Audit and Ethics: Analyzing Alumina Limited's Financial Statements

This report discusses the concept of audit and ethics, with a focus on Alumina Limited. It covers materiality in financial reporting, analytical review of the company's financial statements, and the auditor's opinion in the annual report.

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

1
Audit and Ethics
Executive Summary
The report include about the concept of the audit and ethics. Audit is the process of
examination of the company financial statement and checks whether the financial statement
are showing true and fair view or not. Ethics are the norms which are made by the company
in related to the employees so that it can able to make the business smoothly. The report also
contain about the company name Alumina Limited and consist about it materiality and going
concern concept. It also contains about analytical review of the company and show how the
auditor check the risk associated in the financial statement with the help of the analytical
review. It also contains an analysis of the company cash flow statement and show which
items have most cash inflow and outflow.

2
Audit and Ethics
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Overview of the company......................................................................................................3
Materiality in Financial Reporting.........................................................................................4
Qualitative approach of the Materiality.................................................................................4
Quantitative Aspects of the Materiality.................................................................................5
Cash Flow Analysis of the Company.....................................................................................8
Auditor opinion in the annual report......................................................................................9
Conclusion..................................................................................................................................9
Reference and Bibliography.....................................................................................................11

3
Audit and Ethics
Introduction
Auditing is a process which is been carried by an individual who check the financial
statement of the company and say whether the company financial statement are showing true
and fair view or not (Crigger and Godfrey 2014). This process helps the financial user to
know how the company is performing in the industry and what its growth rate in the industry
is. Audited financial statement help the company to get the confidents of the investors and
other financial users as it is a proof that all the business activity which the company carry are
fair and no fraud is been taken place in the company(D. Carnegie 2014). The auditor do many
test of control and check check each area of the company where the business is concern so
that it can able to judge whether the financial statement have some material misstatement or
not. It also check the internal control of the company and how the company manages its
internal control process as a whole. If the internal control of the company is weak than it
means there will be high risk in the financial statement of the company.
On the other hand ethics are the professional behaviour which every person should
follow while doing their work (Davies 2016). Each organization make some standard for their
employees to follow so that each individual will able to do their work properly as if there will
be some set of principles than it will be easy for the company to run their business smoothly
and effectively. It help the company to achieve its goals more easily as if all the work of the
company will be done in a systematic way than it will able to get the required result easily
and help them to achieve the business goals of the company.
Discussion
Overview of the company
The assignment is been based upon the company name Alumina Limited. The
company was found in 23 by the demerger of a big company name Western Mining

4
Audit and Ethics
Corporation (Aluminalimited.com 2019). It headquarter is been situated in Southbank
Melbourne, Victoria, Australia. The business activity which is been carried by the company is
mining of bauxite, smelting of the pure alumina and extraction of alumina.
Materiality in Financial Reporting
The error and omission which happen in financial reporting of the company is been
termed as Materiality. This happen when the company does not give more attention to the
accounts and due to that some transaction are been omitted to get record in the financial book
and as a result create a material misstatement in the company account and which can also
affect the financial decision of the financial user of the company (DeFond and Zhang 2014).
The auditor should plan the materiality of the company in both at the time of the planning of
the audit and also at the time of process of the audit. As it help it to get an better view of the
transaction and will help it to know the risk and material misstatement in the company and
able to give a proper and fair opinion of the balance sheet. The materiality can be of two
types as qualitative and quantitative approach.
Qualitative approach of the Materiality
Steps in Qualitative approach:
o If the company have recorded any transaction not properly than it will directly affect
the company balance sheet. As if the company does not record the event properly than
it will overvalued or undervalued account will take place so it will be consider as a
material misstatement and will affect the financial user as it will not able to take
proper decision regarding the company financial position.
o Company should give all the disclosure of the events so if they will not give proper
disclosure in the company financial statement than the shareholder so the company
will not able to know the reason of the required entry as the company may do some

5
Audit and Ethics
manipulation and no disclosure is given so it will create a fraud in the company so the
auditor should check that the company is giving proper disclosure is given related to
all the specific transaction done by the company.
Quantitative Aspects of the Materiality
Steps regarding the Quantitative Aspects are
o Auditor should analysis the industry benchmark as it will give it the amount of
materiality which is very common in the industry and which can be consider as
normal level of materiality in the company. So the auditor should make it sample
size and should do the audit as per the materiality. So the company can have a
materiality of 5-10% of net profit so this will be consider as a proper percentage in
regard of the materiality and that can be normal amount of materiality.
o Auditor should analysis all the necessary account of the company so that it can
know the level of the materiality in the financial account and as a result it will
give them a better overview of the company.
o Auditor should check the liquidity of the company as it will help it to know the
company liquid cash and able to judge the proper level of the materiality.
o Auditor should make a estimate of the company materiality so that it can be held
as the level of the materiality. The estimate of the company materiality should be
done on the basic of the industry benchmark and it also help it to do the compare
the company financial account more easily and effectively.
o Auditor should compare the estimation and actual which is there in the company
so it able to get the real performance of the company and also if the company had
more amount of the materiality in compare of estimation than the auditor should

6
Audit and Ethics
increase its scope of the audit as there will be more amount of risk involve in the
company financial account.
Analytical review of the company
This process is been perform by the auditor in the stage of planning as in this
the auditor check the overall performance of the company on different parameters so
that it will able to know in which section it had to give more amount of emphasis and
also it help the auditor to plan its auditing scope better and it help it to give the service
in a more proper manner (Furnham and Gunter 2015). The analytical review of the
company is been done with the help of some ratio of the company so that it will the
auditor to know the position and performance of the company with respect to the
industry benchmark. The analysis of the ratio is been discussed below:
Current Ratio
Table No – 1
Source – Author
Current ratio shows the liquidity position of the company. It shows how much the
company can pay their short term liability in respect of the current asset. It is the
liquidity ratios as it check the paying capacity of the company the more ratio of the
company, the good liquidity position of the company (Aluminalimited.com 2019). It
can be seen from the above table that the liquidity ratio of the company has decrease
from a very big amount so this signify that the liquidity position of the company has

7
Audit and Ethics
fallen. It can be seen from the table that both the asset and short term liability have
been increase in a very high percentage so due to these the overall current asset have
been fallen. So the auditor should check the reason of the increase of the asset and
liability as why the company have increase it by some a big amount and also it should
verify the asset and liability as it may happen company have just did overvaluation of
its amount and also it should check the disclosure is been given properly related to the
asset and liability and what the company have mention in the disclosure so the auditor
should check all the things properly.
Debt-Equity Ratio
Table No – 2
Source – Author
Debt-Equity ratio shows the relation of the debt with respect to the total equity of the
company. It can be seen from the above that in the current year the company does not have
any long term debt so it should be checked by the auditor that why the company have no debt
in the current year. It should properly check the accounts related to the debt so that it will
able to know the real reason of the company not having the debt and also should check the
disclosure which the company have given in the financial reporting and also should berify the
reason of such transaction (Aluminalimited.com 2019).

8
Audit and Ethics
Debt Ratio
Table No – 3
Source – Author
Debt ratio shows the total debt in respect of the total asset of the company. It can be seen that
the company have maintain its debt ratio in all the years so the auditor should check the
transaction related to the debt and also should check the share capital of the company as there
is any increase or decrease and also should check the necessary disclosure of the company in
their notes on account and also should check whether proper disclosure is been given by the
company or not (Aluminalimited.com 2019).
Cash Flow Analysis of the Company
Cash flow show the inflow and outflow of the cash in the company. It can be seen
from the cash flow of the company that the major inflow of the cash is been in the operating
activities of the company (Aluminalimited.com 2019). The highest amount of the cash
outflow is the financing activity of the company as this is the activity in which the most cash
outflow of the company is been done.
The primary cash receipt from the company is from the dividend received for the
associates so it can be seen that the company has major cash inflow from the dividend
amount which is been received from the associates of the company (Aluminalimited.com
2019). The major payment which is been done by the company is in respect of the
repayments of the borrowings. So the major payment is been done by the company is to the
payments of the borrowing taken by the company.

9
Audit and Ethics
The cash flow of the company is not having any non cash financial item in it. The
investing activities which the company has is one is the outflow of the cash which is related
to the payments made for the investment in the associates and it has one inflow which is
related to the proceeds of the return from the investing activities. So these are two activities
in the cash from investing activities in the company cash flow (Aluminalimited.com 2019).
It can be seen that the cash flow of the company that the company is having a good
financial position so it can be say that the company is having going concern and it will not
shut its business soon (Aluminalimited.com 2019). So the auditor should do test of control so
that it can help it to know more about the company and will able to give more fair opinion to
the financial report
Auditor opinion in the annual report
The auditor of the company is PWC and they have given the company an Unqualified
Report. The company has said in it opinion that the company financial statement are showing
true and fair view and it has maintained all the financial statement in respect of the Australian
accounting standard (Aluminalimited.com 2019). The financial report of the company is not
having any paragraph related to the audit issue so it can be say that the auditor company have
not face any issue while doing the audit of the company.
Conclusion
The report is been concluded about the auditor auditing process and ethics in the
company. Auditing help the user to know whether the financial statement are showing true
and fair view or not. On the other hand ethics are the rules and regulation which are made by
the company for the employees so that it can able to run the business properly and smoothly.
The report also concludes about the company name Alumina Limited. It contains the
audit process related to the company. It also have the concept of the materiality and how the

10
Audit and Ethics
auditor analysis it and also contain an analytical review of the company and how it help the
auditor to know the risk in the company.

11
Audit and Ethics
Reference and Bibliography
Aluminalimited.com (2019). Alumina Limited. [online] Aluminalimited.com. Available at:
https://www.aluminalimited.com/latest-annual-report/ [Accessed 15 May 2019].
Crigger, N. and Godfrey, N., 2014. From the inside out: A new approach to teaching
professional identity formation and professional ethics. Journal of Professional
Nursing, 30(5), pp.376-382.
D. Carnegie, G., 2014. The present and future of accounting history. Accounting, Auditing &
Accountability Journal, 27(8), pp.1241-1249.
Davies, P.W., 2016. Current issues in business ethics. Routledge.
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of
Accounting and Economics, 58(2-3), pp.275-326.
DeMartino, G.F. and McCloskey, D.N. eds., 2016. The Oxford handbook of professional
economic ethics. Oxford University Press.
Furnham, A. and Gunter, B., 2015. Corporate Assessment (Routledge Revivals): Auditing a
Company's Personality. Routledge.
Griffin, P.A. and Wright, A.M., 2015. Commentaries on Big Data's importance for
accounting and auditing. Accounting Horizons, 29(2), pp.377-379.
Guthrie, J. and D. Parker, L., 2014. The global accounting academic: what
counts!. Accounting, Auditing & Accountability Journal, 27(1), pp.2-14.
Harris, S.E. and Robinson Kurpius, S.E., 2014. Social networking and professional ethics:
Client searches, informed consent, and disclosure. Professional Psychology: Research and
Practice, 45(1), p.11.

12
Audit and Ethics
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Macve, R.H., 2015. Fair value vs conservatism? Aspects of the history of accounting,
auditing, business and finance from ancient Mesopotamia to modern China. The British
Accounting Review, 47(2), pp.124-141.
Vasarhelyi, M.A., Kogan, A. and Tuttle, B.M., 2015. Big Data in accounting: An
overview. Accounting Horizons, 29(2), pp.381-396.
Wang, B., Li, B. and Li, H., 2014. Oruta: Privacy-preserving public auditing for shared data
in the cloud. IEEE transactions on cloud computing, 2(1), pp.43-56.
Watson, L., 2015. Corporate social responsibility research in accounting. Journal of
Accounting Literature, 34, pp.1-16.