Developing an Audit Program for selected publically listed Company

This project report focuses on developing an audit program for a selected publically listed company. It includes an analysis of the nature of the industry and key risks, financial performance for three years, and a sampling plan for each material account.

Developing an Audit
Program for a
selected publically
listed Company

EXECUTIVE SUMMARY
A project report has been prepared taking into account one of Australia's publicly
traded firms. It reflects on how an organization is planning for the audit program. It
requires recognition of the test of controls and the implementation of suitable test on
separate transactions and account balances. It indicates that the auditor will adapt the
practical protocols to the particular risks evaluated. It also lists multiple value of assets
and liabilities of balance sheet and refers to their related assertions. The key aim of this
project is to figure out how to be select the most reliable and successful mix of audit
rules to assure that the audit goal is attained. Finally, a sample plan for each of the
material accounts to be checked has also been incorporated. The above descriptions
were expressed in a table format so as to allow for easy interpretation and contrast.

Contents
EXECUTIVE SUMMARY.........................................................................................................................2
INTRODUCTION......................................................................................................................................4
MAIN BODY..............................................................................................................................................4
1. Analysis of nature of industry and key risks..............................................................................4
2. Analysis of financial performance of above company for three years...................................8
3. Discussion of account balances which are consider Material...............................................13
4. Ten different material account balances..................................................................................14
5. Relevant financial report assertions.........................................................................................14
6. Preparation of set of audit work................................................................................................17
7. Sampling plan for each material account.................................................................................19
CONCLUSION........................................................................................................................................20
REFERENCES........................................................................................................................................21

INTRODUCTION
It is important for business entities to apply a suitable and effective audit program
so that financial statements can be prepared in more transparent and accurate manner
(Eulerich, Georgi and Schmidt, 2019). In the aspect of project report an audit program
has been prepared for a publically listed company registered in Australian stock
exchange. The name of company is Bega Cheese limited that is involved in sector of
consumer staples. This company was founded in year 1899, headquartered in Bega,
Australia. This company is Australia’s diversified food company which has its
manufacturing sites at different locations like new south wales, Queensland and
Victoria. The company was formed as a public limited company in year 2011 ( About
Bega cheese limited, 2020). The project report contains information about key risks
faced by chosen company, financial performance and an appropriate audit program in
accordance of ten selected material accounts.
MAIN BODY
1. Analysis of nature of industry and key risks.
Bega cheese limited is an Australian based company which is listed in Australian
stock exchange. The company is known for its cheese as they provide quality
cheese products since 40 years and they dominate the market. Company sells
around 1 million packs of cheese on a daily basis. In year 2017, company
increased their product portfolio by including some other products such as
vegemite, peanut butter, ZoOSh. The company’s products are chosen on priority
in different supermarkets as they produce organic cheese items (About Bega
cheese limited, 2020). The rationale behind maintaining higher quality in food
products is that they buy raw material for production of cheese products directly
from farmers and different farms. This company also follows different types of
regulations such as they try to make limited noise so that neighborhoods cannot
be disturbed along with assurance of proper management of wastage of water is

also considered. So as per this discussion, it can be stated that company is
based in the sector of food manufacturing and they have monopoly in various
cheese products in Australia. Though, there are some competitors too but no one
is able to maintain similar quality in products as Bega cheese limited.
Main business risks- Each business faces number of risks in which some risks
can be controlled and some can’t be. The risks which are under control of a
business, arise due to internal inefficiency. On the other hands, those risks which
are not in control of a company, occur due to any external environment factor.
Underneath some types of risks are mentioned below in such manner:
 Competitive risk- It can be characterized as form of risk which occurs in
businesses due to number of competitive companies are available in
market (Zhaokai and Moffitt, 2019). This types of risk cannot be controlled
by business entities. For instance, the above Bega cheese limited has
number of other competitors such as Nu farm, Sun Rice, Costa group etc.
These all companies may trouble to revenues and existence of above
mentioned company by offering number of substitute products.
 Credit risk- This is defined as a type of risk that occurs in companies due
to inefficiency of debtors in order to pay debt amount. Eventually, big
companies offer credit facility to different clients and if these clients fail to
make payment which they owed than company may face huge loss. Such
as Bega cheese limited can face this risk if their customers do not make
payment for the goods which are sold on credit.
 Liquidity risk- It can be understood as a form of risk that occurs because
of lack of financial resources in order to make payment of short term
debts. In the context of above Bega cheese limited, they may face this risk
if they fail to make projection of financial resources.
Risk of material misstatement- This is known as a type of risk that can occur in
business entities because of intentionally or without intentionally by accountants
in financial statements (Al-Bawab, 2019). In regards to a company, there are

different kinds of accounts in that risk of material misstatement may occur. In
Bega cheese limited, this type of error may happen in annual report including
current, non-current assets and liabilities.
Factors affecting to inherent and control risks:
Inherent risk- It is a type of risk that is occurred by a mistake in financial
statement due to a factor instead of failure of internal control. In the aspect of
financial audit risk, this type of risk has higher possibility to occur when
transactions are complex. In Bega cheese limited, there are various kinds of
factors which can affect this risk such as complication of trades, new accounting
procedures, liquidity position etc. The rating of this risk is too upper because
above mentioned factors have higher possibility of variation that can affect to this
risk.
Control risk- This can be understood as a type of risk which is posed by wrongly
formulation of financial statements due to letdown of techniques for identifying,
stopping and controlling them (Knechel, Thomas and Driskill, 2020). The factors
which affecting this risk in Bega cheese limited are environment in which they
operate, efficiency of controlling and monitoring process etc. The rating of this
risk for above company is moderate. The rationale behind is that there is very low
possibility of changing in these above mentioned factors.
The above mentioned misstatements can be assessed with assistance of audit
risk model that is explained underneath-
Audit risk model- This is defined as a type of model that is applied by auditors in
order to find relation between different kinds of risk raising because of audit
engagement (Neamah and Hassan, 2019).
Formula: [AR = f (IR, CR, DR)]
Elements Inherent
risk
Control risk Amount of evidence
required
Cash and cash equivalents High Low Moderate

Receivables Moderate Moderate Moderate
Inventories High Very low High
Deferred income taxes Low High Moderate
Prepaid expenses Moderate High Moderate
Other current assets High Very low High
Property, plant Very low Low Low
Deferred income taxes Moderate Low Moderate
Other long-term assets High Moderate High
Short-term debt Very high High Very high
Capital leases High Moderate Moderate
Deferred income taxes Moderate High Moderate
Long-term debt Very low Low Low
Retained earnings Low Low Low
Common stock High Low Moderate
Other Equity Very high High Very high
Pensions and other benefits Very high Low high
On the basis of above table, below mentioned aspects can be assessed:

Detection risk -It can be described as the possibility of the auditor not finding the
material misstatement in the entity's financial reports. All these irregularities may
be made in Bega cheese Limited’s final accounts due to separate factors, such
as theft or error. In accordance of above table some detection risks are cash and
cash equivalents, receivables, stock, prepaid expenses, pension and other
benefits.
Audit risk- It may be defined as the danger that could arise due to the
inaccuracy of the financial reports and the auditor passes the argument that all
the reports are error-free (Dahanayake, 2020). To mitigate this category of risk,
accountants execute annual basis audit at Bega cheese limited. The above table
states that some of the risks involved with the audit are fixed assets, financial
liabilities, equities etc.
According to the high or lower ranking of inherent and control risk, the estimation
of identification and audit risk may be impaired and if there is a high chance of
them then it will influence auditors to find them and consider the claims wrong.
From the aforementioned table it can be evaluated that cash and cash
equivalents, trade and other receivables, stock, prepaid expenses, pension and
other benefits are the risk which need to be focused by above company.
2. Analysis of financial performance of above company for three years.
This is important for companies to assess their financial position so that effective
decisions can be carried out by managers. In order to analyze financial
performance, there are a range of techniques and ratio analysis is one of them
which is applied for Bega cheese limited in such manner:
Ratio analysis- It can be understood as a form of matrix which is used to
measure financial performance of companies in relation to different aspects
including profitability, investment etc. In the context of above company some key
ratios are calculated and interpreted below in such manner:

Liquidity ratio- This ratio is measured in order to assess liquidity position of a
company so that it can be measured whether there are enough current assets or
not to pay short term debts (Dagilienė and Klovienė, 2019). It includes below
mentioned ratios such as:
 Current ratio: Current assets / current liabilities
Data in $ million
except current
ratio
2017 2018 2019
Current assets 818 469 490
Current liabilities 267 278 315
Current ratio 3.06 times 1.69 times 1.55 times
2 0 1 7
2 0 1 8
2 0 1 9
0
0.5
1
1.5
2
2.5
3
3.5
Current rati o
Interpretation: On the basis of above diagram this can be find out that performance
of Bega cheese limited has been reduced year by year in terms of liquidity. As in
year 2017, current ratio was of 3.06 times which reduced by almost 50% and
became of 1.69 times for year 2018. As well as in next year, it became of 1.55 times.
This performance is showing that company failed to meet idea criteria of current ratio

that is of 2:1 times in year 2018 and 2019. The rationale behind this poor
performance is decreased value of current assets in last two years as compared to
year 2017.
 Quick ratio: Quick assets / current liabilities
Data in $ million
except quick ratio
2017 2018 2019
Quick assets 645 219 197
Current liabilities 267 278 315
Quick ratio 2.41 times 0.79 times 0.62 times
2 0 1 7
2 0 1 8
2 0 1 9
0
0.5
1
1.5
2
2.5
Quick rati o
Interpretation: Similar to above current ratio, the quick ratio of company is also has
been reduced in last two years as compared to year 2017. As in year 2017, current
ratio was of 2.41 times which reduced by almost 60% and became of 0.79 times for
year 2018. As well as in next year, it became of 0.62 times. This performance is
showing that company failed to meet idea criteria of quick ratio that is of 1.5:1 times

in year 2018 and 2019. The rationale behind this poor performance is decreased
value of quick assets in last two years as compared to year 2017.
Profitability ratio- This ratio is computed by companies in order to assess financial
performance in terms of profit and expenses. It consists some types of ratios such as:
 Gross profit ratio: gross profit/net sales*100
Data in $ million
except Gross
profit ratio
2017 2018 2019
Gross profit 154 272 290
Net sales 1227 1438 1420
Gross profit ratio 12.55% 18.92% 20.42%
2 0 1 7
2 0 1 8
2 0 1 9
0.00
5.00
10.00
15.00
20.00
25.00
Gross profi t rati o
Interpretation: On the basis of above chart, this can be outlined that company’s
performance has been enhanced in terms of profitability. As in year 2017, gross margin
was of 12.55% which raised and became of 18.92% for next year. Similarly, for year
2019 this ratio was of 20.42%. The rationale behind this good performance is growth in
gross profit of company in every year.

 Net profit ratio: net profit/net sales*100
Data in $ million
except net profit
ratio
2017 2018 2019
Net profit 139 29 12
Net sales 1227 1438 1420
Net profit ratio 11.33% 2.02% 0.84%
2 0 1 7
2 0 1 8
2 0 1 9
0
2
4
6
8
10
12
Net profi t rati o
Interpretation: The above mentioned chart is showing that there is dramatically
reduction in net profit ratio of company. In year 2017, net profit margin was of 11.33%
which reduced and became of 2.02% for year 2018. While in year 2019, it was of
0.84%. This is indicating that company is not able to generate higher return on all those

expenses which are made during three different years. The rationale behind this poor
performance is higher expenses in last two years which is resulting as decreased value
of net profit.
3. Discussion of account balances which are consider Material.
Materiality of accounts: - It can be described as the condition wherein the
financial statements are deemed as material because of mistakes in the details
reported in them (Lin, Tseng and Wong, 2019). There are different accounts
which should be reported as material due to irregularities in their balance sheets
recorded in the corporation's final statements and defined from the audit risk
system. In the context of above Bega cheese limited, there are some particular
accounts that can be considered as material like cash and cash equitant,
receivables, stock etc. Apart from it, there are some liabilities that can be
considered as materialistic named as payables, equities, pension schemes etc.
The planning aim materiality is determined by evaluating all the components of
the financial reports to verify if the balances that are noted are sufficient and
correct, or not. The following factors are weighed when measuring it, and the
higher one is chosen for planning:
Higher from the above number is chosen in terms of materiality for the planning
reason.
Criteria
2 - 5% of inner liabilities
1-2% of total assets
5-1% of revenue
5-10% of net profit
1-2% of gross profit

For example, when investors invest in a company they evaluate each aspect in
the annual report. If they see some unknown fluctuations or declines such as 10
or more percentage changes in earnings, then they may be compelled to
withhold their investment.
4. Ten different material account balances.
Assets (In $ Million)
Name of
account
2017 2018 2019
Cash and cash
equivalents
476 22 29
Trade and other
receivables
142 178 89
Other current
assets
23 6 73
Inventory 168 232 274
Prepaid
expenses
5 18 19
Liabilities (In $ Million)
Name of
account
2017 2018 2019
Trade payables 135 181 186
Equities 22 21 23
Deferred
income tax
64 7 0
Long-term debt 215 267 316
Pensions and
other benefits
2 2 2

5. Relevant financial report assertions.
Assets
Name of account Assertion Application of selected
assertion
Cash and cash
equivalents
Accuracy It is not possible to
predict exact cash
receipts because of
uncertainty in
operations. As well as
because of bad debts or
doubtful debts.
Trade and other
receivables
Occurrence In some cases, amount
of receivables is
received after a long
time period because of
bad debts. Thus, this
can be materialistic
because of occurrence
of receivables.
Other current assets Classification There are different types
of assets which are
recorded and these can
be materialistic because
of ineffective
classification.
Inventory Existence This assertion is applied
because of fluctuation in
value of inventory in

three different years.
Prepaid expenses Accuracy It has been applied
because of accurate
recording of all values of
prepaid expenses.
Liabilities
Name of account Assertion Application of selected
assertion
Trade payables Understandability In the case when all
payables are recorded in
one account than this
may occur issue for
stakeholders to
understand financial
reports and create
materiality.
Equities Understandability This may lead to
materiality due to
recoding of different
figures under it (Tiberius
and Hirth, 2019).
Deferred income tax Existence This helps to describe
that at the end of the
time, the balance of
liability was registered.
Long-term debt Rights and obligations This assertion clearly
specifies that the
liabilities listed in the
accounts represent a
liability of Bega cheese
limited and is required to

be transferred in the
future.
Pensions and other
benefits
Completeness This type of assertion is
applied in consideration
of employees benefits
because in some
situations materiality
may occur due to lack of
information.
6. Preparation of set of audit work.
Assets
Name of account Audit Work Steps Explained
Cash and cash equivalents Initially, balance of all accounts under
this heading are reviewed to involve
foreign currency transactions.
Having evidence of the expenses
reported in the financial accounts,
such as written records.
Essentially all records are reviewed to
ensure they matching facts.
Trade and other receivables Analysis is performed to calculate the
balance accumulated in that account.
Accounts matching to ledgers, trial
accounts.
Assessing whether the accumulated
poor and questionable debts are
acceptable or not.
Other current assets Reviewing of all reported figures in
this section.
Verifying that they are all genuine or

fake.
Requiring management to have
evidence, such as details of all of their
existing properties.
Inventory Verifying the balance of trial accounts.
Reviewing of all financial documents,
such as receipts, inventory reports
etc.
Prepaid expenses Examination of tax bills and recording
of payments.
Testing arithmetically correctness of
analysis.
Liabilities
Name of account Audit Work Steps Explained
Trade payables Assessment of all the figures reported
in this report to verify their suitability.
Checking whether or not the value is
accurate, using key books and
records such as reports, ledgers etc.
Equities Checking bank statements with
specifics of all equities.
Review the details obtained from
multiple sources including the financial
statements.
Checking the company has met with
all legislation to report the equity
numbers.
Deferred income tax Investigate whether or not the tax
payments are adequately withheld.
Insures compliance with deferred tax
levies.

Long-term debt Check all the documentation done by
the lender is right and accurate by the
time the loan is made.
Ensure proper valuation of securitized
properties against any debt.
Insure no interest rate is outstanding
on loans
Pensions and other benefits Verifying the closing balances of all
past year fiscal report reports
(Schmitz and Leoni, 2019).
Evaluating why they are all made in
line with legal standards.
Ensure exact numbers are reported in
them.
7. Sampling plan for each material account.
Assets
Name of account Sample size
Cash and cash equivalents The auditor can take samples of cash
transactions here that are high in
value or regular in nature.
Trade and other receivables When taking samples of receivables,
auditors can accept only year-ended
transactions in trade accounts
receivable and exchange receivables
with wide balance.
Other current assets 100% of Other Current Assets
balance
Inventory In stocks only those things which

move frequently are regarded.
Prepaid expenses 100% of prepaid expenses is taken as
sample.
Name of account Sample size
Trade payables Only year-end transactions of trade-
payable accounts with significant
balance should be considered by the
accountant during time of compilation.
Equities 100% of Equity Accounts.
Deferred income tax No need of sample planning.
Long-term debt Only huge quantities of loans must be
required for sampling plan (Abuazza,
Labib and Savage, 2019).
Pensions and other benefits 100% of pensions and other benefits
account.
CONCLUSION
The aforementioned report concludes that the audit method is a sort of strategy
that the auditor formulates to ensure that the statistics reported in the organization’s
final reports are accurate or not acceptable. There are different kinds of risks that could
impact the reliability of final reports. To minimize the risks, businesses' accounting
practitioners are expected to identify any variables that could influence them. These
variables are market climate, interest rates, inflation, current accounting standards etc.
Materiality is also one of the big risks that the corporation's accountants need to
concentrate on. There is different assertion to consider the capacity, valuation,
description, etc. added to each account that has materiality.

REFERENCES
Books and journal:
Eulerich, M., Georgi, C. and Schmidt, A., 2019. Continuous auditing and risk-based
audit planning. Available at SSRN 3330570.
Zhaokai, Y. and Moffitt, K.C., 2019. Contract analytics in auditing. Accounting
Horizons, 33(3), pp.111-126.
Al-Bawab, A.A., 2019. The Planning for the Auditing Process in the Jordanian
Commercial Banks from Perspective of the External Auditors. International
Journal of Economics and Finance, 11(7), pp.1-40.
Knechel, W.R., Thomas, E. and Driskill, M., 2020. Understanding financial auditing from
a service perspective. Accounting, Organizations and Society, 81, p.101080.
Neamah, I.S. and Hassan, M.S., 2019. Activate the reliability of the enterprise resource
planning (ERP) system by using continuous auditing/Exploratory study in
Iraq. Tikrit Journal For Administration & Economics Sciences, 15(46 Part 2),
pp.1-17.
Dahanayake, S.J., 2020. Enacting audit legitimacy: internal processes of VFM auditing
in Victoria, Australia. Public Money & Management, pp.1-10.
Dagilienė, L. and Klovienė, L., 2019. Motivation to use big data and big data analytics in
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Lin, C.W., Jeng, S.Y., Tseng, M.L. and Wong, W.P., 2019. Sustainable development for
zero-wastewater-discharge reproduction planning under quantitative and
qualitative information. Management of Environmental Quality: An International
Journal.
Tiberius, V. and Hirth, S., 2019. Impacts of digitization on auditing: A Delphi study for
Germany. Journal of International Accounting, Auditing and Taxation, 37,
p.100288.
Schmitz, J. and Leoni, G., 2019. Accounting and auditing at the time of blockchain
technology: a research agenda. Australian Accounting Review, 29(2), pp.331-
342.
Abuazza, O.A., Labib, A. and Savage, B.M., 2019. Development of an auditing
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Online:
About Bega cheese limited, 2020 [online] available through:<
https://www.begacheese.com.au/ >

About financial statement of Bega cheese limited, 2020 [online] available through:<
http://financials.morningstar.com/balancesheet/bs.html?
t=BGCHY&region=usa&culture=en-US>