Auditing Issues and Recommendations for Nanosonics

This report discusses the auditing procedures and regulations that would have to be adopted for the purpose of executing the required procedures. It also provides an overview of the principles of auditing and recommendations that are needed in order to start an auditing framework essential for the assessment and evaluation of the accounting statements of the chosen business entity. The report focuses on Nanosonics, a listed organization, and evaluates the accounts that have been preferred for the purpose of assessing the degree of materiality.

ASSIGNMENT
BAO3306 AUDITING
REPORT

Semester 1, 2018
1. Executive summary
The main purpose of the assignment is to discuss the issues of auditing that has been
answered in the answered. The answer need to be given by the external auditor of corporate
entity of Nanosonics. The company has been asked to conduct the audit of the business
operations for the financial year of 2017 of the corporate entity,
The main objective of the study is to provide a summary into the principles of auditing and
recommendations that are needed in order to start an auditing framework essential for the
assessment and evaluation of the accounting statements of the chosen business entity.
Moreover, the accounts that have been preferred for the purpose of assessing the degree of
materiality are Cash and Cash Equivalents Account, Trade and Other Receivables Account,
Inventories Account, Prepayments and Other Current Assets Account and Non-current
Borrowings Account.

2. Introduction
The auditing procedure of the financial statements of a company are essentially carried
out for the purpose of evaluating the fact as to whether the financial report that is prepared for
a stipulated financial year reflects the true image of the corporate entity. This means that the
controlled set of guidelines or structures should be necessarily complied with for the purpose
of reflecting the fairness of the accounting statements of the selected corporate entity.
Furthermore, the primary logic behind the financial reporting activity in case of a selected
organization refers to the fact that the third party investors or the stakeholders of business
will receive a clarified image in regards to the business operations of the particular firm
whose financial reports are being prepared. In this particular study, the selected organization
is Nanosonics which is a listed organization. This fact however, redoubles the significance of
the accounting statements.
It has been further mentioned in the case study that has been presented that as an external
auditor it has been asked to carry out the audit of the accounting statements of the corporate
entity of Nanosonics. The audit fees that has been conveyed to the client in the particular
letter in regards to Audit engagement is $100,000. The particular auditing standards that have
been utilized in order to carry out the required evaluations are ASA 315.
Thus this report that has been prepared aims to give an overview of the particular auditing
procedures and regulations that would have to be adopted for the purpose of executing the
required procedures.

3. Key information
a) Our understanding of the client
The client firm that has been chosen for the purpose of this particular study is
Nanosonics. This particular corporate entity has been founded in the accounting year
of 2001. The headquarters of the business entity has been based in Sydney, Australia.
The management of the corporate entity of Nanosonics have been an innovator in
regards to the prevention of infection. The unique product that has been manufactured
by this organization is the automated trophon ERP high level disinfection device that
has paved the way around the world in regards to the establishment of a new standard
that are utilized in ultrasound probe disinfection practices (William Jr, Glover and
Prawitt 2016).
Moreover, the particular organization has been listed on the Australian Securities
Exchange in the financial year of 2007. Next, in the financial year of 2009 the
corporate entity had launched trophon which had been an automated technology for
the HLD of intra-cavity and ultrasound probes in regards to the surface. Next, in the
financial year of March 2015, the corporate entity had been included in the Australian
Stock Exchange ASX300 Index. In the following year the corporate entity got
included in the list of the ASX200 Index. In the recent times the corporate entity of
Nanosonics has offices in North America, Canada, Europe, United Kingdom and
employs more than 150 people.
The core values can be developed as follows:
 Safety – trophon, an unique product that has been developed by the corporate
entity of Nanosonics has led to the development of a new benchmark in
regards to the protection of the patients, staff and the environment in regards
to the potential hazards that is reflected from the utilization of the chemical
soaking methods.
 Versatileness – the particular features that have been reflected by trophon has
been that the product is self-contained and compact in nature. This means that
the installation procedure of the product requires no critical or complicated
processes. Moreover, the compatibility of the product with different brands of
ultrasound probes has increased the scope of utilization of the product.
 Simplicity – the operations in regards to the utilization of trophon has been
simple. Moreover, the particular process required minimal training on the part
of the staff utilizing the probe.
Therefore, it can be concluded from the operations of the particular corporate
entity that Nanosonics has been a successful corporate venture and has achieved a
higher degree of success in a very short period of time. Moreover, the success story of
this particular corporate entity can be summarized with the help of the following
attachment (William Jr, Glover and Prawitt 2016).

Figure: Financial Results
Source: (William Jr, Glover and Prawitt 2016)
b) Our assessment of significant accounts
Before beginning with the process of identifying the accounts that have chances or are
vulnerable to the risk of material misstatement, the procedure that has been adopted by the
auditors for carrying out the particular task of identification of the issue in regards to the
material misstatements should be understood. Thus, it can be understood here that it is very

important on the part of an external auditor to carry out the identification of the particular
accounts that might be subjected to the risks of material misstatements. The method that
should be followed by the auditor for the purpose of identifying the issue of materiality in the
financial statements of the corporate entity whose books are being audited has been
established by the particular auditing principles of ASA 315 (Contessotto and Moroney
2014).
The auditing framework that has been established by ASA 315 can be listed down as
follows:
 The auditor initially has to obtain the understanding in regards to the nature to which
the particular organization, whose books are being audited, belongs. The auditor
should also consider the external factors that are applied for the purpose of preparing
the accounting statements of the particular corporate entity
 The auditor should also have to consider the nature of the operations that have been
carried out by the business, the ownership of the firm along with its governance
structure that has been utilized in the particular corporate entity. Moreover, the type
investments that the management of the corporation indulges in should also be
verified by the auditor.
 Next, the objectives of the organization, the strategies utilized by it for the purpose of
carrying out the promotional activities should be evaluated and judged by the auditor
for the purpose of understanding the primary motive of business of the particular
corporate entity.
 The auditing procedures that have been mentioned above aid the process of
identification of the particular accounts that might be subjected to the issue of
materiality misstatement.
 It must be further noted here that the issue of materiality in the books of the financial
statements that is the overstatement or the understatement of the various accounts will
result in the occurrence of fraud on the part of the accountant of the corporation
preparing the accounting statements of the organization.
 In order to facilitate the identification of the accounting statements in which the
material misstatement has occurred the auditor has to carry out the verification of the
transactions that have occurred and have been recorded in the accounting statements.
Moreover, he should also check the completeness, reliability and the degree of
accuracy of the accounting statements of the corporate entity.
 Furthermore, it is the primary duty of the auditor to carry out the evaluation of the
disclosures and the assertions that have been provided by the management of the
corporation in the financial report of the corporate entity. The business entity should
also provide enough financial information in regards to the particular financial
accounts that have been included in the annual report of the corporate entity for a
stipulated financial year.
 The auditor is also responsible for executing the assessment procedures in regards to
risk that is an essential component in the particular process of identification of the
accounts that might be subjected to the risk of material misstatement. Furthermore, it
is the primary duty of the auditor to collect sufficient amount of evidence for the
purpose of supporting the risk assessment.
Therefore, from the above points it can be deduced that the auditing framework that
should be followed by an external auditor carrying out the audit of the financial statements
has been carried out. Moreover, the steps that should be followed by him for the purpose of
identifying the materiality in the books of accounts have been explained in the above
mentioned points (Contessotto and Moroney 2014).

The particular accounts that have been selected for the purpose of determining the fact
whether the financial statements of the corporate entity of Nanosonics have been prepared
properly or whether there have been any issue of material misstatements in the books of
accounts of the corporate entity for the financial year of 2017 are as follows:
 Cash and Cash Equivalents Account
 Trade and Other Receivables Account
 Inventories Account
 Prepayments and Other Current Assets Account
 Borrowings Account
Cash and Cash Equivalents Account – the cash and cash equivalents account that has been
selected in order to determine the particular matter as to whether this particular account has
been exposed to the occurrence of the material misstatements can be evidenced by the fact
that the particular account balance displays an abnormal increase in regards to the particular
account balance. This means that the balance of this particular financial component for the
financial year of 2016 has been $48,841. On the other hand the account balance for this
particular financial component has increased to $62,989 for the financial year of 2017. This
means that the increase in the particular account balance should be justifiably clarified as
there has been an abnormal increase of $14,148. More information should be provided in
regards to short term deposits and deposit on call.
Trade and Other Receivables Account - the trade and other receivables account that has been
selected in order to determine the particular matter as to whether this particular account has
been exposed to the occurrence of the material misstatements can be evidenced by the fact
that the particular account balance displays an abnormal increase in regards to the particular
account balance. This means that the balance of this particular financial component for the
financial year of 2016 has been $7,734. On the other hand the account balance for this
particular financial component has increased to $8,923 for the financial year of 2017. This
means that the increase in the particular account balance should be justifiably clarified as
there has been an abnormal increase of $1,189.
Inventories Account - the inventories account that has been selected in order to determine the
particular matter as to whether this particular account has been exposed to the occurrence of
the material misstatements can be evidenced by the fact that the particular account balance
displays an abnormal increase in regards to the particular account balance. This means that
the balance of this particular financial component for the financial year of 2016 has been
$6,935. On the other hand the account balance for this particular financial component has
increased to $7,728 for the financial year of 2017. This means that the increase in the
particular account balance should be justifiably clarified as there has been an abnormal
increase of $793. The increase in the price of raw materials and stores should be further
explained by the management of the company.
Prepayments and Other Current Assets Account - the prepayments and other current assets
account that has been selected in order to determine the particular matter as to whether this
particular account has been exposed to the occurrence of the material misstatements can be
evidenced by the fact that the particular account balance displays an abnormal increase in
regards to the particular account balance. This means that the balance of this particular
financial component for the financial year of 2016 has been $1,050. On the other hand the
account balance for this particular financial component has increased to $1,379 for the

financial year of 2017. This means that the increase in the particular account balance should
be justifiably clarified as there has been an abnormal increase of $329.
Non-current Borrowings Account - the borrowings account that has been selected in order to
determine the particular matter as to whether this particular account has been exposed to the
occurrence of the material misstatements can be evidenced by the fact that the particular
account balance displays an abnormal decrease in regards to the particular account balance.
This means that the balance of this particular financial component for the financial year of
2016 has been $1,349. On the other hand the account balance for this particular financial
component has decreased to $946 for the financial year of 2017. This means that the decrease
in the particular account balance should be justifiably clarified as there has been an abnormal
increase of $403. No sufficient information has been disclosed by the management of the
corporate entity in regards to the non-current borrowings account.
c) Our planning materiality
The planning in regards to the level of materiality refers to the particular process that is
necessarily adopted by an external auditor for the purpose of estimating the amount of
materiality. The materiality amount that has been planned by the auditor should be included
in the auditor’s report. It must be noted here that the particular amount of materiality is
arrived at by the auditor with the help of the consideration of the financial elements like the
net profit of the corporate entity, revenue in regards to the particular financial year.
Moreover, the phenomenon of material misstatement might occur at the time when the
amount of materiality exceeds the projected amount of materiality then the auditing issue of
material misstatement occurs in the books of accounts (Pain 2014). In regards to this
particular study the materiality level has been determined as follows:
0.5% of sale of goods and services = 0.5% of $67.5 million = $67.5 million x 0.005 =
$337,535.

Our assessment of what can go wrong
For the purpose of determining the essentialities that might go wrong the particular
risks that are associated with the audit of the particular accounts should be discussed. The
risks that are associated with the audit processes that is utilized for the purpose of evaluating
the selected accounts should be understood at first (Baranov caes et al., 2017).
The audit risks refer to the particular risks that occur at the time of performance of the
audit. The audit risks can be divided into inherent risks, detection risks and control risks.
Inherent risks refer to the particular risks that have been associated with the occurrence of
material misstatements in the books of accounts. The reasons for such an occurrence can be
cited as the errors of omission or errors of carelessness or intended error in order to commit
fraud or embezzlement on the part of the accountant or the administration of the company.
Control risk refers to the particular risk that has been associated with the occurrence of
material misstatements due to the lack of particular internal controls in the organization
(Baranov caes et al., 2017).
Lastly, the risk of detection can be identified as the risk of occurrence of material
misstatements due to the errors that cannot be detected by the auditor of the corporate entity
due to a high degree of complications in regards to the financial report of the corporate entity
(Baranov caes et al., 2017).
Therefore, total audit risk can be defined as follows:
Total audit risk = Control risk x Detection risk x Inherent risk
Accounts Inherent Risk Control Risk Detection Risk
Cash and Cash
Equivalents Account
High degree of risk
on account of
carelessness of the
accountant
High degree of risk
as the internal
controls might not be
properly
implemented in the
organization
Low degree of risk as
the proceedings of
the particular account
is not complicated in
nature.
Trade and Other
Receivables Account
Low degree of risk as
errors of omission is
less in regards to this
particular account
High degree of risk
as the internal
controls have not
been implemented in
the organization
High degree of risk
as the financial
proceedings of the
trade and other
receivables are
complicated in nature
Inventories Account High degree of risk
on account of
carelessness of the
accountant
High degree of risk
as the internal
controls might not be
properly
implemented in the
organization
Low degree of risk as
the proceedings of
the particular account
is not complicated in
nature.
Prepayments and
Other Current Assets
Account
Low degree of risk as
errors of omission is
less in regards to this
particular account
High degree of risk
as the internal
controls have not
been implemented in
the organization
Low degree of risk as
the proceedings of
the particular account
is not complicated in
nature.
Non-current
Borrowings Account
High degree of risk
on account of
carelessness of the
accountant
High degree of risk
as the internal
controls might not be
properly
Low degree of risk as
the proceedings of
the particular account
is not complicated in

implemented in the
organization
nature.

4. Conclusion
The conclusion that can be derived from the discussions that have been held above reflects
the fact that the corporate entity of Nanosonics should be more vigilant towards the
preparation of the accounting statements of the corporate entity. The accounting procedures
should be further clarified in order to reduce the risk of material misstatement in the books of
accounts.

5. Appendix
Balance sheet

Income Statement

References and Bibliography
Alhadi, A.K., Habib, A. and Hasan, M.M., 2015. Audit Fees and Money Laundering.
Baranov, P.P., Shaposhnikov, A.A., Maksimova, G.V. and Fadeykina, N.V., 2017. Scientific
Basis of the Audit Theory. Journal of Advanced Research in Law and Economics, 8(4 (26)),
pp.1073-1087.
Brenninkmeijer, A., Debets, R., Hock, B. and Moonen, G., 2017. The Application of Audit
Standards in ECA's Work.
Carson, E., Fargher, N. and Zhang, Y., 2017. Explaining auditors’ propensity to issue going‐
concern opinions in Australia after the global financial crisis. Accounting & Finance.
Chang, K.H.V., 2017. Internal audit quality and its association with financial distress: An
Australian context (Doctoral dissertation, Curtin University).
Contessotto, C. and Moroney, R., 2014. The association between audit committee
effectiveness and audit risk. Accounting & Finance, 54(2), pp.393-418.
Cullen, G., Gasbarro, D., Monroe, G.S., Shailer, G. and Zhang, Y., 2017. Bank audit fees and
asset securitization risks. Auditing: A Journal of Practice and Theory.
Dewar, D. and Funnell, W., 2016. A History of British National Audit:: The Pursuit of
Accountability. Oxford University Press.
Greenwood, M., 2017. Austerity, Audit, and Accountability: New Public Management and
the Privatisation of Local Audit in England. Observatoire de la société britannique, (19),
pp.159-177.
Kumar, R. and Sharma, V., 2015. Auditing: Principles and practice. PHI Learning Pvt. Ltd..
Li, C., Raman, K.K., Sun, L. and Wu, D., 2015. The SOX 404 internal control audit: Key
regulatory events. Research in Accounting Regulation, 27(2), pp.160-164.
Pain, R., 2014. Impact: Striking a blow or walking together?. ACME: An International
Journal for Critical Geographies, 13(1), pp.19-23.

Sanderson, J., 2014. Audit issues. SMSF Guide: Current Issues and Strategies for the Self-
Managed Superannuation Funds Adviser, p.377.
Shore, C. and Wright, S., 2015. Governing by numbers: audit culture, rankings and the new
world order. Social Anthropology, 23(1), pp.22-28.
Subhani, N. and Kent, R.D., 2015, April. Continuous process auditing (CPA): An audit rule
ontology based approach to audit-as-a-service. In Systems Conference (SysCon), 2015 9th
Annual IEEE International (pp. 832-838). IEEE.
Tee, C.M., Gul, F.A., Foo, Y.B. and Teh, C.G., 2017. Institutional Monitoring, Political
Connections and Audit Fees: Evidence from Malaysian Firms. International Journal of
Auditing, 21(2), pp.164-176.
Tinmouth, J., Patel, J., Hilsden, R.J., Ivers, N. and Llovet, D., 2016. Audit and feedback
interventions to improve endoscopist performance: principles and effectiveness. Best Practice
& Research Clinical Gastroenterology, 30(3), pp.473-485.
Vovchenko, G.N., Holina, G.M., Orobinskiy, S.A. and Sichev, A.R., 2017. Ensuring financial
stability of companies on the basis of international experience in construction of risks maps,
internal control and audit. European Research Studies Journal, 20(1), pp.350-368.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A
systematic approach. McGraw-Hill Education.