Audit and Ethics

The report discusses the audit and ethics of Downer Edi Limited, highlighting the importance of these factors in a company. It covers materiality in financial reporting, analytical review of the company, analysis of cash flow, and auditor opinion in the annual report.

Running head: Audit and Ethics
Audit and Ethics
Name of the Student
Name of the University
Author Note

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Audit and Ethics
Executive Summary
The report is based upon the audit and ethics of the company. It show both plays an important
role in the company and how it help the financial user to take decision regarding the company
financial position. The report also include about the company name Downer Edi Limited. it
consists of the audit procedure which should be taken by the auditor in respect of the
company. Lastly the report concludes about the materiality that can be there in the financial
statement of the company. It also contains the analytical review of the company and even
have the analysis of cash flow of the company.

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Audit and Ethics
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Overview of the company......................................................................................................3
Materiality in Financial Reporting.........................................................................................4
Analytical review of the company.........................................................................................5
Analysis of the Cash Flow of the Company...........................................................................8
Auditor opinion in the annual report......................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

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Audit and Ethics
Introduction
Audit is the process from which auditors inspect the financial book of the company
and give its opinion that whether the financial statement is showing true and fair view or not.
As this the financial user to know the real value of the firm and also help them to take a
correct decision regarding the investment in the company, as if the company financial
statement have any material misstatement than it can turn a loss to the financial user as their
will be a loss of the money so auditor help them to invest properly as audit check every single
details of the company so that it can able to give a proper report (Badolato, Donelson & Ege
2014). Audited financial statement helps the company to get the confidence of the public and
help them to get more amount of investment from the users. In this process the auditor make
a test of control so that it can able to check each area of the company performs may be
internally or externally (Bertrand 2018). These help the auditor to get a better overview of the
company and help it to get the details of any fraud or misstatement in the financial statement
of the company.
Ethics are the required standard which an individual should maintain in its
professional working environment as these help it to get a better professional in the corporate
area. Each organization has some kind of rule and norms which should be followed by all the
professional working in the organization (Brecher 2014). These help the organization to get
their work flow smoothly as if the entire professional is working in the proper manner than
this help the company to get business goals and objective easily and effectively.
Discussion
Overview of the company
The report is been based upon the company name Downer Edi Limited. It is an
Australian based company and provides integrated services in New Zealand and Australia. It

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Audit and Ethics
is been diversify into many sector such as transport, construction, mining and Engineering
services. It provides different types of services in the above mention sector
(Downergroup.com 2019).
Materiality in Financial Reporting
Materiality is the omission and error in the financial books of the company. It may
happen that the accountant of the firm is not able to record some transaction in proper way
and may have overlook some of it and as a result the account s of the company is not showing
fair value and it is having material misstatement in the company (Davies 2016). Materiality is
there in both the stage of planning the audit and also in the time of carrying the audit process
in the company. As the auditor can check each transaction as there are so many events in the
company so before starting the audit process it should make a basic of how much materiality
can be found in the company financial statement and on the basic of that it should start its
audit process so that it will help him to get an better auditing scope in the company. The
concept of the materiality can be divided into two parts as qualitative and quantitative
aspects.
Qualitative Aspects of Materiality
The steps of qualitative aspects are:
 The wrong amount recorded in the financial statements so this fill affect the financial
position of the company and also it will leave a material misstatement in the financial
report of the company (DeMartino & McCloskey 2016).
 Proper disclosure is not been given by the company of some important and necessary
transaction so this can create a material misstatement as the financial user will not
able to get the proper details of why the transaction have been passed and the reason
behind of it as there is no proper disclosures regarding the matter.

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Audit and Ethics
Quantitative Aspects of Materiality
The steps of quantitative aspects are:
 It should check the benchmark of the industry in which the company is working and
accordingly it should keep a sample size of the materiality in regards with company
so that it can compare and know whether the company is having high level of
materiality or not. As it can consider in the above company that 5-10% of the income
can be consider as a proper percentage of materiality so if the company have above
that than there is some problem in the company which should be found by the
auditor.
 It should check also different account so that it can know the real materiality level in
the company as it can check the inventory and account receivables of the company.
 Checking of the working cycle as it involve liquid cash so proper verification should
be done.
 After that it will make estimation of the total materiality which can be there in the
financial statement
 After completing the estimation it will match with the actual materiality and able to
know what are the company is doing and how they are dealing with the level of
materiality in their financial statements.
Analytical review of the company
In the planning stage the auditor performs this process so that it will able to know how
the company is performing in respect of its current year. In this process the auditor make the
estimation regarding the scope and nature of the audit which it going to carry in the company.
This help the auditor to do the audit more easily and effectively. The analysis of the company

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Audit and Ethics
is been done with the help of some financial ratio which help the auditor to know more about
the company and how they are been performing in the industry. As these ratio shows in-depth
of the company and help the auditor to know they are in which it should give more concern
while carrying the audit procedure in the company (Downergroup.com 2019). The ratio of the
company is been given below:
Liquidity Ratio
Table No – 1
Source - Author
It can be seen from the above liquidity ratio that as the year are passing the company is not
able to maintain the liquidity position as it can be seen that the company both the current ratio
as well the quick ratio is been decrease so this signify that the company liquidity position is
not very good but as the current year is been consider there is a bit of improvement in the
current and quick ratio of the company as the in 2017 the current ratio was 0.96 but in 2018 it
is 1.09 so this show that the company is having good liquidity position in the current year and
is capable of pay their short term easily and effectively (Downergroup.com 2019).
The quick ratio of the company has also increase as in 2017 it was 0.87 but in 2018 it
was 0.99 so that signify that the company has also increase the quick asset of the company so

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Audit and Ethics
this show that the company can easily able to pay their debt and will easily able pay their
short term debt from the cash asset of the company.
Profitability Ratio
Table No – 2
Source – Author
It can be that the profitability ratio of the company is going on a decreasing trend so this
show that the company is unable to get the proper amount of business which they should have
got form the market and that is the reason company financial profit is been decreasing. As the
Gross profit is been concerned it can be say that it is decreasing in a trend as each year it is
decreasing by 1% so this so that slowly-slowly the company is losing their market share and
as a result of it the company is not able to earn the required amount of profit.
As per the net profit of the company is been concern it can be see that the company is
also having a decrease in the same as in 2017 it was 2% and in 2018 it is 1% so this show that
the company is not able to increase its sale and as a result of it the overall profit so the
company is been decreasing so it is the area which should be checked as if the company still
getting loss than it may come that the company have to stop its business so the auditor should
check the reason behind the decrease of the profit (Downergroup.com 2019).

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Audit and Ethics
Leverage ratio
Table No – 3
Source – Author
It can be seen from the above calculation that the company about the leverage ratio of the
company as it show both the Debt ratio and also the Debt-Equity ratio.
The debt ratio has been increased in the current year so the auditor should check the
reason of the increase in the debt by the company as the increase in the debt might affect the
decision of the financial user so it should check the same and should know about the
company reason regarding the increase in the debt of the company.
The debt-equity ratio has reduce from a big percentage so this signify that the
company has increase its long term debt so as the company has increase its debt by higher
proportion so this can be risk to the going concern of the company so the auditor should
check the details of why the increase of the debt is been done by the company.
Analysis of the Cash Flow of the Company
Cash flow of the company shows the cash affect in the company. It show the cash
inflow and outflow of the cash. This cash flow help the company to know the process of the
cash in the company and help them to know how the cash is been carried by the company.

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Audit and Ethics
After the analysing of the cash flow of the company it can be seen the most part of the cash
inflow is in the operating activity of the company. As it the one activity which have highest
amount of the cash flow. The highest cash outflow is in the investing activities.
The primary cash receipt of the company is from the receipt of the customers. It can
be said that the company has the highest inflow of the cash from the cash received from the
customers. The payment which is been made by the company is in regards of payments of the
suppliers and employers so it can be seen that the company payment is been made to the
supplier of the goods.
The company cash flow does not have any non- cash financial activities but it contain
many investing activities in the cash flow. The main investing activities which can be seen in
the cash flow of the company is payment for the plant and equipment and also the payment
related to acquisition of the Spotless.
As per the going concern is been concern it can be seen that the company had low
amount cash inflow in the current year so the auditor should perform test of control in the
company so that it will able to know the reason of having so less cash flow and it will also
help them to access the business risk and by doing the analysing of the risk the auditor will
able to know about the financial position of the company.
Auditor opinion in the annual report
The auditor of the company was KPMG and they have given the company as
Unqualified Opinion as they have done the audit and find out that the company financial
statement are showing true and fair view. So according to the auditor the company does not
have any fraud and risk and the financial statement of the company are free from material
misstatement. The company annual report does not have any additional paragraph related to
the audit issue to the auditor (Downergroup.com 2019).

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Audit and Ethics
Conclusion
The report concludes about the audit and ethics in the company. Audit is the process
from which the auditor checks the financial statement and gives its opinion that whether the
financial statement is showing true and fair view or not. Ethics are the norm which every
company had in respect of their organization. It helps the company to smoothly run the
business and also to create a healthy environment to work.
Lastly the report concludes about the company name Downer Edi Limited and shows
the different aspects of the company from the auditor view point. It also includes the
analytical review of the company and also the analysis of the cash flow of the company.

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Audit and Ethics
References and Bibliography
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Brecher, B. (2014). What is professional ethics?. Nursing ethics, 21(2), 239-244.
Davies, P. W. (2016). Current issues in business ethics. Routledge.
DeMartino, G. F., & McCloskey, D. N. (Eds.). (2016). The Oxford handbook of professional
economic ethics. Oxford University Press.
Downergroup.com (2019). [online] Downergroup.com. Available at:
https://www.downergroup.com/Content/cms/media/2018/PDF/AGM/DOW0041_Ann
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