Developing An Audit Program Assignment

Running head: DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY
LISTED COMPANY
Developing an audit program for a selected publically listed company
Name of the student
Name of the university
Student ID
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DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
Executive summary:
The paper is prepared to develop the audit program of one of the companies listed on the
Australian stock exchange. For the purpose of analysis, the selected company is Cygnus Gold
limited for which the nature of business and different types of risks faced have been
identified. The development of audit program incorporate the adoption of the audit risk model
for determining the overall audit risk faced by the company. Development of audit program is
done by performing analytical procedures that concerns the evaluation of the financial
performance using ratio analysis tool. The materiality of the account balances have been
identified by analyzing the trend of ratio and the figures obtained therein. The later part of the
paper depicts the comprehensive set of audit work steps for each of the material account
balance that are identified. Development of such program helps in obtaining audit evidence
for all the accounts that have been tested.

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Understanding the nature of business entity:.............................................................................2
Identification of key business risk:............................................................................................3
Assessing risk of material misstatements:..................................................................................3
Performing analytical procedures of the financial position statement:......................................3
Identification of material accounts balances and computation of materiality for planning
purposes:....................................................................................................................................4
Conclusion:................................................................................................................................5
References list:...........................................................................................................................6

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
Introduction:
The paper demonstrates the development of an audit program for a company listed on
Australian stock exchange (ASX). The chosen company for which the audit program is
developed is Cygnus Gold limited that is engaged in the discovery of base metals deposits
and gold within the Terrane of Southwest in the Wheatbelt region of Western Australia.
Cygnus is an exploration company that focuses on the development of base metals and gold
deposits in the South west Yilgarn of Western Australia. The company is managing the
exploration of two joint ventures with Gold resources limited and significant earn in
agreements (Cygnusgold.com 2019). The application of audit risk model for assessing the
inherent risk and control is demonstrated in the paper. For the development of audit program
for Cygnus, substantive and analytical procedures have been adopted that helps in
identification of the account balances that are material. A comprehensive set of audit work
for each of the material account balances identified has been addressed in the context of
assertions so that there is a generation of appropriate audit evidences. The audit program also
incorporates the development of sampling plan for each of the identified material accounts
balances that have been tested.
Discussion:
Understanding the nature of business entity:
The discovery of base metal deposits and high grade gold has been targeted by
Cygnus within the Southwest Terrane of Western Australia. Most advanced exploration
project of Cygnus is Stanley project that comprise of an area of approximately 160 km2. The
initial diamond drilling program was followed by Cygnus by targeting the basement
extension of gold mineralization and high grade zone as well as targeting on the Stanley Hills
and Brays prospects. A detailed ground gravity survey that targeted relatively dense massive

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
sulfides was completed by Cygnus. In order to identify the additional conducive targets
representing the accumulation of massive sulfides and screening the prospective gravity
anomalies, the company is engaged in the collection of Airborne Electromagnetic (AEM)
survey. In addition to this, a new tenement over the Bonnie rock prospect was applied by the
company and the exploration of Bonnie rock would be commenced after the grant of
tenement. Furthermore, a new joint venture was announced by the company in the early 2018
over the Yandina project with Gold road. Therefore, the key nature of the entity is to
systematically explore the key assets, engage in the advance exploration, managing the
projects in accordance with the relevant joint venture agreements (Cannon and Bedard 2016).
They are also engaged in the acquisition, exploration and joint venture opportunities by
implementing the growth strategy.
Identification of key business risk:
The performance of Cygnus limited is affected by some of the risks that are listed
below:
Liquidity risk- The risk of liquidity arises from the possibility of the failure of the
company to meet its obligations in relation to the financial liabilities and difficulty in settling
the debts. Liquidity risk is managed by investing in surplus cash, monitoring cash flow and
comparing the realization profile of financial assets with the maturity profile of financial
liabilities.
Currency risk- The Company is exposed to considerable currency risk on the
transactions that are not denominated in a currency other than the respective functional
currencies.

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
Market risk- The value of holdings of the financial instruments and income of the
company is impacted by the change in the market prices such as interest rate and foreign
exchange rates.
Interest rate risk- The Company is exposed to market risk for any changes in the rate
of interest and such risk is attributable to the cash of the company. Cash of the company earn
variable interest in the range between 1.05% and 2.05% and the cash comprising of cheque
accounts and term deposits.
The risk of material misstatements in the financial report of Cygnus Gold limited has
been assessed with the help of audit risk model that requires identification of control and
inherent risk. Control and inherent risk are independent of the auditor whereas detection and
audit risk are related to the auditor. The inherent and control risks is influenced by number of
factors such as the competitive environment in which the business conducts its operation and
the nature of business entity that exposes it to different risks. Inherent risk is the risk to the
assertion of material misstatements without accounting for internal control. The performance
of the company is impacted by some unknown and known risk. Some of the inherent risk
include market risk, interest risk and currency risks faced by the company. However, for the
items such as trade payables and loans, risk associated with credit, market and liquidity risk
are not considered material. Control risk is dependent upon the internal control system of
Cygnus gold limited and it has been found that the exposures to market risk within the
acceptable parameters is managed by the market risk management. In addition to this, for the
arrangements to the liabilities and assets, there is a joint control brought by the joint
arrangements. The development of internal control is considered necessary for ensuing the
true and fair preparation of the financial statements and free from any material misstatements
(Endaya and Hanefah 2016).

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
The total amount of risk measured by audit risk is determined using audit risk model
that gives an overall description of the risks faced by Cygnus gold limited. The mathematical
formula used for computing the audit risk faced by the company is given by:
Audit risk= Control risk * Inherent risk * detection risk
Cygnus gold faces some inherent risk due to the existence of some inherent factors
impacting the subjective judgment and accounting estimates used in different accounting
treatments. Some of the inherent risks include exposure to market risk, interest rate risk and
liquidity risk impacting various financial instruments of the company (Griffith et al. 2015). In
addition to this, it has been ascertained from that the internal control system of the company
is effective on handing the control activities and all the different perspective actions and risks
associated have been accounted by the auditors for forming an opinion on the financial
statements. If the overall audit risk of Cygnus Gold limited is set in the range of 10% by the
auditors of the company and the control and inherent risk is determined at 60% and 50%.
Then, detection risk is determined using the audit risk model and the value comes to 0.33
(0.1= 0.6* 0.5* Detection risk). Therefore, from the figures, it can be deduced that the
occurrence of error on part of the auditors to identify the material misstatement is lower as
against control and inherent risk faced by the company. The assessment of control and
inherent risk can be applied as higher risk rating compared to overall audit risk faced.
Assessing risk of material misstatements:
One of the important concepts in auditing is materiality as it helps in the preparation
of the financial statements in a true and fair manner. Materiality is also influenced by the
perception of the users of the financial statements. For limiting the inherent risk in the
process of auditing, auditors account for judgment in the materiality. The information
produced in the financial report is not materially impacted by any new information as the

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
company is not aware of the same. The material revenue has not been derived by the
company after the implementation of new standard that is AASB 15 revenue from the
contracts with the customers and the adoption of the standard has not materially impacted the
financial instruments (Boughey and McKenna 2017). The impact of discounting is considered
immaterial and there has been omission of discounting factor. As the time value of money is
considered material, discounting of provisions are done at their present value. In addition to
this, it is observed from the financial report of Cygnus gold that the auditors have view that
the information presented in the financial report is materially consistent with the financial
statements that is there is no material misstatement of the information.
Performing analytical procedures of the financial position statement:
The financial performance of Cygnus Gold limited have been evaluated by
performing the analytical procedures using the ratio analysis tool. Using this procedures,
auditor is able to gain an understanding of the riskiness of operations of specific area and
assist in framing opinion about the financial position of the company (Appelbaum et al.
2018). Some of the financial metrics which has been used for evaluating the performance
include profitability, liquidity, efficiency and solvency. The solvency, efficiency, profitability
and liquidity position of Cygnus gold has been evaluated by computing ratios that are
presented in the table below:
(see appendix for
calculations)
2018 2017 2016
Operating profit/loss
margin
-484.36% -24056.44%
-6342.72%
Return on equity -11.34% -11.88% -9.37%

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
Gross profit/loss
margin
-484.36% -24056.44% -6342.72%
The profitability position of Cygnus gold has been evaluated by using the analytical
procedure of computing operating profit margin, gross profit margin and return on equity. It
can be observed from the table that operating loss margin increased in year 2017 and
decreased in 2018 and this decrease in loss generated is due to increase in revenue in the
current year. Return on equity on other hand has declined year on year indicating that the
employment of capital has resulted in creation of loss. Looking at the figures of gross loss, it
is observed that the gross loss has increased in year 2017 and it fell in year 2018 implying
that company is not left to cover for financing, operating and other costs. However, the
condition has improved in year 2018 due to increase in amount of revenue.
(see appendix for calculations) 2018 2017 2016
Total Asset turnover 0.02 0.0005 0.0014
Debtor turnover 1.82 0.01 0.17
Working capital ratio 5.92 13.30 13.20
The above table presents the efficiency figures of the company by computing debtor
turnover, total asset turnover and working capital ratio. Total asset turnover of Cygnus Gold
has increased indicating that the company has been efficient in utilizing its assets for
generating sales. Debtor turnover has increased in year 2018 and this has implication of the
fact that the company has better cash position as they are collecting cash more frequently

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
from the debtors (Chan and Kogan 2016). Working capital ratio has reduced in year 2018 as
against year 2017 and 2016. It is not considered desirable to have excessively low and high
working capital ratio.
(see appendix for calculations) 2018 2017 2016
Debt to equity 0.11 0.07 0.08
Equity ratio 0.90 0.93 0.93
Debt ratio 0.11 0.07 0.08
Solvency position of the company has been evaluated by computing ratios such as
debt to equity, equity and debt ratio. It is observed from the table that debt to equity ratio of
Cygnus gold has increased from 0.07 in year 2017 to 0.11 in year 2018 and it is not
considered desirable to have higher debt to equity ratio as it implies an increase in the
financial leverage. Equity ratio on other hand has reduced from 0.93 in year 2017 to 0.90 in
year 2018 and fall in ratio is not considered desirable. This fall is due to fall in the value of
total assets and total equity.
(see appendix for calculations) 2018 2017 2016
Current ratio 5.92 13.30 13.20
Quick ratio 5.92 13.30 13.20

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
Liquidity position of the company has been evaluated by computing current and quick
ratio. It is observed that current ratio of Cygnus gold has declined in 2018, though the ratio
has declined, it does not mean that the company is able to pay off its short term obligations
using current assets.
Identification of material accounts balances and computation of materiality for
planning purposes:
Material accounts
balance
Relevant financial
report assertion
Set of audit work
steps
Using sampling for
testing material
accounts balance
Revenue Completeness and
occurrence
Observing and
testing the revenue
accounts presented in
the income
statement. Next step
should involve
checking for the
issues of revenue
recognition and
assessing the
documentation
associated with the
revenue cycle.
The method used by
the auditor for
testing the revenue
account in the
income statement.
In the next step,
issues regarding
recognition of
revenue such as side
agreements and
channel stuffing are
looked for. The
occurrence of
revenue is evaluated

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
by selecting a
sample of revenue
accounts over the
period of two years.
Accounts receivable Occurrence
The reason for
occurrence assertion
in relation to
accounts receivable
is that it helps in
ascertaining that the
transactions recorded
has actually
occurred. Therefore,
auditor has
employed the
assertion of
occurrence for
testing accounts
receivables.
Any significant
difference is defined
by the auditors along
with the development
of an independent
expectation and
accordingly
conclusions are
drawn (Hoogduin et
al. 2015).
The notes of last
received goods is
recorded by the
auditor along with
tracing the invoices
of sales and
purchase. Auditor
uses systematic
sampling method for
selecting the
invoice.
Current assets Valuation and
existence
Current assets are
tested for valuation
and existence
A sample of current
assets is chosen and
they are verified for
their valuation using
and testing the
For evaluating the
current assets, non-
statistical sampling
method should be
adopted such as

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
assertion. It is so
because it helps in
evaluating that the
assets have been
recorded at the
proper valuations
(accaglobal.com
2019). In addition to
this, they are also
accounted for the
existence that is the
account balance of
current assets exist.
measures that forms
the basis of
valuation.
block sampling
(Pcaobus.org 2019).
Property, plant and
equipment
Valuation and right
and obligations
It helps in
identifying that the
disclosed obligations
and rights pertaining
to property, plant
and equipment is
actually related to
the reporting entity.
In addition to this,
this particular asset
All the plant,
equipment and
property registered
are physically
verified and the
maintenance and
expense account is
reviewed. The sales
proceeds for any
disposed asset and
receipt of purchase of
assets should be
For testing the
control of this
particular account
balance, a sample of
purchase and sales
of plant, equipment
and property related
to recording of
transactions an
authorization is
recorded (Gepp et
al. 2018).

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
has also been tested
for their valuation.
looked for supporting
documents (Lee et
al. 2016).
Depreciation charge
should be
recalculated for a
sample of assets.
Accumulated losses Accuracy
Using this assertion,
auditor will be able
to evaluate whether
the full amount of
transactions have
been recorded
without any error.
For the assessment of
accumulated loss,
auditor should
conduct relevant test
by reperforming the
calculations on the
factors that have
contributed to loss
and reviewing the
reconciliations of
control account for
providing assurance
about accuracy
(Cpaaustralia.com.au
2019).
The management
process in
developing the
estimate is tested
and reviewed by
selecting a sample
using simple
random sampling
technique. This
helps in reviewing
of the subsequent
transactions and
events relating to
estimates of the
accumulated losses
(Brown et al. 2015).
Trade and other
payables
Completeness and
occurrence
A summary of all the
trade payable is
Auditor can employ
a method of

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
This assertion helps
in evaluating the
accounts of trade
payable that they
have been recorded
correctly and they
should be disclosed
when they are
required (Maroun
2017).
obtained and opening
balance is compared
with the closing
balance of previous
year. The invoice of
suppliers should be
tested along with
testing the
accounting policies
for measuring the
trade payable.
statistical sampling
that is simple
random sampling
and determining the
appropriate
sampling units such
as monetary units
and purchase
invoices.
Income tax expense Understandability
Using this assertion,
auditor will
understand that the
information on the
income tax is clearly
understandable and
has been
appropriately
presented.
The documents
relating to income
tax expenses should
be verified and year
in year paper should
be compared. In
addition to this, the
documentary
evidence of the tax
liability should also
be evaluated and
analyzed (Knechel
and Salterio 2016).
A sample of tax
accounting record
for the verification
of the information
pertaining to tax is
done using the
systematic sampling
technique.
Subscriptions Classification The first step is to For the evaluation

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
receivable Using this assertion,
the transaction
relating to
subscriptions are
evaluated for
identifying that they
are recorded with the
correct accounts in
the general ledger.
identify the fact that
the transactions have
been recorded in
appropriate account.
of plant, property
and equipment,
auditor may adopt
the sampling
method such as
systematic sampling
that divides the
sampling units
within the
population for
generating a
sampling interval
using the sample
size (Krahel and
Titera 2015).
Conclusion:
The report prepared above conducts an analysis of the material misstatement of the
account balances of Cygnus Gold limited and such analysis has been done by developing the
audit program. While assessing the risk of material misstatements of the company, it can be
inferred after analyzing the inherent risk, control and detection risk, the overall audit risk of
the company is low and therefore, the risk rating which is applicable to the company is low.
The analytical procedures adopted by the auditor has assisted in identifying the materiality in
the account balances. In addition to such analysis, the materiality about the account balances

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
can also be evaluated from the opinion of the auditor where the view is that the financial
statements is free from the material misstatements. Nonetheless, the material account
balances that have been identified is in relation to revenue account, trade payables, assets
such as current asset and plant, equipment and property. The appropriate assertions with the
justifications have been presented for each of the identified material account balance. Such
assertions have been evaluated by developing the appropriate sampling techniques employed
for verification.

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
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auditing: A comprehensive literature survey and framework for external audit
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Boughey, C. and McKenna, S., 2017. Analysing an audit cycle: A critical realist
account. Studies in Higher Education, 42(6), pp.963-975.
Brown-Liburd, H., Issa, H. and Lombardi, D., 2015. Behavioral implications of Big Data's
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Cannon, N.H. and Bedard, J.C., 2016. Auditing challenging fair value measurements:
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Chan, D.Y. and Kogan, A., 2016. Data analytics: Introduction to using analytics in
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Administrative Sciences, 32(2), pp.160-176.

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
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auditors and preparers. The British Accounting Review, 49(3), pp.329-346.

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY
Pcaobus.org., 2019. AU 350 Audit Sampling. [online] Available at:
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Appendix:

DEVELOPING AN AUDIT PROGRAM FOR SELECTED PUBLICALLY LISTED
COMPANY