Auditing Theory and Practice - Report

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Auditing Theory and Practice

Aconex Ltd
Executive Summary
The working of an auditor should be in tune with the rules laid down by the audit regulations
because it provides the best scope for the organization and the clients. Hence, it imperative
that the process and measures must be in direct linkage to the regulations. The auditor should
ensure that the operations are in tune with the prescribed standards so that the business does
not face any issue and attain the best results. In this report, Aconex Limited has been selected
for the purpose of study and audit plan has been undertaken considering the company
Aconex. The report initiates the audit plan followed by the understanding of the client and
identification of accounts. Thereafter, other parts relate to the concept of materiality. The
report even states the skills that are necessary by an auditor to compute the necessary figures
so that the evaluation can be done with ease.
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Contents
1. Introduction...................................................................................................................................3
2. Key information.............................................................................................................................3
a) Gaining knowledge and understanding the behaviour of clients...................................................3
b) Assessment of Significant account.................................................................................................4
c) Planning materiality.......................................................................................................................5
d) Assessment of facts that might go wrong......................................................................................8
Conclusion...........................................................................................................................................10
References...........................................................................................................................................11
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1. Introduction
Out firm was appointed as an external auditor for the audit of the financial report dates 30
June 2017. The audit fee appears at $5,50,000 and the same has been highlighted in the
Engagement Letter that is in tune with the ASA 210 Audit Engagement. The audit report is
prepared following the Corporation Act 2001that needs the company to appoint auditors so
that audit can be conducted and a review of the financial report can happen as per the
standards of auditing. The main aim of the report is to assure the financial report of Aconex
Limited whether the financial report is free from material misstatement or not (Aconex,
2017). Further, another aim is to trace whether the financial report is prepared keeping into
consideration the authentic view of the matters.
It is imperative for an auditor to perform the task in an effective manner. The auditor must
refer to the auditing standards that are ASA 300 Audit planning, this helps the audit in the
manner that the engagement occurs in an effective mechanism. It is vital that the entity, as
well as business environment, should be known to evaluate the procedure of audit so that an
effective result can be attained (Hoffelder, 2012). In this report, the significant accounts that
are exposed to risk are being discussed. This is done considering the comprehensive income,
financial position statement, and notes to the financial statements (Aconex, 2017). The
initial step by the auditor should be to trace that the companies have no element of risk in the
previous financial statement so that the current audit is free from danger. Secondly, the new
auditor must provide a letter to the management stating about the terms and conditions
needed for the evaluation of the audit report (Niemi & Sundgren, 2012). As per auditing
standard 210, a friendly connection must be present between the management and the auditor
of the company.
2. Key information
a) Gaining knowledge and understanding the behaviour of clients
It should be made clear that the organization's management and the auditor should work in
the same manner and according to the same terms and conditions of the audit plan which will
lead to smooth conduction of the operating activities of a business. It is also necessary for the
auditor to work in accordance to the accounting standard 220 which clearly state that the
auditor is liable to assess all the processes and methods that are being carried out by a
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business in order to maintain the operating strategies that have been determined by it to reach
its target (Lapsley, 2012). It has also been taken into account that the appointment partner
should also be given a lot of responsibility of checking the policies and regulations that have
been conducted by the auditor so that the transparency of the financial statements can be
maintained in order to provide the customers with best possible information for their
investment strategies (Niemi & Sundgren, 2012).
The accounting standard 30 clearly states that the group of audit regulations that have been
used in order to maintain the audit reports should be analyzed carefully. Also, copyright on
the financial statements of the organization should be made so that no unfaithful or
unmannerly task may be conducted in the future using it. The auditor is required to work in
accordance with the rules and regulations that have been published by the organization as any
type of controversy in the rules may affect the financial reports in a very bad manner (Niemi
& Sundgren, 2012). It is very important for the auditor to understand all the type of payment
methods that have been used in order to conduct the transactions by the business. The laws
that have been working in accordance with the payment methods should also be assessed by
the auditor. Conduction of the analysis of auditing process is very important and does should
be conducted in a very proper manner. The auditor has also been assigned with the task of
ascertaining all the material list and laws of corporate governance so that no fraudulent
measures can be obtained by the company in order to harm the financial statements of the
organization.
b) Assessment of Significant account
The auditing plan that has been conducted by the Aconex Limited has used many approaches
that need to be taken into account for conducting the audit process in a fruitful manner. It has
been observed that the organization is related to the distribution of mobiles as well as
collaboration with the mechanism of Information Technology and Management. The
companies have also faced a lot of risks that may be caused because of the third party
damages that have been done on the company with the unwanted activities (Aconex, 2017).
The large-scale business that is being operated by the organization may also cause many
fraudulent activities and misstatements of data of the financial system to prevail within the
operating system of the hence it is necessary to reprocess and change the documentation of
all the audit plans before conducting it. It has also been mentioned that the auditors should
not use the data that have been documented by the organization as there is a very sturdy need
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for assessment of the financial data process by the organization. The appointment letter which
is given to the auditor contains the amount of salary that will be provided to him in order to
conduct the audit process (Aconex, 2017). This will clear any type of misunderstandings
between the organization and auditor and thus lead to mutual consent of both in the process
of auditing.
It is a very major function of an auditor to work in accordance with the auditing standards
and take help of skilful and knowledgeable processes in order to conduct the audit process.
The auditors have also been up to question the working pattern of employees which will hold
them to gain transparency over the operations that have been conducted by the business in
order to earn revenue. The auditor should also help the company in allotment of the work to
the employee show that a very appropriate mixture of professions can be organized in
different operational groups so that proper functioning of the firm can be achieved.
The analysis of the financial statements of the organization for the year 2017 states that there
has been used increment in the financial cost of the company. This also states that the
company will be facing a lot of problems in upcoming future. The increasing number of
banking transactions has made it necessary for the reconciliation of bank and cash statements.
It is also necessary for the auditor to ascertain that there have been no misstatements or
manipulation in the ascertainment of value of Assets and stocks. These manipulations in data
are made in order to fulfil the desire of the company to have a profitable image in the
environment which will help them to increase their value of goodwill (Aconex, 2017). After
the above analysis, it is clear that ACONEX Limited has faced a lot of challenges for
conducting business.
c) Planning materiality
The determination of the total amount of audit risk that is associated with the distress model
can be calculated by multiplying the control risk, detection risk and inherent risk. While
accessing the materiality in the quantitative aspects we should take into fact these 5 major
steps. The first step should be setting up a preliminary judgement of materiality which has
been observed to be done at the planning stage of audit. The general Thumb Rule in order to
calculate is 2 find 10 to 5% of the normalized net income or 0.5 to 2% of total assets. For the
current firm we can derive the data as 0.002 of 161167 million which is 322334. The next
step is to consider the performance materiality. The assessment of the material it on the line
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time basis that is accounts receivable and inventory is being made. Estimation of the cycle or
account can be made after which total aggregate misstatements are to be assessed.
When comparison of 4 is done with 1 and determination of overall financial statements are
materially misstated
One of the most important concepts which are related to the auditor's concept is the audit
materiality. The omissions made by the auditor in assessment of the financial report
individually or as a group which affects the economic decisions of the organisation does
affecting the financial statements are the major misstatements which can be corrected by the
organisation. The audit procedure comprises of both qualitative and quantitative methods in
terms of materiality. It is very important for an industry to analyse all the above information
in order to survive in the industry. For the proper functioning of an organisation and
improvement of performance a very well constructed and strategize Audit plan is needed.
Aconex Limited is one of the big corporate companies which have many resources present
with it which will help it to develop the audit plan in a very proper manner (Aconex, 2017).
The research and development task is very important for the organisation in order to fulfil the
needs of investors and the Welfare of society. Also it is very important for the organisation to
bring technological advancements into the system which will help it to improve its efficiency
and lower the risk of failing in tasks. The most important function of an organisation is to
create an audit plan which will help it to increase the efficiency of the strategy that have been
assessed by it , therefore helping it to overcome all the problems that may come in the way of
operating the business in such environment.
One of the biggest problems in evaluation of a financial statement is the material
misstatement that may take place in the very important and crucial parts of the statement
which will result to problems in the audit report. There are many cases in which the
management tries to hide several facts and figures or tries to alter them so that the financial
statement will show a very good position of the firm which will indulge the customers to
invest in the company (Aconex, 2017). This fabrication of facts may lead to misstatements of
the financial accounts. Therefore there have been application of auditing standards which
have helped to decide the auditor's and the organisations to perform several days in
accordance to the rules and regulations specified by the standard. These rules and regulations
make it easier for the organizations to work in a clearly guided manner which will help to
remove the misstatements from the accounts (Gay & Simnet, 2015). For Aconex Limited, it
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has been found that the auditors should be working in the manner which will help the
company to get its work done. Materialistic risk can be analysed by the use of two different
steps of which the first step is asserting the level of risk (Aconex, 2017). This step deals with
identification of the risks at their very origination. Basically two types of risks are identified
in this stage one of which is inherent risk. The inherent risks can prevail in the system has
their part like any type of vulnerability that is present in the accountancy software or business
system that is being operated by the organisation (Geoffrey et. al, 2016). The identification of
this type of risk can only be done if the auditor has diverse knowledge about the business and
the associated tasks with manufacturing which may prevail in the environment of the
operating business. Control risks can be defined as the flaws of internal control procedures
which have been used by the organisation in order to operate its tasks (Gay & Simnet, 2015).
It is very easy to identify them if the audit procedures have been carried out in a proper
manner. Another type of risk that is experienced by the organisation is detection risk. This
type of risk is very hard to analyse even after completion of the audit procedures.
It have been mentioned before that the audit materiality is not just quantitative in nature but
also qualitative. Some of the qualitative factors that are to be considered by the organisation
are to provide the customers with adequate disclosures of amounts of contingent liabilities
and other party related transactions that a materialistic in nature (Aconex, 2017). There can
also be cases in which accounting policy which is material in nature may be affected because
of these kinds of qualitative measures.
The small errors that are made in the financial statements by the organisation can lead to very
big and severe violations of the accounting standards. Therefore it is very important for the
auditor to consider both the aspects of material it in an engagement. It is his sole duty to
investigate and provide the best possible financial data which can be made available to the
customers (Elder et. al, 2010)
The materiality concept of accounting is one of the most important principles which can't be
disregarded while performing auditing. An independent auditor tries to review all the firm’s
financial statements after which he provides his opinion on the financial accounts maintained
by the organization (Elder et. al, 2010). It can be checked that the financial accounts have
been maintained according to the Generally Accepted Accounting Principles after which he
confirms that there are no materiality issues (Aconex, 2017). Hence, it is regarded as one of
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the most important elements of organization and any error in this can lead to several violation
and issues which may affect the organizations business.
d) Assessment of facts that might go wrong
The risk associated with errors in calculation of foreign currency
The miscalculation of the car value of foreign currency is also very important factor which
must be taken into account by the auditors. There may be undesirable changes in the foreign
exchanges amount which will lead the organisation to suffer from an experience is losses and
gains, thus affecting the financial position of the business (Kaplan, 2011).
Intangibles
It is very important to estimate the value of intangibles in a reasonable manner as it
constitutes a huge amount of the capital. It is not easy to evaluate the values of the intangible
assets like goodwill and patents because of the fluctuations in prices that are being made
constantly (Aconex, 2017). Therefore, proper verification must be made before standardizing
the expected amounts.
Stock
The organization of successfully managed to exaggerate is inventory so as to affect the
national income by overvaluing the net earnings of the business. It have also been observed
that the organisation have tried to manipulate the accounts and statements so as to protect
itself from any type of legal proceedings (Aconex, 2017). Here comes the duty of Auditor in
which he should identify and research material risk that may affect the business in near
future. The auditor should be strict intelligent in the assessment of the financial accounts of
the organization in order to identify search misstatements. If the auditor will fail in his
assessment of data, then the fabrication of data done by the organisation will be successful
which will lead to inappropriate decision making by the customers while accessing the
investing strategies.
Related party transactions
It is very dangerous to ascertain the engagement with the related party transactions because of
their large amounts. In order to control such risks, the organisation to should implement
internal control measures. Therefore it can be stated that it is very important for the audit
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processes to identify and supervise the level of the related party transactions that are taking
place in according to the organisations business (Matthew, 2015).
Intellectual assets
There should be regular research and development made in the organisations accounting
system so that the needs of the investors can be fulfilled and the performance of the
organisation can be enhanced. The auditor should also facilitate the audit planning before
engagement of any type of operating strategies which will help the organization to improve
its efficiency (Livne, 2015). These ordered plans will also help the organisation to overcome
all type of hurdles that may come in its way while conducting business.
It is very important for an organisation to act in accordance to the audit plan which will help
to increase the efficiency of its operational strategies does leading to sustainability of the
organisation in industry. A big corporate like Aconex Limited should employee maximum
number of resources so that research and development as can be done in a proper manner
which will help to avoid any kind of risks that may prevail upon the firm (Gay & Simnet,
2015).
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Conclusion
Going by the financial statement audit of Aconex, it can be commented that the audit has
been done through faithfulness and independence that goes in the best interest of the
shareholders. Audit planning can be defined as the main tool in term s of providing a true and
fair view of the accounts. Even, the auditor can obtain the proper client information before
the initiation of the overall audit by the audit report. Going by the overall discussion it can be
commented that the auditor should vouch for Auditing Standard 300 that deals with the
fraudulent practice in the company. Hence, it became clear that auditing standard 300
enables audit planning in an effective manner. Audit planning is the primary stage of the
process of audit where the auditors provide themselves to get accustomed to the environment
of the organization. Going by the overall discussion it can be said that the audit partner, as
well as his staff, should vouch for the procedures that are investigative in nature so that the
material risks can be reduced. Hence, before the performance of the audit, the auditor must
consider a comprehensive coverage into consideration.
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References
Elder, J. R, Beasley S. M. and Arens A. A. (2010) Auditing and Assurance Services. Person
Education, New Jersey: USA
Gay, G. and Simnet, R. (2015) Auditing and Assurance Services. McGraw Hill
Geoffrey D. B, Joleen K, K. Kelli S. and David A. W. (2016) Attracting Applicants for In-
House and Outsourced Internal Audit Positions: Views from External Auditors. Accounting
Horizons. [online] 30(1), pp. 143-156. Available from https://doi.org/10.2308/acch-51309
[Accessed 29 May 2017]
Hoffelder, K. (2012) New Audit Standard Encourages More Talking. Harvard Press.
Kaplan, R.S. (2011) Accounting scholarship that advances professional knowledge and
practice. The Accounting Review [online]. 86(2), pp. 367–383. Available from
https://doi.org/10.2308/accr.00000031
Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative
Research in Accounting & Management. [online]. 9(3), pp. 291-292. Available from
https://doi.org/10.1111/1468-0408.00081
Livne, G. (2015) Threats to Auditor Independence and Possible Remedies. [online] Available
from: http://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-
independence-and-possible-remedies?full [Accessed 29 May 2017]
Matthew, S. E. (2015) Does Internal Audit Function Quality Deter Management Misconduct?.
The Accounting Review. [online]. 90(2), pp. 495-527. Available from
https://doi.org/10.2308/accr-50871 [Accessed 28 May 2017]
Aconex Ltd. (2017) Aconex Ltd Annual report and accounts 2017 [online]. Available from:
http://media.abnnewswire.net/media/en/reports_gallery/rpt/ASX-ACX-3A475713.pdf
[Accessed 28 May 2017]
Niemi, L. and Sundgren, S. (2012) Are modified audit opinions related to the availability of
credit? Evidence from Finnish SMEs. European Accounting Review. [online]. 21(4), pp. 767-
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796. Available from https://doi.org/10.1080/09638180.2012.671465 [Accessed 28 May
2017]
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Appendix
Income Statement
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