Comparison and Ratio Analysis of Magellan Fin Group Limited

This report presents a comparison and ratio analysis of Magellan Fin Group Limited to evaluate its performance. It also discusses the inherent risks and material misstatements in the company's annual report.

Running head: AUDITING
Auditing
Name of student:
Name of the University
Authors’ note

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Executive summary:
This report is particularly presenting the simple comparison and ratio analysis of Magellan
Fin Group Limited, a financial corporation for the purpose of evaluating company’s
performance. It is also representing the influences that effecting through the analysis of
companies performances. Next to this report is mentioning the material misstatements
relating to companies audit risks through the analysis of company’s annual report. After this,
the report is presenting some inherent risks at the assertion level in case to evaluate overall
performance of the company.

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Table of Contents
Requirement 1:...........................................................................................................................5
Analysis of different accounting balances and Ratios in current year:..................................5
Conclusion:..........................................................................................................................11
Requirement 2:.........................................................................................................................12
Risk relating to material misstatement (Inherent Risk) according to Magellan Fin Group
Limited’s financial report level:...........................................................................................12
Conclusions:.........................................................................................................................15
Requirement 3:.........................................................................................................................16
Risk relating to material misstatement (Inherent Risk) according to Magellan Fin Group
Limited’s Assertion level:....................................................................................................16
Conclusion:..........................................................................................................................19
References:...............................................................................................................................20

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Requirement 1:
Analysis of different accounting balances and Ratios in current year:
Generally, two different procedures are used in the case of analysing the financial
statement of Magellan Fin Group Limited. One is the using of simple comparison, between
the balances of three years revenues, expenses, net profit, assets balance, current liabilities
and amount of equity and the second one is using through the ratio analysis of three different
years(Home - Magellan Financial Group, 2019).
Simple Comparisons:
Revenues:
Figure 1: Revenues for the year 2016, 2017 & 2018.
Interpretation: The Company’s revenue incomes comparing with the previous years are
following the increasing trend in the present situation. In the year 2016 it was $333805, in

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2017 it was 338268 and in 2018 it was 452598 (Annual Report, 2016). Such increase is due
to changes in the investment earrings of the company during those particular period.
Figure 2: Net profit for the year 2016, 2017 & 2018.
Interpretation: The Company’s Net profit comparing with the previous years are following
the increasing trend in the present situation, however it was decreased in the year 2017
followed the year 2016 due to some misconducts. The company earned $259701 in 2016,
$256127 in 2017 and $270610 in the year 2018 (Annual Report, 2017). Such changes in net
profits is occurred due to increase of revenues comparing with total expenses during this
period.

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Figure 3: EPS for the year 2016, 2017 & 2018.
Interpretation: The Company’s amount of earning per share comparing with the previous
years is following the increasing trend in the present situation however it showed the
decreasing trend in the year 2017. In the year 2016 E.P.S. is showed the balance of $123.5, in
2017 it was $116.9 and in 2018 it was $122.0 per share (Annual Report, 2018). Such increase
is occurred due to changes in the total earning comparing with total number of shares.
Figure 4: Assets for the year 2016, 2017 & 2018.

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Interpretation: The Company’s amount of Total assets comparing with the previous years is
following the increasing trend in the present situation. Such increasing is happen due to
continuous growth of company’s investment amount, liquidity balance and also due to
increasing the fixed assets balances. In the year 2016 the balance showed an amount of $
392379, in 2017 it was $493981 and in 2018 it was $674943(Annual Report, 2016). Such
changes in assets value is occurred due to purchase of new assets during those period.
Figure 5: Total Equity for the year 2016, 2017 & 2018.
Interpretation: The Company’s amount of Total equity comparing with the previous years is
following the increasing trend in the present situation, which implies that the continuous
increasing the number of equity share holders for the company. In the year 2016 the total
equity was $355365, in 2017 it was 447611 and in the year 2018 it was 620433(Annual
Report, 2017). Such increase in equity is due to addition of number of shareholders during
those period.

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Comparison through Ratio Analysis:
Figure 6: Proprietary ratio for the year 2016, 2017 & 2018.
Interpretation: Magellan Fin Group Limited’s the proprietary ratio comparing with the
previous years is generally representing the continuous increasing trend in the present
situation. Generally the high trend in this ratio is indicating the strong financial condition of
the business. Here in case of Magellan Fin Group Limited the continuous increasing trend is
also representing the same scenario (Annual Report, 2018).

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Figure 7: Current ratio for the year 2016, 2017 & 2018.
Interpretation: Magellan Fin Group Limited’s the proprietary ratio comparing with the
previous years is generally representing the decreasing trend. Normally such ratio is use to
represent the liquidity conditions of the company in case to meet the current liabilities of the
company (Home - Magellan Financial Group, 2019). Here analysing the data from the
company’s annual report is showing the availability of sufficient amount of current assets to
meet its liabilities.

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Figure 8: Return on equity for the year 2016, 2017 & 2018.
Interpretation: Generally this ratio is used to express the net profit in terms of the equity
shareholders’ funds. Such ratio is considered as important yardsticks of performance for
equity owners as it represent the return on the funds invested by them (Home - Magellan
Financial Group, 2019). For Magellan Fin Group Limited such ratio is representing the
continuous decreasing trend over past three years, which means the return of individual
shares of equity holders are continuously decreasing.
Figure 9: Net profit for the year 2016, 2017 & 2018.
Interpretation: Generally this ratio is used to express the net profit in terms of total amount
of revenues. Through such ratio the earning capacity comparing with its revenue amounts are
generally analysis. In case of Magellan Fin Group Limited such ratio is representing

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continuous decreasing trend that means the quantity of earnings relating to its revenues are
continuously downwards (Home - Magellan Financial Group, 2019). If such situation is
continuing throughout next few years therefore the company may not able to holding its
present stable conditions in future.
Conclusion:
It can be concluded from the above discussion that the present financial condition of
the company is in a quite stable position comparing to its previous year, however, in some
cases the financial positions are not as it’s required to be. The company needs to rectify those
financial conditions in case of future growth. In the case of performing the audit program
properly, the auditor needs to check all the relevant data in thoroughly. For such purpose, the
audit planning needs to be set up properly. In the present scenario, those data are representing
either decreasing or increasing, which implies while an auditor will perform the duty he
needs to be more censure.
Requirement 2:
Risk relating to material misstatement (Inherent Risk) according to Magellan Fin
Group Limited’s financial report level:
In the case of an organization, material misstatements are representing such
statements, which impact on the company’s financial statement negatively. In other words
due to presenting any statement in a wrong way the general negative impacts that influenced
the financial statement and economic conditions of the company are considered as a material
misstatement (Gay and Simnett et al., 2015). In case of Magellan Fin Group Limited’s those
inherent risks are consider as one of the important factors that influenced in case of
company’s annual report. Such risks are as follows;

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Level of Integrity from the Directors:
Integrity implies the equality of being honest or followed some strong moral and
principles. For a director it is consider as one of the important factor that influenced his
performance towards overall company’s goal. Generally the directors need to follow and
maintain some ethical manners that affect positively in conduct his duties. In case of every
organization the directors need disclose in the annual report that such report is presenting the
true and fair view of present year accounts, so while using such statement the directors need
to be satisfied about the audited accounts (Beasley, Lewellen & McAllister, 2018). In case of
any misstatements, that presenting in the annual report of the company implicate or consider
as the fault of the director. So while a director or any persons relating to the management
perform their duties need to maintain level of integrity properly.
Knowledge and experience of the Director and relevant changes in present year:
In case of perform the duties relating to managerial, each and every person need to
maintain quality of knowledge and experience that influenced their individual performance.
While evaluating the performance of Magellan Fin Group Limited’s the directors and every
managerial person need some effective knowledge relating to finance background. For an
accountant need to hold some basic knowledge of accounting to conduct his duties, otherwise
it will present some misstatements in the annual report (Cao, Chychyla & Stewart, 2015).
Followed the same principles others managerial persons also need to hold some managerial
knowledge while performing their duties (Gay and Simnett et al., 2015). In case of any
changes made during the present financial year the managerial department need to show
those changes and effects of such changes properly in the financial statements. In case of
Magellan Fin Group Limited’s the changes showed in the FY 2018 was the remuneration

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structure that generally company provided. The next changes were found in company’s
equity positions, taxations policy, in presenting fair value of assets etc.
Pressure on management:
Sometimes the unusual pressures caused several problems along with the
misstatements that occurred while maintain the financial statements. Due to such pressures
the performance of a managerial employee, sometime impacts negatively on overall
organization’s performance. For an account need a working environment, which is free from
all types’ of burdens, otherwise such employee may not able to perform properly.
Simultaneously if a manager or the directors not get any positive working environment they
may not conduct their duties relating to making any decisions efficiently (Cao, Chychyla &
Stewart, 2015). Such causes will result to various misstatements and inefficient decisions,
which will make negative impacts towards overall performance of the organization.
Nature of Business:
Magellan Fin Group Limited is generally a financial corporation, which is mainly
engaged in providing investing facilities in global market. This company is facilitating
safeguarding to the wealth of their customers. Such company is providing investing facility in
high-quality global stocks that benefited from the rise of the emerging consumer (Home -
Magellan Financial Group, 2019). Companies segments include Funds Management,
Principal Investments and corporate funding.
Factors affecting a financial corporation:
In case of performing globally various factors are need to consider by a financial
corporation. Such factors are those, which make positive as well as negative impacts on the

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overall performance of an organization (Robinson & Broihahn, 2015).. Such factors are as
follows;
Interest Rates: As a financial corporation the Magellan Fin Group Limited need to such
rates applied globally otherwise there may be a situation of inflation can be occurred. If the
borrowings rates are differ therefore company’s economic conditions also can fluctuate.
Economic growth: Generally companies are investing behalf of their future demand. If any
how demand is falling, then such firm will cut back on investment. Simultaneously if the
economic prospects are improved, then such firms will increase their amount of investment as
their expected future demand to rise. Followed those principles an investing corporation need
to maintain such policy to hold the market economic conditions and also to achieve the
overall economic growth (Gay and Simnett et al., 2015).
Confidence: For a financial corporation, which is engaged in investing facilities for them
investment is riskier than savings. Generally a firm or public only invest if they are finding
confident about the future returns, demands and the economic prospects. For Magellan Fin
Group Limited, it is one of the important factor that they need to achieve form their
customers in case of overall organizations success.
Government policies: one of the main factors that influenced the market of an investing
corporation is the government policies. Generally the investors are investing in such phase
where they find some favourable marketing conditions as well as beneficial governmental
policies that influenced their investments. Magellan Fin Group Limited needs to follow such
policies, which make some positive impacts towards their investing facilities (Gay and
Simnett et al., 2015)..

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Availability of finance: For every financial corporation need to maintain proper financial
capacity in case of providing financial support and investing facility. Generally Magellan Fin
Group Limited is the financial corporation, which is perfume globally so in that case
company need to maintain the availability of financial condition effectively (Gay and Simnett
et al., 2015).
Conclusions:
It can be concluded that there are various reason of material misstatements or inherent
risks, which is make negative impacts on overall performance of Magellan Fin Group
Limited. Some misstatements are affecting the financial conditions of the company and the
managerial department simultaneously. In that case the company should follow some
strategies that may affect the overall performance of the company positively.
Requirement 3:
Risk relating to material misstatement (Inherent Risk) according to Magellan Fin
Group Limited’s Assertion level:
1. Revenues $452598 for the year ended 2018.
Revenues $452598 for the year ended 2018
(A) Explain why the account balance is at
significant risk of material misstatement.
1. In case of recording due to lack of accuracy
in revenues, misstatements can be occurred.
2. While generating the revenues due to lack of
knowledge an accountant may not record each
transaction properly.

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3. Sometimes due to the negligence of an
auditor misstatements relating to revenues can
be occurred.
(B) Explain the key assertion at risk of not
being valid.
In case the material misstatements are not
valid- 1. Need to rectify the accounts properly.
2. Make proper judgements relating to
revenues.
(C) Detail one (1) relevant substantive audit
procedure to address the assertion at risk as
identified in B) above.
1. The company need to check all the relevant
accounting details of collecting amounts and
also the sources of revenues generate.
(D) Detail one (1) relevant practical internal
control that would mitigate the risk in
relation to the assertion at risk as identified in
B) above.
1. The organization need to appoint a qualified
accountant, who having proper knowledge of
accounting principles.
2. Net profit $270610 for the year ended 2018.
Net profit $270610 for the year ended 2018
(A) Explain why the account balance is at
significant risk of material misstatement.
1. In case of recording due to lack of accuracy
in calculating net profit, misstatements can be
occurred.
2. While generating the net profit due to lack

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of knowledge an accountant may not record
each transaction properly.
3. Sometimes due to the negligence of an
auditor misstatements relating to net profit can
be occurred.
(B) Explain the key assertion at risk of not
being valid.
In case the material misstatements are not
valid- 1. Need to rectify the accounts properly.
2. Make some proper judgements and
calculations relating to net profit.
(C) Detail one (1) relevant substantive audit
procedure to address the assertion at risk as
identified in B) above.
1. The company need to check all the relevant
accounting details of revenues and expenses
amounts properly and also the sources from
where the revenues and expense are generated.
(D) Detail one (1) relevant practical internal
control that would mitigate the risk in
relation to the assertion at risk as identified in
B) above.
1. The organization need to appoint a qualified
accountant, who having proper knowledge of
accounting principles and accounting records.
3. Total Assets $674943 for the year ended 2018.
Total Assets $674943 for the year ended
2018
(A) Explain why the account balance is at
significant risk of material misstatement.
1. In case of recording, due to lack of accuracy
in recording assets value and depreciation
calculation, misstatements can be occurred.

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2. While Posting the assets value due to lack of
knowledge an accountant may not record each
transaction properly.
3. Sometimes due to the negligence of an
auditor misstatements relating to assets
valuation can be occurred.
(B) Explain the key assertion at risk of not
being valid.
In case the material misstatements are not
valid- 1. Need to rectify the accounts properly.
2. Make some proper judgements and
calculations relating to assets valuation.
(C) Detail one (1) relevant substantive audit
procedure to address the assertion at risk as
identified in B) above.
1. The company need to check all the relevant
accounting details of assets and depreciation
amounts properly and also the sources from
where the assets values are generated.
(D) Detail one (1) relevant practical internal
control that would mitigate the risk in
relation to the assertion at risk as identified in
B) above.
1. The organization need to appoint a qualified
accountant, who having proper knowledge of
accounting principles and accounting records.
Conclusion:
It can be concluded from the above discussion that the company having mainly three
types of accounts i.e. revenues, net profit and total assets value in which the material
misstatements can be occurred. In this requirement notifying such points where
misstatements can be occurred and also pointing how to rectify such misstatements
apparently.

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References:
(2019). [Ebook]. Retrieved from https://www.magellangroup.com.au/shareholder-centre/reports-
asx-releases/magellan-financial-group-annual-reports/annual-report-2017/
(2019). [Ebook]. Retrieved from https://www.magellangroup.com.au/funds/fund-financial-
reports/annual-fund-financial-report-2016/
(2019).[Ebook].Retrievedfromhttp://www.annualreports.com/HostedData/AnnualReports/PDF/
ASX_MFG_2018.pdf
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Gay and Simnett et al. (2018). Audit and audit assurance (6th ed., p. 227). Australia.
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