Development of an Audit Program for a Publicly LISted Company Executive SUMMARY
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DEVELOPING AN AUDIT PROGRAM FOR A PUBLICLY LISTED COMPANY EXECUTIVE SUMMARY This report summarises the nuances related to the formulation of an Audit Program and how it helps in the creation of a favourable opinion on the part of auditor in regards to the financial statements of the enterprise for a particular accounting period. EXECUTIVE SUMMARY2 INTRODUCTION 1 DEVELOPMENT OF AUDIT PROGRAM FOR MAKO GOLD LIMITED 1 Industry and Company Overview 1 Identification of Key Business Risks 1 Audit Risk Model 2 Analytical Procedures for
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DEVELOPING AN
AUDIT PROGRAM
FOR A PUBLICLY
LISTED COMPANY
AUDIT PROGRAM
FOR A PUBLICLY
LISTED COMPANY
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EXECUTIVE SUMMARY
This report summarises the nuances related to the formulation of an Audit Program and
how it helps in the creation of a favourable opinion on the part of auditor in regards to the
financial statements of the enterprise for a particular accounting period. An Audit Program can
be defined as the comprehensive strategy which clearly outlines the work steps that would be
taken up by an auditor, either internal or external, in order to verify the authenticity of various
material account balances. This report focuses upon the auditing of the financial statements of
Mako Gold Limited which is an Australian listed company operational predominantly in under-
explored terrains of West Africa. The company is based out of Brisbane, Queensland and deals
in the exploration as well as production of high grade gold deposits to benefit its stakeholders.
Application of Audit Risk Model [AR= f(IR, CR, DR)] indicates that both Inherent and Control
Risks are high for Mako Gold. As a result, its risk rating is high. Furthermore, ten material
account balances have been identified such as Trade Receivables/Payables, Exploration and
Evaluation Assets, Cash & Cash Equivalents, Shareholder's Equity, Unsecured Borrowings and
Provisions for the period ranging from 2016 to 2019. Based on these, audit work program has
been formulated through assertions identified along with the representation of sampling plan
with audit sample size regarding each of the account balances.
This report summarises the nuances related to the formulation of an Audit Program and
how it helps in the creation of a favourable opinion on the part of auditor in regards to the
financial statements of the enterprise for a particular accounting period. An Audit Program can
be defined as the comprehensive strategy which clearly outlines the work steps that would be
taken up by an auditor, either internal or external, in order to verify the authenticity of various
material account balances. This report focuses upon the auditing of the financial statements of
Mako Gold Limited which is an Australian listed company operational predominantly in under-
explored terrains of West Africa. The company is based out of Brisbane, Queensland and deals
in the exploration as well as production of high grade gold deposits to benefit its stakeholders.
Application of Audit Risk Model [AR= f(IR, CR, DR)] indicates that both Inherent and Control
Risks are high for Mako Gold. As a result, its risk rating is high. Furthermore, ten material
account balances have been identified such as Trade Receivables/Payables, Exploration and
Evaluation Assets, Cash & Cash Equivalents, Shareholder's Equity, Unsecured Borrowings and
Provisions for the period ranging from 2016 to 2019. Based on these, audit work program has
been formulated through assertions identified along with the representation of sampling plan
with audit sample size regarding each of the account balances.
Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
DEVELOPMENT OF AUDIT PROGRAM FOR MAKO GOLD LIMITED................................1
Industry and Company Overview................................................................................................1
Identification of Key Business Risks...........................................................................................1
Audit Risk Model.........................................................................................................................2
Analytical Procedures for Statements of Financial Position and Performance...........................4
Material Account Balance Identification.....................................................................................6
Ten Material Account Balances selected for Audit Purpose.......................................................6
Assertions Identified....................................................................................................................7
Audit Program..............................................................................................................................8
Sampling Plan for each Material Account Balance...................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
DEVELOPMENT OF AUDIT PROGRAM FOR MAKO GOLD LIMITED................................1
Industry and Company Overview................................................................................................1
Identification of Key Business Risks...........................................................................................1
Audit Risk Model.........................................................................................................................2
Analytical Procedures for Statements of Financial Position and Performance...........................4
Material Account Balance Identification.....................................................................................6
Ten Material Account Balances selected for Audit Purpose.......................................................6
Assertions Identified....................................................................................................................7
Audit Program..............................................................................................................................8
Sampling Plan for each Material Account Balance...................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
INTRODUCTION
Audit Planning is one of the most crucial steps that is undertaken by an organisation.
Under an Audit Plan, a general strategy is formulated that describes all the steps and procedures
which an auditor would take in order to determine that whether or not the company is in
conformance with the compliance regulations (BOTEZ, 2015). This report aims to provide the
development of an audit program for a publicly listed company named Mako Gold Limited. It is
an ASX-listed exploration company which is concerned with the discovery and production of
gold deposits in West Africa. The given report provides a detailed account on substantive test of
balances and controls, audit procedures as well as assertions related to account balances among
others. This is mainly done through the identification of key risks and sampling plans for each
material balance in relation to the depiction of misstatements with supporting evidences.
DEVELOPMENT OF AUDIT PROGRAM FOR MAKO GOLD LIMITED
Industry and Company Overview
The Australian Mining industry is considered to be one of the most well-established
sectors of the economy, accounting for 7% of its total GDP. Due to recent elevation in gold
prices, there has been an increased focus upon the exploration and production of gold in recent
years. Mako Gold Limited (ASX:MKG) is a public company belonging to the Metal and Mining
Industry of Australia. It was established in June 2015 and is based out of Brisbane, Queensland.
Its mission is to explore and rapidly advance large high-grade gold deposit properties,
specifically in under-explored terrains of Cote d'lvoire, Burkina Faso and other such areas of
West Africa in order to provide substantial wealth maximisation to its stakeholders. The
company has discovered 400 million ounces of gold till date. Currently, it has two prospective
projects ongoing in Africa named the Napie and Niou Projects which are located in Cote d'lvoire
and Burkin Faso respectively. Apart from this, the business reported a strong financial position
with a cash balance of $4.5 million on June 30, 2018.
Identification of Key Business Risks
There are a variety of business risks which can be faced by an organisation. In the context
of a mining business, such risks may relate to resource replacement, rising costs, fraud and
disruption among others (Christensen and et.al., 2016). For Mako Gold Limited, its lead auditor,
BDO Audit Ply Ltd., identifies the key business risks which are largely related to use of financial
1
Audit Planning is one of the most crucial steps that is undertaken by an organisation.
Under an Audit Plan, a general strategy is formulated that describes all the steps and procedures
which an auditor would take in order to determine that whether or not the company is in
conformance with the compliance regulations (BOTEZ, 2015). This report aims to provide the
development of an audit program for a publicly listed company named Mako Gold Limited. It is
an ASX-listed exploration company which is concerned with the discovery and production of
gold deposits in West Africa. The given report provides a detailed account on substantive test of
balances and controls, audit procedures as well as assertions related to account balances among
others. This is mainly done through the identification of key risks and sampling plans for each
material balance in relation to the depiction of misstatements with supporting evidences.
DEVELOPMENT OF AUDIT PROGRAM FOR MAKO GOLD LIMITED
Industry and Company Overview
The Australian Mining industry is considered to be one of the most well-established
sectors of the economy, accounting for 7% of its total GDP. Due to recent elevation in gold
prices, there has been an increased focus upon the exploration and production of gold in recent
years. Mako Gold Limited (ASX:MKG) is a public company belonging to the Metal and Mining
Industry of Australia. It was established in June 2015 and is based out of Brisbane, Queensland.
Its mission is to explore and rapidly advance large high-grade gold deposit properties,
specifically in under-explored terrains of Cote d'lvoire, Burkina Faso and other such areas of
West Africa in order to provide substantial wealth maximisation to its stakeholders. The
company has discovered 400 million ounces of gold till date. Currently, it has two prospective
projects ongoing in Africa named the Napie and Niou Projects which are located in Cote d'lvoire
and Burkin Faso respectively. Apart from this, the business reported a strong financial position
with a cash balance of $4.5 million on June 30, 2018.
Identification of Key Business Risks
There are a variety of business risks which can be faced by an organisation. In the context
of a mining business, such risks may relate to resource replacement, rising costs, fraud and
disruption among others (Christensen and et.al., 2016). For Mako Gold Limited, its lead auditor,
BDO Audit Ply Ltd., identifies the key business risks which are largely related to use of financial
1
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instruments. As per its annual report, there have been no significant changes regarding the
exposure of financial risk for Mako in regards to its utilisation of Financial Instruments. The
risks related to such instruments have been discussed as under:
Credit Risk: This type of risk is mainly related to the possible failure on the part of one
party to comply with their obligations, thus, resulting in a substantial financial loss for the
other. Mako Gold Limited utilises financial instruments such as bank deposits, accounts
receivable and payables apart from option agreements. One of the main exposure of such
risk arises from the Accounts Receivables, Deposits in banks and other financial
institutions (Coetzee and Lubbe, 2014).
Liquidity Risk: Such a risk is related to the hurdles faced by an organisation in raising
adequate amount of funds in order to meet short-term as well as long-term financial
obligations in an effective manner. One of the main sources of such a risk exposure
comes from cash-flows which are sufficiently monitored and forecasted by Mako on a
regular basis so as to ensure that they are adequate for carrying out exploration activities.
Market Risk: This type of risk is concerned with the likelihood of future cash-flows of a
particular financial instrument fluctuating due to prevailing market factors such as
changes in interest or exchange rates. Here, the Interest Risks are mostly analysed by
Mako using Sensitivity Analysis and are likely to impact its capacity to repay financial
liabilities.
Audit Risk Model
Risk of Material Misstatement for an organisation can said to be the likelihood of
having a misstated financial statement which is substantial in nature (Demartini and Trucco,
2017). Hence, there occurrence is likely to affect the overall profitability and performance of a
business in a significant manner. Such a risk can be assessed by an auditor on two levels viz.
Assertion level and Financial Statement level. Furthermore, an Audit Risk Model is one which
provides a detailed understanding to the auditor regarding the relationship shared among various
risks which mainly arise in the course of conducting an audit. This model can be represented in
the following equation:
Audit Risk = [Inherent Risk* Control Risk*Detection Risk]
[AR = f (IR, CR, DR)]
2
exposure of financial risk for Mako in regards to its utilisation of Financial Instruments. The
risks related to such instruments have been discussed as under:
Credit Risk: This type of risk is mainly related to the possible failure on the part of one
party to comply with their obligations, thus, resulting in a substantial financial loss for the
other. Mako Gold Limited utilises financial instruments such as bank deposits, accounts
receivable and payables apart from option agreements. One of the main exposure of such
risk arises from the Accounts Receivables, Deposits in banks and other financial
institutions (Coetzee and Lubbe, 2014).
Liquidity Risk: Such a risk is related to the hurdles faced by an organisation in raising
adequate amount of funds in order to meet short-term as well as long-term financial
obligations in an effective manner. One of the main sources of such a risk exposure
comes from cash-flows which are sufficiently monitored and forecasted by Mako on a
regular basis so as to ensure that they are adequate for carrying out exploration activities.
Market Risk: This type of risk is concerned with the likelihood of future cash-flows of a
particular financial instrument fluctuating due to prevailing market factors such as
changes in interest or exchange rates. Here, the Interest Risks are mostly analysed by
Mako using Sensitivity Analysis and are likely to impact its capacity to repay financial
liabilities.
Audit Risk Model
Risk of Material Misstatement for an organisation can said to be the likelihood of
having a misstated financial statement which is substantial in nature (Demartini and Trucco,
2017). Hence, there occurrence is likely to affect the overall profitability and performance of a
business in a significant manner. Such a risk can be assessed by an auditor on two levels viz.
Assertion level and Financial Statement level. Furthermore, an Audit Risk Model is one which
provides a detailed understanding to the auditor regarding the relationship shared among various
risks which mainly arise in the course of conducting an audit. This model can be represented in
the following equation:
Audit Risk = [Inherent Risk* Control Risk*Detection Risk]
[AR = f (IR, CR, DR)]
2
Essentially, there are three main components of an Audit Risk Model which have been
enlisted and discussed as under:
Inherent Risk:
Risk occurring due to commission of results due to uncontrollable factors. It is important
to note that determining significance level of such a risk does not include any effect of control.
There likelihood increases specifically while dealing with complex and volume of transactions as
well as liquidity levels among others (Griffiths, 2016). The Complexity of a business transaction
is largely related to the nature and size of business, external environment such as financial source
availability, currency movements and interest rates among others.
Control Risk:
Such a risk is one which arises when there is a substantial failure of internal controls to
detect material misstatements in the financial statements. Some of the important factors
impacting this component of Audit Risk Model are the control environment of the organisation,
effectiveness of control procedures and monitoring activities prevalent in the business.
Detection Risk:
It is related to how successfully audit procedures are able to detect material
misstatement. If they are not able to detect such a anomaly, one can say that the Detection Risk is
high and vice versa (Ishak and Yusof, 2014). Such a risk is usually a product of a sampling or
non-sampling error. The impact of detection risk can be reduced by carrying out additional
substantive tests and reviewing the audit procedure on completion of every stage.
Application of Audit Risk Model on Mako Gold Limited:
Based on the discussions carried out above, it can be said that for Mako Gold Limited is
exposed to the Inherent Risk specifically in relation to the Cash-in-Hand balance presented in
company's Balance Sheet since cash resources are more prone to theft, fraud or misappropriation.
The company is also susceptible to Control Risk due to lack of segregation of duties within the
company (Jallow and et.al., 2012). This would result in impacting the preparation of financial
statements of the business which could result in miscommunication of results to company's
external as well as internal stakeholders. Thus, one could say that the risk rating assigned to
both inherent and control risk assessment of Mako is High. This is due to the fact that the
company is conducting its primary operational activities outside Australia, that is West Africa,
which is susceptible to creation of gaps between internal controls and their successful
3
enlisted and discussed as under:
Inherent Risk:
Risk occurring due to commission of results due to uncontrollable factors. It is important
to note that determining significance level of such a risk does not include any effect of control.
There likelihood increases specifically while dealing with complex and volume of transactions as
well as liquidity levels among others (Griffiths, 2016). The Complexity of a business transaction
is largely related to the nature and size of business, external environment such as financial source
availability, currency movements and interest rates among others.
Control Risk:
Such a risk is one which arises when there is a substantial failure of internal controls to
detect material misstatements in the financial statements. Some of the important factors
impacting this component of Audit Risk Model are the control environment of the organisation,
effectiveness of control procedures and monitoring activities prevalent in the business.
Detection Risk:
It is related to how successfully audit procedures are able to detect material
misstatement. If they are not able to detect such a anomaly, one can say that the Detection Risk is
high and vice versa (Ishak and Yusof, 2014). Such a risk is usually a product of a sampling or
non-sampling error. The impact of detection risk can be reduced by carrying out additional
substantive tests and reviewing the audit procedure on completion of every stage.
Application of Audit Risk Model on Mako Gold Limited:
Based on the discussions carried out above, it can be said that for Mako Gold Limited is
exposed to the Inherent Risk specifically in relation to the Cash-in-Hand balance presented in
company's Balance Sheet since cash resources are more prone to theft, fraud or misappropriation.
The company is also susceptible to Control Risk due to lack of segregation of duties within the
company (Jallow and et.al., 2012). This would result in impacting the preparation of financial
statements of the business which could result in miscommunication of results to company's
external as well as internal stakeholders. Thus, one could say that the risk rating assigned to
both inherent and control risk assessment of Mako is High. This is due to the fact that the
company is conducting its primary operational activities outside Australia, that is West Africa,
which is susceptible to creation of gaps between internal controls and their successful
3
implementation in actuality. The Detection Risk is likely to arise if the auditors do not take a
significant sample size that results in exclusion of different transactions carried out by the
business throughout its financial period (Johnstone, Gramling and Rittenberg, 2013).
Additionally, Audit Risk would also be impacted significantly since Inherent, Control and
Detection Risks are its constituents.
Analytical Procedures for Statements of Financial Position and Performance
The AUS 512 of Auditing and Assurance Standards Board (AUASB) describes
'Analytical Procedure' as an investigation and analysis of fluctuations in order to identify any sort
of inconsistency arising within the financial information (Knechel and Salterio, 2016). For this
purpose, ratio analysis has been carried out which will take Mako Gold's financial information of
past three years into consideration. These have been presented as under:
Current Ratio:
It is a type of Liquidity ratio which is concerned with the ascertainment of an
organisation's ability to meet its financial obligations as and when they become due. Current
Ratio provides an insight on the relationship between current assets and liabilities of the
company. This ratio has been calculated for Mako Gold Limited as under:
Particulars 2018 ($) 2017-18 ($) 2016-17 ($)
Current Assets 2468880 4619953 443731
Current Liabilities 365121 931552 134348
Current Ratio 6.76 4.96 3.3
From the above table it is clearly evident that the liquidity in Mako Gold Limited is very
high and has been increasing continuously over the last three years. Usually, an ideal current
ratio is said to be one where the current assets are twice of current liabilities, that is 2:1.
However, in this case, the current ratio of Mako is high since its inception and has increased by
104.85% since June 2017 (Annual Report of MKG, 2018). This is not a good sign as it indicates
that the company has not been utilising its current assets in an effective manner. Thus, signalling
that Mako's short-term financing facilities are not optimised and can result in creation of
problems related to working capital management. Thus, from audit perspective, there is a
significant amount of inconsistency found in the current ratio.
Return on Shareholder's Equity Ratio:
4
significant sample size that results in exclusion of different transactions carried out by the
business throughout its financial period (Johnstone, Gramling and Rittenberg, 2013).
Additionally, Audit Risk would also be impacted significantly since Inherent, Control and
Detection Risks are its constituents.
Analytical Procedures for Statements of Financial Position and Performance
The AUS 512 of Auditing and Assurance Standards Board (AUASB) describes
'Analytical Procedure' as an investigation and analysis of fluctuations in order to identify any sort
of inconsistency arising within the financial information (Knechel and Salterio, 2016). For this
purpose, ratio analysis has been carried out which will take Mako Gold's financial information of
past three years into consideration. These have been presented as under:
Current Ratio:
It is a type of Liquidity ratio which is concerned with the ascertainment of an
organisation's ability to meet its financial obligations as and when they become due. Current
Ratio provides an insight on the relationship between current assets and liabilities of the
company. This ratio has been calculated for Mako Gold Limited as under:
Particulars 2018 ($) 2017-18 ($) 2016-17 ($)
Current Assets 2468880 4619953 443731
Current Liabilities 365121 931552 134348
Current Ratio 6.76 4.96 3.3
From the above table it is clearly evident that the liquidity in Mako Gold Limited is very
high and has been increasing continuously over the last three years. Usually, an ideal current
ratio is said to be one where the current assets are twice of current liabilities, that is 2:1.
However, in this case, the current ratio of Mako is high since its inception and has increased by
104.85% since June 2017 (Annual Report of MKG, 2018). This is not a good sign as it indicates
that the company has not been utilising its current assets in an effective manner. Thus, signalling
that Mako's short-term financing facilities are not optimised and can result in creation of
problems related to working capital management. Thus, from audit perspective, there is a
significant amount of inconsistency found in the current ratio.
Return on Shareholder's Equity Ratio:
4
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This is a type of ratio which provides insights in regards to how effectively the
organisation is able to provide financial benefits to the owners as a percentage of the investments
made by them in the company (Knechel and et.al., 2012). It is important to note that higher the
return on shareholder's equity ratio prevalent in the company, the more efficient the organisation
is. This ratio has been calculated for Mako Gold Limited as under:
Particulars 2018 ($) 2017-18 ($) 2016-17 ($)
Annual Net Income -783556 -673764 -62879
Shareholder's Equity 5113929 5890610 643376
Return on Equity (%) -15.32% -11.44% -9.77%
From the above figures it is ascertained that Mako has been incurring huge losses since
its inception in 2015. Between 2016 and 2019, the net income of the company has declined by
11.46% whereas the Return on Equity has reduced by 56.81%. Thus, indicating that company
has been unable to provide sufficient amount of financial benefits to its shareholders. However,
this can be attributed to the fact that as the business has initiated in 2015, it is still in its nascent
stage and thus, it is likely to have a negative ROE.
Equity Ratio:
It is a type of leverage ratio which aims to measure the portion of company's total assets
which are financed through equity. This has been calculated as under for Mako Gold Limited:
Particulars 2018 ($) 2017-18 ($) 2016-17 ($)
Total Shareholder's Equity 5113929 6822162 643376
Total Assets 5479050 5890610 777724
Equity Ratio 0.93 1.16 0.83
The above calculated ratio indicates that the Mako is a highly conservative business as
majority of the total assets proportion is financed through Shareholders. Thus, indicating that
Mako is less riskier in comparison to its other competitors operating in the industry (Annual
Report of MKG, 2017). This can also be attributed to the fact that as Mako has just recently
started in the business, it is majorly financed by Equity-holders as for Debt Financing, there
needs to be a well-established credibility which enables an organisation to have such a type of
5
organisation is able to provide financial benefits to the owners as a percentage of the investments
made by them in the company (Knechel and et.al., 2012). It is important to note that higher the
return on shareholder's equity ratio prevalent in the company, the more efficient the organisation
is. This ratio has been calculated for Mako Gold Limited as under:
Particulars 2018 ($) 2017-18 ($) 2016-17 ($)
Annual Net Income -783556 -673764 -62879
Shareholder's Equity 5113929 5890610 643376
Return on Equity (%) -15.32% -11.44% -9.77%
From the above figures it is ascertained that Mako has been incurring huge losses since
its inception in 2015. Between 2016 and 2019, the net income of the company has declined by
11.46% whereas the Return on Equity has reduced by 56.81%. Thus, indicating that company
has been unable to provide sufficient amount of financial benefits to its shareholders. However,
this can be attributed to the fact that as the business has initiated in 2015, it is still in its nascent
stage and thus, it is likely to have a negative ROE.
Equity Ratio:
It is a type of leverage ratio which aims to measure the portion of company's total assets
which are financed through equity. This has been calculated as under for Mako Gold Limited:
Particulars 2018 ($) 2017-18 ($) 2016-17 ($)
Total Shareholder's Equity 5113929 6822162 643376
Total Assets 5479050 5890610 777724
Equity Ratio 0.93 1.16 0.83
The above calculated ratio indicates that the Mako is a highly conservative business as
majority of the total assets proportion is financed through Shareholders. Thus, indicating that
Mako is less riskier in comparison to its other competitors operating in the industry (Annual
Report of MKG, 2017). This can also be attributed to the fact that as Mako has just recently
started in the business, it is majorly financed by Equity-holders as for Debt Financing, there
needs to be a well-established credibility which enables an organisation to have such a type of
5
financing an option. Also, the Statements of Financial Position indicate that there is no long-
term debt taken up by the company. Thus, Mako Gold is not a leveraged firm.
Earnings Per Share (EPS):
One of the most important Ratio considered while carrying out Analytical Procedures by
the auditor relates to the determination of how well the company is able to pay its investors. For
this purpose, EPS is calculated which shows how capably an organisation is able to pay
dividends to its investors on their per shareholdings in the business. This ratio has been
calculated for Mako Gold Limited as under:
Particulars 2018 ($) 2017-18 ($) 2016-17 ($)
Profit or loss attributable to Ordinary Shareholders -813207 -673764 -62879
Number of Shares 63250100 50386607 8437086
Earnings Per Share −0.013 -0.01 -0.01
Based on the EPS calculated above, the company has been consistently making losses for
the period ranging from July 2016 to June 2019 (Annual Report of MKG, 2019). This can be
attributed to the fact that Mako has just initiated its business in 2015. Hence, it is prone to
making loss per share instead of high Earnings Per Share from the get go. Also, the reliability of
EPS is lost here as there is no sufficient amount of historical data present so as to provide a much
better analysis of this component.
Material Account Balance Identification
As per the AASB 1031, Materiality is defined as that information which if omitted, left
out or misstated would potentially result in impacting the decisions made by the business
management in a significant manner. Here, the decisions mainly relate to resource allocation as
well as discharge of accountability by the enterprise authorities. Planning Materiality for the
purpose of auditing various quantitative factors are taken into account (Moroney and Trotman,
2012). For Mako Gold, this is quite different as the company earns most of revenues through the
completion of various exploration projects that it takes into account. Through the analysis of its
Financial Statements, the materiality can be mostly based upon the higher range values of Total
Assets, Shareholder's Equity and Net profit. Since the company is mainly based through the
exploration assets, there are no sales made by the company recorded in its annual reports. Thus,
the three recognised materiality areas become more relevant from Mako's point of view.
6
term debt taken up by the company. Thus, Mako Gold is not a leveraged firm.
Earnings Per Share (EPS):
One of the most important Ratio considered while carrying out Analytical Procedures by
the auditor relates to the determination of how well the company is able to pay its investors. For
this purpose, EPS is calculated which shows how capably an organisation is able to pay
dividends to its investors on their per shareholdings in the business. This ratio has been
calculated for Mako Gold Limited as under:
Particulars 2018 ($) 2017-18 ($) 2016-17 ($)
Profit or loss attributable to Ordinary Shareholders -813207 -673764 -62879
Number of Shares 63250100 50386607 8437086
Earnings Per Share −0.013 -0.01 -0.01
Based on the EPS calculated above, the company has been consistently making losses for
the period ranging from July 2016 to June 2019 (Annual Report of MKG, 2019). This can be
attributed to the fact that Mako has just initiated its business in 2015. Hence, it is prone to
making loss per share instead of high Earnings Per Share from the get go. Also, the reliability of
EPS is lost here as there is no sufficient amount of historical data present so as to provide a much
better analysis of this component.
Material Account Balance Identification
As per the AASB 1031, Materiality is defined as that information which if omitted, left
out or misstated would potentially result in impacting the decisions made by the business
management in a significant manner. Here, the decisions mainly relate to resource allocation as
well as discharge of accountability by the enterprise authorities. Planning Materiality for the
purpose of auditing various quantitative factors are taken into account (Moroney and Trotman,
2012). For Mako Gold, this is quite different as the company earns most of revenues through the
completion of various exploration projects that it takes into account. Through the analysis of its
Financial Statements, the materiality can be mostly based upon the higher range values of Total
Assets, Shareholder's Equity and Net profit. Since the company is mainly based through the
exploration assets, there are no sales made by the company recorded in its annual reports. Thus,
the three recognised materiality areas become more relevant from Mako's point of view.
6
Ten Material Account Balances selected for Audit Purpose
Assets
Account Balance 2018($) 2017-18 ($) 2016-17($)
Cash and Cash Equivalents 2432670 4479038 434477
Trade and other receivables 16487 69383 6084
Short-term investments 42900 - -
Exploration and Evaluation Assets 3010170 2202209 332737
Other Current Assets 19723 71532 3170
Liabilities
Trade Creditors 229517 309153 37499
Provisions 52086 60533 -
Other payables and accruals 83518 561866 63538
Unsecured Borrowings - - 33311
Shareholder's Equity 5113929 5890610 643376
Assertions Identified
The assertions for each material account balance identified for Mako Gold Limited has
been identified and justified as under:
7
Assets
Account Balance 2018($) 2017-18 ($) 2016-17($)
Cash and Cash Equivalents 2432670 4479038 434477
Trade and other receivables 16487 69383 6084
Short-term investments 42900 - -
Exploration and Evaluation Assets 3010170 2202209 332737
Other Current Assets 19723 71532 3170
Liabilities
Trade Creditors 229517 309153 37499
Provisions 52086 60533 -
Other payables and accruals 83518 561866 63538
Unsecured Borrowings - - 33311
Shareholder's Equity 5113929 5890610 643376
Assertions Identified
The assertions for each material account balance identified for Mako Gold Limited has
been identified and justified as under:
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Audit Program
Assets Audit Work Steps Explained
Cash and Cash Equivalents Confirming or Verifying the account balances with the
bankers directly including Foreign Currency Translation
accounts;
Proof of cash and cash equivalents actually existent at the
time of preparation of financial account by way of
vouching;
Inspect large and small final deposits and disbursements
in general ledger for proper cut-off which are of frequent
nature.
Trade and other receivables Conduct and Evaluate the risks associated with such
account balances. This will ensure the auditor to either
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Assets Audit Work Steps Explained
Cash and Cash Equivalents Confirming or Verifying the account balances with the
bankers directly including Foreign Currency Translation
accounts;
Proof of cash and cash equivalents actually existent at the
time of preparation of financial account by way of
vouching;
Inspect large and small final deposits and disbursements
in general ledger for proper cut-off which are of frequent
nature.
Trade and other receivables Conduct and Evaluate the risks associated with such
account balances. This will ensure the auditor to either
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magnify or minimise the overall testing of transactions;
Trace the receivables to general ledgers;
Analyse the Age Receivable Report/ Schedule and
determine receivable report total;
Investigate Reconciled items, doubtful accounts, bad debts
and other related provisions;
Short-term investments Confirmation of substantial balances and their agreement
with general ledger amounts;
Investigation of year-end activities so as to ensure proper
cut-off;
Valuing complex instruments related to such investments,
if any;
Vetting disclosures so as to ensure complete authenticity
of investment-related information.
Exploration and Evaluation
Assets
Verify title deeds, depreciation rates, replacement policies,
bank statements and valuation certificates for such class of
assets;
Inspect accounts relating to the revaluation losses or
profits accounted in the general ledger regarding such
assets;
Physical inspection of such assets as mentioned in the
register as well as examining related expenditures;
Verification of their disposals, if any.
Other Current Assets Valuation of such assets in accordance with prevalent
guidelines as well as the amounts mentioned in general
ledger by analysing related documents;
Evaluate their authenticity by tracking their sources.
Liabilities
Trade Creditors Conduct and Evaluate the risks associated with such
account balances to either magnify or minimise the overall
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Trace the receivables to general ledgers;
Analyse the Age Receivable Report/ Schedule and
determine receivable report total;
Investigate Reconciled items, doubtful accounts, bad debts
and other related provisions;
Short-term investments Confirmation of substantial balances and their agreement
with general ledger amounts;
Investigation of year-end activities so as to ensure proper
cut-off;
Valuing complex instruments related to such investments,
if any;
Vetting disclosures so as to ensure complete authenticity
of investment-related information.
Exploration and Evaluation
Assets
Verify title deeds, depreciation rates, replacement policies,
bank statements and valuation certificates for such class of
assets;
Inspect accounts relating to the revaluation losses or
profits accounted in the general ledger regarding such
assets;
Physical inspection of such assets as mentioned in the
register as well as examining related expenditures;
Verification of their disposals, if any.
Other Current Assets Valuation of such assets in accordance with prevalent
guidelines as well as the amounts mentioned in general
ledger by analysing related documents;
Evaluate their authenticity by tracking their sources.
Liabilities
Trade Creditors Conduct and Evaluate the risks associated with such
account balances to either magnify or minimise the overall
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testing of transactions;
Trace the payables to general ledgers;
Analyse the payable report total;
Investigate Reconciled items.
Provisions Verification of closing balances of such accounts and their
inclusion in the Cost of goods calculation of Statement of
Profit and Loss;
Analyse year-end changes;
Ensure such provisions have been duly accounted for in
the Statement of Financial Performance;
Ensure that no overstated values have been included in the
financial statements.
Other payables and accruals Verification of closing balances of such accounts;
Analyse year-end changes;
Ensure that no overstated values have been included in the
financial statements.
Unsecured Borrowings Check related documentation and their authenticity by
analysing the related transactions;
Ensure accurate valuation of such borrowings and interest
related costs regarding the same;
Shareholder's Equity Summarising, reviewing all equity transactions including
statement of changes in equity;
Verify the classification of such accounts and analyse
their opening and closing balances;
Review Compliance disclosure requirements and their
treatment in the accounting books such as final accounts
and general ledger.
Sampling Plan for each Material Account Balance
Assets Sample Size
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Trace the payables to general ledgers;
Analyse the payable report total;
Investigate Reconciled items.
Provisions Verification of closing balances of such accounts and their
inclusion in the Cost of goods calculation of Statement of
Profit and Loss;
Analyse year-end changes;
Ensure such provisions have been duly accounted for in
the Statement of Financial Performance;
Ensure that no overstated values have been included in the
financial statements.
Other payables and accruals Verification of closing balances of such accounts;
Analyse year-end changes;
Ensure that no overstated values have been included in the
financial statements.
Unsecured Borrowings Check related documentation and their authenticity by
analysing the related transactions;
Ensure accurate valuation of such borrowings and interest
related costs regarding the same;
Shareholder's Equity Summarising, reviewing all equity transactions including
statement of changes in equity;
Verify the classification of such accounts and analyse
their opening and closing balances;
Review Compliance disclosure requirements and their
treatment in the accounting books such as final accounts
and general ledger.
Sampling Plan for each Material Account Balance
Assets Sample Size
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Cash and Cash Equivalents Remittance advices, pay-slips, bank statements and transactions of
frequent and substantial nature including contra items, cancelled
cheques and ceased payments (Sutradher, 2012).
Trade and other receivables Credit Memos, Allowances or provisions for doubtful accounts,
bank accounts, invoices for substantial as well as frequently
transacted parties.
Short-term investments 10% of the total Short-term Investments is taken as the minimum
sample size.
Exploration and Evaluation
Assets
100% of the assets, if they belong to different classes and serve
different purpose otherwise 10% of the total Exploration and
Evaluation assets.
Other Current Assets 100% of Other Current Assets balance.
Liabilities
Trade Creditors Purchase and Creditors account balances, Bank statements and
transactions of frequent and substantial nature.
Provisions Accounts relating to all the contingent liabilities and provisions,
Minutes of Meetings, Articles of Association, general ledger and
balance sheet balances.
Other payables and accruals 100% of Advance accounts, outstanding or accrual balances.
Unsecured Borrowings 100% of Total Unsecured Borrowings Account
Shareholder's Equity 100% of Equity Accounts with substantial holdings in Mako Gold
Limited.
CONCLUSION
From the above report it can be concluded that substantive test of procedures and controls
including a related sampling plan along with analytical procedures play an important role while
formulating a comprehensive audit program for a company. Postulation of such steps enable the
internal auditors to ensure that the organisation has not excluded any regulation compliance.
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frequent and substantial nature including contra items, cancelled
cheques and ceased payments (Sutradher, 2012).
Trade and other receivables Credit Memos, Allowances or provisions for doubtful accounts,
bank accounts, invoices for substantial as well as frequently
transacted parties.
Short-term investments 10% of the total Short-term Investments is taken as the minimum
sample size.
Exploration and Evaluation
Assets
100% of the assets, if they belong to different classes and serve
different purpose otherwise 10% of the total Exploration and
Evaluation assets.
Other Current Assets 100% of Other Current Assets balance.
Liabilities
Trade Creditors Purchase and Creditors account balances, Bank statements and
transactions of frequent and substantial nature.
Provisions Accounts relating to all the contingent liabilities and provisions,
Minutes of Meetings, Articles of Association, general ledger and
balance sheet balances.
Other payables and accruals 100% of Advance accounts, outstanding or accrual balances.
Unsecured Borrowings 100% of Total Unsecured Borrowings Account
Shareholder's Equity 100% of Equity Accounts with substantial holdings in Mako Gold
Limited.
CONCLUSION
From the above report it can be concluded that substantive test of procedures and controls
including a related sampling plan along with analytical procedures play an important role while
formulating a comprehensive audit program for a company. Postulation of such steps enable the
internal auditors to ensure that the organisation has not excluded any regulation compliance.
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