Auditing and Assurance in Australia - Analytical Review

This document provides an analytical review of auditing and assurance in Australia covering areas of concern, justifications, assertions, ledger accounts impacted, and audit procedures. It also includes a ratio computation and appendix.

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and assurance in Australia
Name of the student
Name of the university
Student ID
Author note

1AUDITING AND ASSURANCE IN AUSTRALIA
Table of Contents
Part A.........................................................................................................................................2
Reference....................................................................................................................................4
Appendix....................................................................................................................................5

2AUDITING AND ASSURANCE IN AUSTRALIA
Part A
Analytical
Review –
Area of
Concern
Identified
Justify Your Answer Assertion and Ledger
Account(s) Impacted Audit Procedure
Liquidity It is identified from the
calculation that the
liquidity ratios of the
company have been
reduced significantly in
the year 2017 as
compared to the year
2016. Current ratio of the
company has been
reduced from 20.34 to
8.18, quick ratio has been
reduced from 19.36 to
7.56 and the cash ratio
has been reduced from
0.29 to 0.02
(Annualreports.com
2019). Reductions of
these liquidity ratios are
indicating that the ability
of the company to meet
its short term obligation
with the available short
term assets is reducing.
Assertion
Existence
Valuation and
accuracy
Completeness
Impacts on accounts
(i) Current assets
including cash account
and receivables
accounts and (ii)
current liabilities like
payable accounts and
deposits and public
borrowing account
(AICPA 2018).
Existence –
Current assets and current
liabilities shall be checked with
the purchase and sales invoice.
Valuation and accuracy –
assets value and value of the
liabilities shall be confirmed
from the associated documents
like purchase and sales
vouchers, loan documents, Bank
accounts, debtor payment term
and creditors lending terms (da
Silva and Dantas 2018)
Completeness –
The auditor shall check that the
balance sheet recorded the asset
and liability items those taken
place during the current
financial period and transactions
from other period has not been
included in the current period.
Financial
leverage
ratio
From the financial
leverage aspect it can be
stated that the debt to
equity ratio is increased
by 10.01% in 2017 as
compared to previous
year and equity ratio is
reduced by 8.66%
(Annualreports.com
2019). It is indicating that
Existence
Valuation and
accuracy
Completeness
Impacts on accounts
Liabilities like payable
accounts and deposits
Existence –
Existence of fixed asset like
plant, equipment and property
shall be verified physically.
Loan and borrowings shall be
confirmed with the lending
institutions.
Valuation and accuracy –

3AUDITING AND ASSURANCE IN AUSTRALIA
the company is
significantly depending
on debt for funding its
operation and therefore
exposing itself to
solvency risk. higher debt
level also indicates that
the company has to pay
higher amount for
fulfilling the debt
obligation and the interest
applied to the debt
and public borrowing
account, shareholder’s
equity including
reserves and retained
profits and assets
account like plant,
property and
equipment, intangible
asset and investments
in the joint ventures
and associates
(Elsayed 2017).
Value of property, plant and
machinery shall be checked with
the fixed asset register. Further,
the valuation method of the
entity shall be matched with the
value reported in the balance
sheet of the company. For debts
and borrowings loan agreement,
repayment schedule shall be
checked with the lending
institution (Elsayed 2017).
Completeness –
All the transaction those were
supposed to be recorded shall be
matched with the purchase
invoice, sales invoice, credit
notes, sales and purchase
register with the values reported
in the balance sheet for the
related period.
Efficiency
ratio
From the annual report as
well as the efficiency
ratios of the company has
reduced that indicates that
the efficiencies of the
entity over the years has
been reduced. Total asset
turnover ratio of the
company has been
reduced by 1.76% that
indicates that the total
asset as compared to the
sales revenue has been
reduced. Further, increase
in receivable turnover
ratio by 4.86% is
indicating that the
efficiency of the company
has been reduced
regarding collection of its
receivable
(Annualreports.com
2019).
Classification
Valuation and
accuracy
Existence
Impacts on accounts
It will have an impact
on various accounts
like revenue, trade and
other receivables, fixed
assets like plant,
property and
equipment, intangible
asset and investments
in the joint ventures
and associates and
current assets like cash
and liquid assets,
derivative assets and
investments available
for sales (AICPA
2018).
Classification –
The auditors shall check that the
sales have been properly
classified into cash sales and
credit sales. Further, the
receivables shall be matched
with the amount of credit sales
and sales register. The credit
period allowed to the debtors
shall also be checked to assure
that the payments are not
overdue.
Valuation and accuracy –
Value of property, plant and
machinery shall be checked with
the fixed asset register.
Existence –
Existence of revenues shall be
checked with sales register and
verify that the sales have been
taken place during the
concerned period (Mock and

4AUDITING AND ASSURANCE IN AUSTRALIA
Fukukawa 2015).
Reference
AICPA, 2018. Assessing and Responding to Audit Risk in a Financial Statement Audit,
October 2016. John Wiley & Sons.
Annualreports.com., 2019. [online] Available at:
http://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_AMLTY_2017.pdf
[Accessed 24 Jan. 2019].
da Silva, T.C. and Dantas, J.A., 2018. Audit Assertions and Change of Auditors' Opinion in
the Brazilian Market. Revista de Educação e Pesquisa em Contabilidade, 12(1).
Elsayed, A.A., 2017. The Audit Risk Model, the Signal Detection Theory, and the
Information Manipulation Theory.
Mock, T.J. and Fukukawa, H., 2015. Auditors' risk assessments: The effects of elicitation
approach and assertion framing. Behavioral Research in Accounting, 28(2), pp.75-84.

5AUDITING AND ASSURANCE IN AUSTRALIA
Appendix

6AUDITING AND ASSURANCE IN AUSTRALIA
Ratio computation

7AUDITING AND ASSURANCE IN AUSTRALIA

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