kenya: A Case Study of the Ministry of
Labour Social and Security Services. Journal of Finance and Accounting, 1(1), pp.1-13.
Lundin, A., Hallgren, M., Balliu, N. and Forsell, Y., 2015. The use of alcohol use disorders
identification test (AUDIT) in detecting alcohol use disorder and risk drinking in the general
population: validation of AUDIT using schedules for clinical assessment in
neuropsychiatry. Alcoholism: clinical and experimental research, 39(1), pp.158-165.
Niemi, L., Knechel, W.R., Ojala, H. and Collis, J., 2018. Responsiveness of auditors to the audit
risk standards: Unique evidence from Big 4 audit firms. Accounting in Europe, 15(1), pp.33-54.

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Seyam, A.A. and Brickman, S., 2016. The new requirements relating to going concern evaluation
and disclosure provide a critical improvement to the financial statements taken as a
whole. International Journal of Business and Economic Development (IJBED), 4(1).
Vectusbiosystems.com.au. (2018). [online] Available at:
http://www.vectusbiosystems.com.au/wp-content/themes/vectusbiosystems/downloads/VBS
%20Annual%20Report%202017%20-1.pdf [Accessed 6 May 2018].
Vectusbiosystems.com.au. (2018). [online] Available at:
http://www.vectusbiosystems.com.au/wp-content/uploads/2017/10/VBS-2017-Corporate-
Governance-Statement.pdf [Accessed 6 May 2018].