Audit and Ethics

This report assesses the business through its annual report, focusing on the concept of materiality and scope for audit. It includes a review of draft and disclosures, application to analytical procedure, analysis of cash flow statement, and review of audit report.

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

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Table of Contents
Section: 1....................................................................................................................................2
Concept of Materiality and Scope for Audit..........................................................................2
Review of Draft and Disclosures...........................................................................................3
Section: 2....................................................................................................................................5
Application to Analytical Procedure......................................................................................5
Section: 3....................................................................................................................................8
Analysis of Cash Flow Statement..........................................................................................8
Review of Audit Report.............................................................................................................9
References................................................................................................................................10

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Section: 1
Concept of Materiality and Scope for Audit
The aim of making this report is to assessing the business through its annual report. It
focuses mainly on the concept of materiality been used and assessed in the business. The
company here chosen for making this audit report is Flight Centre Travel Group. The study of
financial report of the company has critically analyzed to check any material misstatement
reported or not in the financial statement. It is very necessary for the auditor to go through the
material misstatement if any, by the company to take a proper decision against it. If the
auditors sight of such statement then he/she is liable to collect evidences for the same while
going through a specific procedure for it. This report has considered the disclosed items in the
annual report of 2018 of the company Flight Centre Travel Group (FCTG) that is one of the
world’s largest travel agency group, providing travels services in Australia (Flight Centre
Travel Group, 2019).
It becomes one of the most important for the auditors to audit Materiality. The
concept of materiality results in misstatements when the company’s financial statements
includes any omission or irrelevant data that affect the economic decisions of the users Lai,
Melloni & Stacchezzini, 2017). The materiality concept considers both quantitative as well as
qualitative aspect. This concept helps the auditors to determine a true and fair view of the
data provided by the company (Legoria, Melendrez & Reynolds, 2013). The auditor while
assessing the statement of the company has to keep in mind to thoroughly investigate each
items mentioned in the company’s annual report. The first step taken by the auditors is in
quantitative aspect to set a preliminary judgment that includes the planning stage of audit and
a thumb rule to check either the normalized net income or total assets. The planning
materiality considers the highest value mentioned in the total assets of the company in its

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annual report (Eilifsen & Messier, 2014). Planning materiality is to be computed for the year
2018 on the total asset estimated of the company has shown as $3,405,219,000. It has
represented in the equation as shown below:
Planning materiality=Total Assets∗5 %
¿ $ 3,405,219,000∗5 %
= $ 170,260,950
The above computation results the planning materiality of the business. The
performance materiality of the items shown in the annual report is based on this resulted
planning materiality of $ 170,260,950 only. The above figure used by the auditor to find any
misstatement in materiality stated by the company in their report to take a proper decision
against this matter.
Review of Draft and Disclosures
The annual report of the business shows the drafts and disclosures in the section of
notes to account. The notes of account section contains the relevant treatment that have some
impact on point of materiality. Therefore, the auditor needs to go through this section to find
any misstated figures to the concept of materiality to give a fair view on it (Simnett &
Huggins, 2015). Some significant items that are included in the notes to accounting section
has discussed below accordingly:
Dividends
The financial statement of the Flight Centre Group Ltd. shows that the company has
paid significant dividends during this period (Flight Centre Travel Group, 2019). The
management has considered several factors from the section of notes to accounts to determine
dividend returns to the shareholders of the company. The factors that the management

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considered includes the anticipated cash requirement so that can help in fund for the growth,
operational plan and future economic conditions. The auditor has to process the substantive
procedure to ascertain the data related to dividends whether the company has accurately
represented or not in their annual report.
Business Combinations
The business combination shows the numerous acquisitions that has made by the
company during the period. It suggests that the item is material. The company has gone with
different acquisitions during the period for which the management of the company has
included all these acquisitions in their report. Therefore, the auditor needs to check all the
figures of the assets of the company whether it has mentioned correctly or not in the annual
report of the company. Further, the management needs to state the purchase consideration
that has paid for the acquisition are accurately shown or not in the annual report of the
business. The auditor has to check both the aspect so that a nature of transparency can
maintain for all in order to take a fruitful decision (Yusoff, Othman & Yatim, (2013).
Events occurs after date of Balance Sheet
It happens sometime that some events in the business occurs after maintaining the
balance sheet but the same also needs to be mention in the financial statement the business
made (Al Nawaiseh & Jaber, 2015). The annual report of this business shows that there is an
acquisition, which has made after the reporting period but the same, has to add in the
financial statement of the company relating to the relevant accounting standard. The auditor
has to check whether it has mentioned in the statements or not.

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Section: 2
Application to Analytical Procedure

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In order to evaluate the performance of the business in the year 2018 and addition to
this, to assess the financial information with the perspective of auditing the application of
Ratio analysis has implied on it. In order to find if there is any material misstatement the
auditor implies the procedure of audit through this application (Kuenkaikaew & Vasarhelyi,
2013). The key financial ratio that has applicable to this company has represented below
along with the proper analysis:

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The above figure reflects that the funds in respect of the cash that is available with the
Flight Central Group Ltd. is in favorable condition. As per the same shows the positive result
of increase in comparison of previous two consecutive years. This increase in the cash
position reflects a positive image of the company in terms of liquidity position of the
business. As the liquidity position of the business shows that, the company is in position to
overcome with any liability. Thus, the position is in their hand to take care of any of its
liability. The Net Debt of the company is in an appropriate position as it is reflecting that the
company has well placed in terms of debt that has taken by them. Still it shows the positive
condition of debt of the business. The gearing ratio of the company has declined in the
current year that shows the company has tried to reduce its total debt. The decline in the
gearing ratio reflects the management of the company has tried to reduce the risks associated
with the company (Omar et al.,2014).
The above figure in respect of the key financial ratios used in the company Flight
Central Group Ltd. represents the shareholder’s ratio and profitability ratios of the business.
The liquidity estimates which are covered for the business during the years shows appropriate
liquidity position for the business and shows that the business has appropriate cash for
meeting the current obligations of the business. This reflects the Income margin of the
business has decreased slightly in the previous year that suggests the company to improve the
profitability of the business to avoid any negative situation to face by the company. The
EBITDA of the business reflects the increase in the earnings of the business (Kamath &
Desai, 2014). It shows clearly that the company has achieved efficiency in the operational
process. The data also shows the earning per share of the company has increased during the
period that indicates a positive situation for the company. It shows that the company has tried
to increase their shareholder’s wealth.

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Section: 3
Analysis of Cash Flow Statement
The Cash flow statement is one of the important and necessary statement that
is maintain by the company in the list of their financial statements. The Cash flow statement
effectively shows the inflow and outflow of the cash during an accounting period of the
company. The statement has prepared by the company to show the revenue they have
generated in respect to the company that ultimately reflects the result in inflow and outflow
of the cash in their business (Bepari, Rahman & Taher Mollik, 2013). The annual report of
the business reflects that the company mostly generates the cash through the operating
activities. Thus, the cash from operating activities reflects the positive side of the business. In
the receipts from customer of cash flow of the business, it reflects a cash inflow of the
business is same as shown as $ 2,884,573,000 during the year of 2018 that has relatively
increased from the previous year. This shows that the business is growing and earning more
profit during their process. The cash flow that has recognized from the financial statement
showing the figure of $ 2,480,898,000 that is cash paid to the suppliers and employees of the
company. This cash outflow represents the expenses that has made by the company during
carrying out the operations of the business. The Net Cash from Operating activities has
shown as positive that reflects a favorable condition of the business.
The Cash flow statements represents that the company has taken many decisions
during the accounting period related to acquisitions that has surely affected the investing cash
flow of the business. This has resulted in the decrease in the Net Cash from operating
activities and shown as negative figure during that period.
Addition to the above, the cash from financing activities has also shown as a negative
value. This is due to the company has taken a huge amount of loan that has to pay by them
during the accounting period. The overall repayments of loans and dividend distribution has

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affected the Net cash position from the financing activities of the business. The statement
shows that the net cash position of the business has slightly declined but on the other hand it
reflects to be positive that shows a favorable condition for the business.
The fundamental principle of accounting is Principle of Going Concern. The auditor
needs to analyze and report those factors that is affecting the going concern principle of the
business. The auditor has do make a proper assessment of the business and he/she has to find
whether this principle is affected in any way or not (George-Silviu & Melinda-Timea, 2015).
The annual report of the company has shown a significant increase in the profits that result in
the profit for the business. The report has shown its overall cash position reflecting
appropriate liquidity position of the business that seems to be positive factor for the business.
Along with the above all factors the overall debt position of the business has also decreased
that means the company has reduced their risks related to debts to some extent. Thus, the
financial statement of the company has not shown any inappropriate sign that has affected the
going concern principle of the business.
Review of Audit Report
The auditing for this business report has done by Ernst and Young that is consider as
one of the big four firms operating in the field of Audit. According to the auditors, the
financial statement prepared by the company has followed the entire relevant accounting
standard and the provisions of Corporation Act, 2001. Therefore, it states a true and fair view
of the data. Therefore, the auditors has declared that the financial statement is free from any
material misstatement.
The auditors has also recognized certain key audit matters that can affect the financial
position of the business and the same has separately shown in the auditor’s report.

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References
Al Nawaiseh, M. A. L., & Jaber, J. (2015). Auditing subsequent events from the
perspective of auditors: study from Jordan. International Journal of Financial
Research, 6(3), 78.
Bepari, K., Rahman, S. F., & Taher Mollik, A. (2013). Value relevance of earnings
and cash flows during the global financial crisis. Review of Accounting and
Finance, 12(3), 226-251.
Eilifsen, A., & Messier Jr, W. F. (2014). Materiality guidance of the major public
accounting firms. Auditing: A Journal of Practice & Theory, 34(2), 3-26.
Flight Centre Travel Group (2019). About Us - Flight Centre Travel Group. [online]
Flight Centre Travel Group. Available at: http://www.fctgl.com/about-us/
[Accessed 26 Aug. 2019].
Flight Centre Travel Group. (2019). About Us - Flight Centre Travel Group.
Retrieved 26 August 2019, from http://www.fctgl.com/about-us/
George-Silviu, C., & Melinda-Timea, F. (2015). New audit reporting challenges:
auditing the going concern basis of accounting. Procedia Economics and
Finance, 32, 216-224.
Kamath, R., & Desai, R. (2014). The Impact of IFRS Adoption on the Financial
Activities of Companies in India: An Empirical Study. IUP Journal of
Accounting Research & Audit Practices, 13(3).
Kuenkaikaew, S., & Vasarhelyi, M. A. (2013). The predictive audit framework. The
International Journal of Digital Accounting Research, 13(19), 37-71.

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Lai, A., Melloni, G., & Stacchezzini, R. (2017). What does materiality mean to
integrated reporting preparers? An empirical exploration. Meditari
Accountancy Research, 25(4), 533-552.
Legoria, J., Melendrez, K. D., & Reynolds, J. K. (2013). Qualitative audit materiality
and earnings management. Review of Accounting Studies, 18(2), 414-442.
Omar, N., Koya, R. K., Sanusi, Z. M., & Shafie, N. A. (2014). Financial statement
fraud: A case examination using Beneish model and ratio
analysis. International Journal of Trade, Economics and Finance, 5(2), 184.
Simnett, R., & Huggins, A. L. (2015). Integrated reporting and assurance: where can
research add value?. Sustainability Accounting, Management and Policy
Journal, 6(1), 29-53.
Yusoff, H., Othman, R., & Yatim, N. (2013). Environmental reporting practices in
Malaysia and Australia. Journal of Applied Business Research (Jabr), 29(6),
1717-1726.