Auditing as a process to inspect and examine the finas

Running head: AUDITING
Auditing
Name of the Student
Name of the University
Author’s Note

1AUDITING
Table of Contents
Executive Summary.....................................................................................................................................2
Analytical Procedures..................................................................................................................................3
Risk of Material Misstatements (Inherent Risk) at the Financial Report Level..........................................10
Risk of Material Misstatements (Inherent Risk) at the Assertion Level.....................................................14
References.................................................................................................................................................16

2AUDITING
Executive Summary
Auditing can be considered as the process to inspect and examine the financial statements of
the companies with the aim to find any kind of material misstatements in them. At the time to conduct
the audit procedures, it is the requirements for the auditors to take into consideration the analysis of
the inherent audit risks in both financial report level and assertion level. The main aim of this report is
the analysis and evaluation of different aspects of audit risk analysis of one of the major Australian
companies that is Cochlear Limited. Cochlear Limited is an Australian Securities Exchange (ASX) listed
company involves in the business of designing, manufacturing and supplying the Nucleus cochlear
implant, the Hybrid electro-acoustic implant and the Baha bone conduction implant. There are three
major parts of this report. The first part of the report involves in the application of two analytical
procedures with the aim to analyze the financial statements and information of Cochlear Limited. More
specifically, this part involves in the application of the comparison of the income statement and balance
sheet of the company for the last three years along with the analysis of profitability, liquidity, efficiency
and leverage ratios. The second part of the report involves in the analysis of the inherent risk of material
misstatements of Cochlear Limited at financial report level. On a specified note, five specific factors are
taken into consideration for this part. The last part of the report involves in the inherent risk of material
misstatements at the assertion level that is the analysis of three specific account balances at risk of
material misstatements.

3AUDITING
Analytical Procedures
Comparison of Income Statement and Balance Sheet for Last Three Years
Particulars
2016
($m)
2017
($m) 2018 ($m)
Change in % from
2016 to 2017
Change in % from
2017 to 2018
Revenue
1,1
30.6
1,2
53.8 1,363.7 10.9% 8.8%
Cost of Sales
3
33.6
3
58.4 361.2 7.4% 0.8%
Gross Profit
7
97.0
8
95.4 1,002.5 12.3% 12.0%
Selling, marketing and
general expenses
3
24.1
3
47.2 397.0 7.1% 14.3%
Administration Expenses
79.3
85.2 97.4 7.4% 14.3%
Research and
Development Expenses
1
45.1
1
51.9 167.7 4.7% 10.4%
Other Expenses
-
- 2.2 0.0% 0.0%
Other Income
14.2
4.5 10.2 -68.3% 126.7%
Results from operating
activities
2
62.6
3
15.6 348.4 20.2% 10.4%
Finance income - interest
0.5
0.7 0.6 40.0% -14.3%
Finance expense - interest
8.8
7.5 8.5 -14.8% 13.3%
Net finance expense
8.3
6.8 7.9 -18.1% 16.2%
Profit before income tax
2
54.3
3
08.8 340.5 21.4% 10.3%
Income Tax Expenses
65.3
85.2 94.7 30.5% 11.2%
Net Profit
1
88.9
2
23.6 245.8 18.4% 9.9%
Basic earnings per share
(cents)
3
30.6
3
89.7 427.3 17.9% 9.6%
Diluted earnings per share
(cents)
3
30.0
3
89.1 426.7 17.9% 9.7%
Table 1: Comparison of Income Statement
(Source: cochlear.com, 2018)