Auditing and Assurance Service

This text discusses the risks associated with asset accounts, expense identification, and valuation of derivatives. It also provides guidance on how to conduct substantive tests of details and assertions. The subject is Auditing and Assurance Service, and the course code and college/university are not mentioned.

Running head: AUDITING AND ASSURANCE SERVICE
Auditing and Assurance Service
Name of the Student:
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Author’s Note

1AUDITING AND ASSURANCE SERVICE
Table of Contents
Asset Accounts at Risk....................................................................................................................2
Identification of an Expense of the Business...................................................................................6
Reference.........................................................................................................................................8

2AUDITING AND ASSURANCE SERVICE
Asset Accounts at Risk
1.
Asset Account
2(a).
Explanation
2(b).
Key
Assertion
2(c).
Substantive Test of Details
Property, Plant
and Equipment
which is
valued at $
10,291.8
million
The valuation of property, plant
and equipment for the business
of AusNet Ltd for the year of
2018 is under the risk of being
materially overvalued. The
annual report of the company
for the year 2018 shows that the
value of the asset has increased
significantly in comparison to
value which is shown for
previous year (Wang &
Fargher, 2017). In addition to
this, it is also to be noted that
the same is also included in key
audit matters of the business
which shows that the item is of
material nature and may be
materially misstated. The
Valuation
ASA 315
The auditor needs to check
the valuation of property,
plant and equipment and the
same can be traced through
the supplier invoices when
the asset was actually
purchased (Bagshaw and
Selwood, 2014). The auditor
needs to apply the procedure
of verification in order to
assess that the treatments
which are shown in the
financial statement are
appropriate or not. In case of
expenses of capital nature,
the same needs to be added
to the value of property,
plant and equipment. The

3AUDITING AND ASSURANCE SERVICE
valuation of property, plant and
equipment have been done
considering the various
operating and capital
expenditure which is
undertaken by the business such
as improvements to building
made are all capitalized
(Zakaria et al., 2014). In such a
situation, the management
might have capitalized in
excess and thereby the value of
the property, plant and
equipment might be showing
higher than the actual value for
the same. In addition to this,
there is more complicated
judgements which the auditor
needs to make such as
classification between operating
and capitalized expenditure,
identification of different
projects which are to be
auditor can also use the
services of an expert for the
purpose of effectively
valuing the asset of the
business.

4AUDITING AND ASSURANCE SERVICE
undertaken by the business
(Bauer, 2014). In addition ton
this, there is also complexity in
the impairment test of the asset
which also depends on the
valuation of the asset properly.
Therefore, the valuation of
property, plant and equipment
might be potentially at risk of
being materially misstated.
Valuation of
Derivatives
The derivatives of the business
refers to the investment which
is made by the business in
financial instruments such as
foreign currency bonds, hedge
contracts and swap contracts
which are disclosed in the notes
to account section of 2018
annual report. There is
significant amount of risk
regarding the value which is
shown for such financial
derivatives (Hull & Basu,
Occurrence
ASA 315
The valuation of the
derivatives of the business is
a complex process to carry
out as it involves significant
judgement on the part of the
auditor of the business.
Therefore, the auditor needs
to ask for management
representation regarding the
judgements which are
considered by the
management while valuing
the financial derivatives of

5AUDITING AND ASSURANCE SERVICE
2016). The hedge contract
which is shown in the annual
report is entered by the business
to minimize the effects of
foreign currency rate
fluctuation on the business. The
auditor has covered the
valuation aspect of financial
derivatives in key audit matters
of the business. The risk arises
because there is significant
complexity in the derivative
portfolio of the business which
includes swap contracts, hedge
contracts and other key
instrument which is used by the
business (Ammann, 2013).
There is significant amount of
inherent risks relating to the
valuation of the financial
portfolio of the business as
there involves significant
amount of judgement which
the business and on the basis
of such representation, the
auditor can appropriately
assess whether the financial
statement are showing true
and fair view in regards to
the financial derivatives
which are shown in the
annual reports of AusNet ltd
for the year 2018. The
auditor also needs to check
whether the management of
the company has [rovided
appropriate disclosures
relating to the financial
derivatives which are
considered by the business.
In addition to this, the
auditor also needs to check
which foreign exchange rate
is considered by the
management and on what
date the foreign exchange

6AUDITING AND ASSURANCE SERVICE
needs to be taken by the
management of the company.
rate is considered by the
business for the purpose of
bring about full disclosures
in the annual report of the
business.
Identification of an Expense of the Business
Expense Account Explanation Regarding the risks related to the
Account
Risk
Assertion
Operating lease Rental
Expenses
As per the income statement which is prepared by the
business for the year 2018 shows that the business
has taken certain assets on lease basis for which the
management needs to incur certain costs for
maintaining the asset of the business (Altamuro et al.,
2014). The potential risk is that the value which is
shown for the operating leases are not disclosed and
therefore the lease expenses might be misstated. Any
misstatement in the operating lease expenses of the
business would result in affecting the profit of the
business and thereby the entire financial statement of
the business. The auditor needs to ensure that the
management of the company is following the
Occurrence
ASA 315

7AUDITING AND ASSURANCE SERVICE
provisions which are stated in AASB 16 which states
all the disclosure requirements and treatments which
are associated with a lease contract. The auditor also
needs to check whether the asset for which the lease
payment is being made is actually under the use of
the management of the company and the same can be
done by the auditor by checking the various lease
documents and contracts which needs to be
maintained by the management of AusNet ltd.

8AUDITING AND ASSURANCE SERVICE
Reference
Altamuro, J., Johnston, R., Pandit, S., & Zhang, H. (2014). Operating leases and credit
assessments. Contemporary Accounting Research, 31(2), 551-580.
Ammann, M. (2013). Credit risk valuation: methods, models, and applications. Springer Science
& Business Media.
Bagshaw, K. and Selwood, J., 2014. Core auditing standards for practitioners. John Wiley &
Sons.
Bauer, K. (2014). Fixed assets valuation in the condition of bankruptcy risk: The role of
estimates. Journal of modern accounting and auditing, 10(6).
Hull, J. C., & Basu, S. (2016). Options, futures, and other derivatives. Pearson Education India.
Wang, I. Z., & Fargher, N. (2017). The effects of tone at the top and coordination with external
auditors on internal auditors’ fraud risk assessments. Accounting & Finance, 57(4), 1177-
1202.
Zakaria, A., Edwards, D. J., Holt, G. D., & Ramachandran, V. (2014). A Review of Property,
Plant and Equipment Asset Revaluation Decision Making in Indonesia. Mindanao
Journal of Science and Technology, 12.