Auditing and Assurance in Australia

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and assurance in Australia
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1AUDITING AND ASSURANCE IN AUSTRALIA
MAMORANDUM
To: Wayne Wiadrowski
From: Audit manager, Samway Baker Fitzgerald
Subject: Addressing suggestions to the senior auditor
Objective of this report is addressing the key issues in planning the audit for Always Precise
Instruments Pty Limited. Suggestions will be provided to the audit senior who are in process of
planning the audit for the mentioned entity. Issues highlighted in the given case will be
considered in providing suggestions.
Question 1
Ratio analysis for identifying the audit risk
Ratio Analysis Audit risk Audit procedure to reduce
risk
Current
ratio
current ratio of the
company for the year is
signifying that though
the current ratio of the
entity is comparatively
better as compared to
previous year as well as
the budget, it could not
achieve the industry
benchmark
Lower current ratio as
compared to industry
benchmark is indicating
that the company is not
able meet its required
liquidity position. It
involves the risk that the
company is not able to
generate sufficient current
assets for maintaining its
liquidity position.
The auditor shall verify the
current assets movement as
well as current liabilities
movement to assure that
both are in order. Any
significant difference in any
of the current assets or the
current liabilities shall be
verified with the
management.
Quick
assets
ratio
Quick ratio of the
company for the year is
signifying that though
the it is comparatively
better as compared to
Lower quick ratio as
compared to industry
benchmark is indicating
that the company is not
able meet its required
The auditor shall verify the
current assets movement as
well as current liabilities
movement to assure that
they are managed as per

2AUDITING AND ASSURANCE IN AUSTRALIA
previous year as well as
the budget, it could not
achieve the industry
benchmark
liquidity position. Further,
higher proportion of
current assets are blocked
in inventories
requirement. For instance,
receivables are collected on
time and payables are paid
on time. Further, the
inventory register and
physical stock shall be
verified to ensure the
balance of inventory.
Return on
equity
Return on equity for
2018 is lower as
compared to budget and
previous year.
Moreover, it could not
even reach the industry
benchmark.
Lower return on equity
signifies there has been
misstatement regarding the
expenses that led to lower
net earnings. Apart from
that, amount of equity may
have been recorded at
higher that actual amount
for showing less amount of
borrowings
Each of the major expenses
shall be verified with
associated documents. The
auditor must also check that
major expenses are properly
authorized by the concerned
person. Further, the share
issue details shall be
verified to confirm the
amount of equity.
Return on
assets
Return on asset for 2018
is lower as compared to
budget as well as
previous years ROA.
Moreover, it could not
even reach the industry
benchmark.
Lower ROA indicates
higher amount of expenses
and lower amount of
profit. Hence, likelihood is
there the expenses may
have been overstated.
Another risk is that the
assets register has been
misstated
Asset register shall be
verified to confirm the
balance of asset. Further,
each of the major expenses
shall be verified with
associated documents. The
auditor must also check that
major expenses are properly
authorized by the concerned
person.
Gross
margin
Gross margin for 2018
is significantly lower as
compared to budget as
Significant fall in gross
margin indicates lower
sales or higher cost of
The auditor shall verify the
purchase orders and the
quotation received from the

3AUDITING AND ASSURANCE IN AUSTRALIA
well as previous years
ROA. Moreover, it is
significantly low as
compared to the
industry benchmark.
sales. Likelihood is there
that the COS has been
misstated and recorded at
higher amount
suppliers for raw material to
ensure that the supplier
offering lowest price is
placed with the order.
Further, the sales registered
shall be checked to verify
that all the sales have been
recorded at appropriate
amount.
Marketing
expenses
Marketing expenses for
the year ended 2018
was higher as compared
to the both budget as
well as previous year.
Further, it was higher
than the industry
benchmark.
Higher marketing
expenses are signifying the
risk of overstatement.
Likelihood is there that the
expenses have not been
incurred as per the
requirement.
Marketing expenses shall be
verified with associated
documents. The auditor
must also check
reasonableness of the
expenses and that the
expenses are properly
authorized by the concerned
person.
Admin
expenses/
sales
Admin expense was less
than the industry
benchmark. Further, it
was as per the budget
and lower as compared
to the previous year.
Lower admin expense is
indicating that the entity
was able to lower the
expenses against the
sales generated
Admin expenses remains
fixed until there is change
in the number of
employees to whom the
salaries are paid, reduction
in rent and office utilities.
Risk is there that all the
expenses those are
supposed to be recorded
have not been recorded
The auditor shall verify
each head of admin
expenses and reason of
reduction. Any unusual or
significant changes shall be
justified through associated
documents. Further, the
admin expenses shall be
reconciled with the
financial statements to
ensure that all the expenses
have been recorded at
proper amount.