Auditing for QEM Limited

AUDITING
QEM LIMITED

INTRODUCTION
Auditing refers to the process to inspect and examine the financial records and statements of the audit
clients for assessing whether there is any material misstatements in them and whether they have been
prepared in accordance with the required accounting rules, regulations and principles (William Jr, Glover
and Prawitt 2016). Analysis of audit risk is one of the major responsibilities of the auditors whether it is
needed to determine the level of inherent risk, control risk and detection risk. After the process of risk
assessment, it is required for the auditors to adopt the suitable audit procedures for reducing the risk to an
acceptable level. Analytical procedures in auditing involve analysis of ratios that helps in showing the areas
with potential risk of material misstatements (Knechel and Salterio 2016). In addition, the auditors are
needed to assess the audit assertions while developing appropriate substantive audit procedures and sample
plans for them. The main aim of the report is the analysis of different aspects of auditing for QEM Limited.

NATURE OF THE ENTITY, BUSINESS RISKS
AND RISK ASSESSMENT
Nature of Entity – QEM Limited is an ASX listed company involves in the exploration and
development of its flagship Julia Creek Project that covers 249.6 Km2 in the area of Julia
Creek of North Western Queensland. QEM Limited’s shale project is considered as a world
class unique resource that has the potential of delivering innovative energy solutions by
producing energy fuels and vanadium pentoxide. It indicates that QEM Limited operates in
the energy sector and it is involves in complex business operations (qldem.comau 2019).
Business Risks – It can be seen from the Corporate Governance Plan of QEM Limited that
there are three types of business risks to which the business operations of QEM Limited are
exposed to (qldem.com.au 2019). These risks are
1. Operational risk,
2. Financial reporting risks and
3. Compliance risk.

NATURE OF THE ENTITY, BUSINESS RISKS
AND RISK ASSESSMENT
 QEM Limited is involved in highly complex business environment that can lead to material misstatements. After that,
competition in the industry in which QEM Limited operate is highly competitive that can lead to material mistsement.
Therefore, this risk is high for QEM Limited
 the company has implemented effective internal control for the business that includes effective structure of board, monitoring,
risk and compliance management, delegation of authority and others. All these show that this risk is medium in QEM Limited
 It is assumed that the policy of the audit firm of QEM Limited is to keep the overall risk below 10%. The inherent risk is
assumed to be 70% and control risk is assumed to be 40%. The following discussion shows the application of audit risk model
to get the detection risk level.
AR = IR × CR × DR
0.10 = 0.70 × 0.40 × DR
0.10 / (0.70 × 0.40) = DR
DR = 0.3571 or 35.71%
 It implies that the detection risk has to be 35.71% in order to maintain the overall risk level 10%. It needs to be mentioned that
the detection risk is of medium level which required the application of substantive audit procedures to acquire the required
audit evidences (Chou 2015).