Altech Chemicals Audit Concerns Analysis

This assignment delves into the major audit concerns surrounding Altech Chemicals Limited. It examines how auditor judgments influence the audit process and the responsibilities of the audit committee in selecting an effective external auditor. The analysis highlights key areas like inventory management, deferred tax structures, and the potential impact of financialization on the company's operations. The document concludes with recommendations for management to enhance business effectiveness.

Running head: AUDIT AND ASSURANCE
AUDIT AND ASSURANCE
Name of the Student:
Name of the University:
Author’s Note:

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AUDIT AND ASSURANCE
Executive Summary
The main aim of this report is to provide an analysis of the financial report of the company in
order to assess the risks which are associated with the company. The report is being prepared by
the senior auditor of BG partners in order to assess the risks which are associated with a new
client. The company or the new client which is being selected for this report is Altech Chemical
Ltd. The report will be focusing on the important areas of business which might be a concern to
the business and suggest how the management of the company can control such concerned areas.

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AUDIT AND ASSURANCE
Table of Contents
Introduction......................................................................................................................................3
Inherent Risks and Assertions.........................................................................................................3
Ratio Analysis..................................................................................................................................6
Problem areas of the company.........................................................................................................8
Control Recommendations............................................................................................................11
Conclusion.....................................................................................................................................11
Reference.......................................................................................................................................12

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AUDIT AND ASSURANCE
Introduction
The main focus of the report is to assess the risks which are associated with Altech
Chemical ltd. Altech Chemical Ltd has been selected as the new client of the business (Annual
Report | Altech Chemicals Limited", 2018). The analysis of the financial reports of Altech
Chemical Limited will be revealing the risks of the business and measures will be suggested as
per the analysis.
Inherent Risks and Assertions
Risks Details Assertions and
Impacted Accounts
of Business
Audit procedure
1. Accumulated
losses
bringing
down profits
The accumulated
losses of the
company as shown in
the current 2016 is $
10193106 which has
increased from the
previous year which
was $ 8960030 in
2015. The company
has shown a
increased amount of
accumulated losses in
the year 2016. As per
Assertions:
- Precisions
- Accuracy
- Exploration or
mining
activity
- Reliability
Impacted Books
of Accounts
 Revenue
account
 Cash account
 Account
The audit process
will be including a
detailed analysis of
the nature of losses
which were recorded
and writing off
criteria will also need
to be examined. The
management
accuracy will also be
judged.

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AUDIT AND ASSURANCE
the notes to accounts
these includes losses
which have been
incurred by the
business on
exploration sites
which were
abandoned while still
in exploration
(Miller, Cipriano &
Ramsay, 2012). The
company
accumulated losses
have brought down
the profits of the
company.
receivable
account
 Bad Debts
Account
2. Exploration
Expenditure
Commitments
The company has an
exploration
expenditure
commitment which is
of a material amount
which has not been
disclosed in the
Assertions
- Accuracy
- Materiality
- Relevance
- Accountability
Impacted Books of
Accounts
The audit process
will be including a
detail analysis of the
expenditure of the
company on such
commitments and the
nature and agreement

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AUDIT AND ASSURANCE
financial statements.
The amount of
exploration
expenditure
commitment which is
not provided in the
financial statement
amounts to $491000
as per the notes to
account.
 Account
receivable
 Cash account
 Expenditure
accounts
 Profit and loss
account
 Sales account
of the same is also to
be ensured. The
amount as shown in
the financial report of
significant value
therefore the figure is
of material amount
and hence the same
has to be recorded.
The auditor will also
need to ensure that
such a commitment is
of genuine nature as
well.
3. Deferred tax A per note 3 of the
annual report of the
company deferred tax
assets is used to set
off against deferred
tax liabilities (Florea
& Florea, 2012). The
unused deferred tax
assets of the
Assertions
- Cutoff
- Segmentation
- Occurrence
- Accuracy
- Timing
Impacted books of
Accounts
 Income
It has been assuned
that the confronted
judgement of
management which is
related to forecasting
for the taxable profit
of the company
along with analysing
the technique or the

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AUDIT AND ASSURANCE
company shows that
$932569 and the
capital losses which
is shown in the notes
is at $5102.
statement
 Account of
current tax
assets
 Deferred tax
assets and
liabilities
account
 Balance sheet
process the
management uses for
the forecasting
composition.
Ratio Analysis
Column1 Column2
Colu
mn3
Colu
mn4 Column5
Colum
n6
Colum
n7
Colum
n8
Colu
mn9
Financial ratio Formula 2016 2015
Differ
ence
Risk
Facto
r
Short term
solvency Ratio
Current
Ratio
Current assets/
Curent liabilities
5.138
39138
1.484
56556
3.653
82582 Low
Quick
Ratio
Quick assets/ quick
liabilities
5.138
39138
1.484
56556
3.653
82582 Low
Profitability
Ratio
Return on
Equity
Net Income/
Shareholders Equity
-
0.194
5805
-
0.508
571
0.313
99049 High
Solvency
Ratio
Debt to
Equity
ratio
Total
Liabilities/Sharehol
ders Equity
0.073
01368
0.381
2753
-
0.308
2616 High

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AUDIT AND ASSURANCE
Calculations Table
Formula 2016 2015
Current Assets Cash+ Trade receivables 2377508 1548871
Current Liabilities trade payable+ loan+ Provisions 462695 1043316
Net Income -1233076 -1391646
Shareholders
Equity 6337100 2736385
Total Liabilities Non Current Liabilities+ Current Liabilities 462695 1043316
Current Ratio
The current ratio of the company for the year show that it has can take care of the liquidity
requirement of the company (Engelen, Fernandez & Hendrikse, 2014). The increase in current
ratio is due to the decrease in the current liability of the company, the quick ratio also depicts the
same results. In this case as there is no presence of stock in the balance sheet therefore the
current ratio is also the quick ratio of the company. Altech Chemical quick ratio shows that the
company can meet its liquidity requirement with ease and similarly take care of its operating
activities smoothly. The ideal current ratio for any company is 1:1 which means the current
assets and current liabilities are same.
Return on Equity
The company has not been able to pay the investor any dividends in the period of 2015 and in the
current year also the company will not be able to meet the shareholders expectations of dividends
(Hevert, 2013). The company has been earning losses from the past two years as per the balance
sheet of the company. However the company has reduced this loss marginally in 2016 which was
much more in 2015. This is the main reason which has contributed to the negative return on
equity ratio. This cannot be allowed to extend from the viewpoint of the company or the

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AUDIT AND ASSURANCE
company will be facing serious issues in the near future. The company is in high risk if return on
equity is to be considered which is a performance standard in the view point of the investors.
Debt to Equity Ratio
The company debt to equity ratio is shown low and the same has further decreased in
2016. This implies the company’s capital structure is made up of more equity based capital than
debt capital. In other words, the company does not rely on leverage as much as required (Heikal,
Khaddafi & Ummah, 2014). The company’s capital structure is made up of mostly equity share
capital and the balance sheet of the company for 2016 shows that the company does not have any
loan and there is only provision.
Problem areas of the company
Identified areas of
concern
Explanations Impacts on the books
of accounts
Audit Procedure
1, Current Ratio The current ratio of
the company shows a
favorable results as
the company has a
decent liquidity
situation and Altech
Chemicals ltd can
meet its requirement
of liquidity easily.
This is due to the
1. Cash and cash
equivalents
2. Accounts
Receivable
3. Inventory
4. Prepaid
expenses
5. Short-term
investments
(marketable
The records of the
company must be
checked for any
discrepancies on th
part of the
management. The
account receivable
leger and cash
records are needed to
be checked in details

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AUDIT AND ASSURANCE
reason as the current
liabilities of the
company has
reduced. The perfect
current ratio of any
company is 1:1
(Ogundipe, Idowu &
Ogundipe, 2012).
securities).
6. Accounts
payable
7. Payroll taxes
payable,
8. Income taxes
payable,
9. Interest
payable and
(Bierstaker, Janvrin
& Lowe, 2014).
Return on Equity The company has not
been able to pay the
investor any
dividends in the
period of 2015 and in
the current year also
the company will not
be able to meet the
shareholders
expectations of
dividends. The
company has been
earning losses from
1. Balance sheet
2. Assets totals
3. Sales account
The auditor needs to
check the dates and
timings of every
transaction of the
company and ensure
proper scrutiny.

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AUDIT AND ASSURANCE
the past two years as
per the balance sheet
of the company.
However the
company has reduced
this loss marginally
in 2016 which was
much more in 2015.
This is the main
reason which has
contributed to the
negative return on
equity ratio (Kabajeh
et al., 2012).
Debt to equity ratio The company debt to
equity ratio is shown
low and the same has
further decreased in
2016. This implies
the company’s capital
structure is made up
of more equity based
capital than debt
1. Payables
2. Provisions
3. Revenue
The auditor need to
check the records of
the payables and also
the relevancy of
provisions.

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AUDIT AND ASSURANCE
capital (De Mooij,
2012). In other
words, the company
does not rely on
leverage as much as
required
Control Recommendations
The following recommendations are provided to Altech Chemicals Ltd in order to improve their
business structure:
1. The company needs to implement a strong internal control system in order to control trhe
internal event of the business.
2. The company needs to record the expenditure commitments in the accounts as they are
material enough to influence shareholder’s decisions.
3. The company needs to incorporate a regular check of inventories if any and also the sites
where explorations are being conducted.
4. The company needs to have a proper understanding of the deferred tax structure and how
such can be set off and the same needs to be disclosed in the financial report.
Conclusion
As per the above discussions, it could be stated that major audit concerns of the company depend
on the judgements of auditor. The audit committee has lesser responsibilities along with the
nomination of an effective external auditor that will anticipate the company’s opinion regarding