Corporate Auditing: Inherent Risks, Control Risks, Internal Control Strength, Planning Materiality and Professional Scepticism

1CORPORATE AUDITING
Section 1
Answer 1
Financial statement –
a. The company’s name is Amcor Limited
b. Company’s financial year end is 30th June 2017 (Amcor.com 2018).
c. Name of the company’s external audit firm is PricewaterhouseCoopers
Answer 2
Audit committee –
a. 2 members are there in the audit committee of Amcor Limited. Their names are –
Graeme Liebelt and Paul Brasher. Graeme Liebelt is independent non-executive
chairman and Paul Brasher is independent non-executive director. As both of the
members are independent it makes 100% of the members independent (Amcor.com
2018).
b. Yes, the audit committee of the company discusses about provision of non-audit
service by external auditor. details regarding the discussion was as follows –
During the year under consideration, PwC, the external auditor of the company
provided certain services apart from the regular statutory services. However, the provision of
non-audit services was in compliance with the written advice delivered by the audit and
compliance committee’s resolution. Further, the services were compatible with the
requirement and the auditor’s independence as per the requirement of Corporation Act 2001
was not compromised. All non-audit services were subject to the procedures of corporate
governance applied by the audit and compliance committee of the company (Christensen,
Glover and Wolfe 2014). It further ensures that the services do not have any impact on

2CORPORATE AUDITING
objectivity and impartiality of auditor. Further, the non-audit services those were delivered by
the external auditor did not undermine general principles related to the auditor’s principle
provided in APES 110 regarding code of ethics for the professional accountants.
Answer 3
Auditor’s report –
a. Components of annual report for expressing auditor’s opinion
Opinion of the auditors is the certification that is based on the financial statement and
the opinion is provided on the financial statement of entity irrespective of the the fact that
material misstatement included or not. Auditor’s report starts with the introductory section
that outlines the management’s responsibility as well as the audit firm’s responsibility. 2nd
section states about the financial statement of the company on which the opinion is given by
the auditor. 3rd section states the opinion of the auditor. 4th section states explanation only if
the auditor provides adverse opinion or qualified opinion. Auditors audited the below
mentioned financial reports of the company –
 Declaration of the director
 Income statement
 Statement of the financial position
 Statement of comprehensive income
 Cash flow statement
 Statement of changes in equity
 Notes related to the financial statements that includes summary of significant
accounting policies (Amcor.com 2018).
b. Auditor’s report was signed by the audit partner John Yeoman.

3CORPORATE AUDITING
c. Auditor’s report for the year ended 30th June 2017 was signed by PwC on 22nd August
2017.
d. As per the auditor’s opinion the associated financial report of the company and the
entities controlled by it is in compliance with Corporations Act 2001 and it includes –
 The report is complied with Corporation Act 2001 and Australian Accounting
Standards
 The audit report gives true and fair view of the entity’s financial position and financial
performance as on 30th June 2017 (Amcor.com 2018).
The auditor provided unqualified audit opinion as according to them the audit is
conducted in compliance with the AAS (Australian Accounting Standards). Further, they
believe that audit evidences obtained by then are appropriate and sufficient to provide the
basis for opinion (Blankley, Hurtt and MacGregor 2014).

4CORPORATE AUDITING
Section 2
Question 2.1
a. Inherent risks
Inherent risk is risk of the material misstatement in the financial statement that arises
owing to omission or error. It arises due to factors other than control failure. Generally, the
misstatement arises due to lapse or absence of the controls that are separately considered
while assessing the control risk (Coetzee and Lubbe 2014). Inherent risks are considered
higher if higher degree of estimation and judgements are involved or where the transactions
of the company are of complex nature. Inherent risks found in case of WWW are as follows
–
 Valuation of inventory – WWW is the manufacturer of precious metal studded
wristwatches and pocket watches made of gold. 2 employees are engaged by the
company who are specialized in making watches. However, due to age factors they
are near to their retirement and the new generation are not so interested in this
profession. Moreover, very few watchmakers are there who can match the expertise
level of existing watchmakers. However, it is found that the classic watches of the
company do not match with latest trends. WWW’s experience tells that inventories of
the company do not become obsolete. Inventories are generally recognized at cost or
market value whichever are lower (Makarenko and Yardanova 2015). However, if the
inventories are kept idle it will not be possible for the company to record it in their
book.
 Cash deposit – WWW follows perpetual inventory system and maintains the point of
sale system in computer. However the cash payments received by the company are