Auditing Standards and Financial Statements

This assignment focuses on applying auditing standards to the financial statements of Australian Agriculture Company Limited. It emphasizes identifying accounts susceptible to misstatement and setting materiality levels to ensure accurate information for decision-making by users. The assignment draws upon various academic sources and online resources to discuss key concepts related to auditing, project management, and financial reporting.

Auditing project

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................1
a):Gain and knowledge the customers....................................................................................1
b): Identify significant accounts those are related with risk of materially misstated.............2
C). Planning materiality level.................................................................................................4
d) What can go wrong in audit risk assessment.....................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

EXECUTIVE SUMMARY
This report contains key informations reading audit plans, risk assessment procedures
rules, regulatory and guidelines. Set planning materiality levels. Risk assessment procedures and
accounts subject to material misstatement and audit risk assessment.

INTRODUCTION
Auditing is the systematic examination or inspection of certain book keeping accounts by
an financial persons such as auditor. It is followed by checking and analysing of inventories to
make sure that all departments are obeying proper systems for recording of financial
transactions. The primary objectives of conducting this particular audit is to determine accuracy
of financial statements those are provided by an organisation (Camcı, Bayar and Ülkar, 2015). It is
used to record all sorts of information such as financial or non-financial those are incur by
company during the year.
This project report is based on various vital aspects that are related with auditing of
statements. Understanding of accounting information in order to gain useful information about
current position of the company. Evaluation of significant accounts those are materially
misstated are discuss under this report. On the basis of proper evaluation, valuable justification
about audit risk are examine effectively.
a):Gain and knowledge the customers
ASA210: Agreeing the term of audit engagements: As per this particular auditing
standards which is applied at the time of auditing of financial statements of the company. In
order to access to all information by which administration is aware about certain relevant at the
time of preparation of financial report. Auditor and clients would be agrees on various
engagement. Agree aspects should be recorded in an audit engagement letter or suitable form of
contract those are applicable at the time of auditing of reports. The form and content of audit
appointment letter can be alter for every client but it would be consists of:
 Objective and scope of the audit of financial records:
 Responsibility of the auditors:
 Role of management:
 Identification of applicable financial reporting framework for the recording of entries:
 Reference form of expected form and content of every report those are to be issued by
auditor.
There are some specific aspects those are needed to be concluded as:
Recurring audits: There are various aspects those are needed to use by auditors for more
than one financial year. Some useful factors needs to be consider such as: Indication that the
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client misunderstand the purpose and nature of audit. It is made according to the requirement of
the company these are followed by auditors.
Auditors should consider whether financial situation needs any revise evaluation:
Sometime auditors become aware about few events which can affect materiality of financial
statements. They would determine the financial statements about whether need any amendment.
All these are discuss with the management so that proper knowledge would exchange clearly.
According to ASA 220 which is associated with quality control for an audit of financial
report and other historical data those are use by the company (Camcı, Bayar and Ülkar, 2015). This
particular auditing standard is determine as one of the prefect requirement that provide proper
application. In accordance with quality control process for an audit of statements and other costs
those are incur by the company during an accounting year. It consists of certain leadership role
of engagement partner for perfect and more reliable audit must be done. It also explain
monitoring process for making compliance with proper compliance with the system of auditing
records.
b): Identify significant accounts those are related with risk of materially misstated
In every business organisation, there is always have the problem of risk related with
financial accounts. These are mainly arises because of improper recording of entries into the
books of accounts. It is necessary for accountant to make use of proper standard which is made
for the purpose of recording various financial transaction into the specific statements. The
problems can only be solve by using suitable approaches that determine and assess risk of
material misstatement. It begins in every financial statements preparation and with auditors
overall knowledge about the company.
The main objectives of the auditors is to identify risk of materiality , thereby deliver a
basis for framing and improvising responses to overcome risk of materiel misstatement. The
auditor needs to perform risk assessment process that are more effectively helpful to provide a
reasonable basis material risks. It can be arises because of errors or any king of fraud and
designing for coming audit procedures.
Significant accounts those are related with risk materiality such as:
1. Integrated audit planning: Under this accounts, financial and operational control as
reciprocally interdependent for examine an effective internal control environment.
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Manual and automated feed, timely and reliable data can be identify by using this
particular accounts.
2. Fraud risk: In this particular account, one the full pressure given by external investors to
make reports specific as perfect for making crucial decision. This will be help to mitigate
all those risk that are affecting the durability of the company.
3. Work of other and materiality: The materiality methods are more effective principles
which is helpful in accounting of various records that are collected during the time. It is
based on the company's total capacity to bear risk of financial transactions.
4. Top down approach: It is use as best option that select for the purpose of controls to be
tested in an audit of internal control in an accounting year (Li-ying, 2013). The auditor use
to collect understanding of overall risk to internal control over reporting.
5. Entry level control: Under this account, all those risk which are occur at initial level
during recording of transaction are recorded into it. The auditors use to rectify those
errors before making any sever impacts on the performance of the company's.
Risk of materiality misstatement can arises from a wide range of sources that consists of
external factors such as:
Condition of company's: Under this process, some essential problem are arises because
of continuous losses or gain incur by company form last couple of years. They are having
positive impacts on financial position during the time.
Some industry specific factor: It consists of nature of the company in which they are
dealing with in its daily course of business activities. Some internal control over financial
reporting can also be categorise as major factors those are affecting performance of an
organisation.
Both of these factors are responsible for affecting the judgements that consists in
identifying accounting estimation. These can create huge pressure to manipulate the financial
records in the ways to achieving certain set objectives. On the basis of ISA 315, it needs that the
auditor must obtain information related with these below mention five aspects of audit entity:
 Relevant sector, regulations and other external factors that consist of certain applicable
financial reporting structure.
 The nature of entity includes its operations, ownership and regulatory framework.
 Selection of entities as well as application of accounting policies.
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 Aims and objectives of an entities and business risks those can results in risk of material
misstatement.
 Measurement and reviews of company's financial performances.
It is necessary to make detail analysis about the significance of auditing at the time of
analysing financial statements. Initially, the needs to determine the applicable financial reporting
structure that would entitle to analysed not only relevant financial standards (Camcı, Bayar and
Ülkar, 2015). Whereas, all those industry related rules and regulations. After collecting necessary
information about KPMG Consultancy groups. The auditor now in a perfect position of assess
the risk of materiality that would be organise at financial statement level, account balances and
related with the disclosures. It must conclude inquires of management and other individual or
some analytical process. Significant risk constitutes a perfect audit consideration.
C). Planning materiality level
Materiality level: This includes about the process of estimation of materiality on
financial statements. This will also called as materiality planning, which includes about the
determination of the maximum amount to which the auditors have the believe that the items
present in financial statements are misstated to due to some error, omission, fraud etc. and after
that such misstatement have no effect on the decision making of the users of such financial
statements. It is considered as important concept in auditing and accounting which have large
number of importance on audition of the financial statements and finding out the level of
information which misstated due to some error (Li-ying, 2013). The major objective behind the
planning of materiality is to that the auditor provides their true view and opinion on the financial
statements which improves the decision making of users which drives the information from such
financial statements. This concept of materiality helps the auditor in identification that the
statements would be in conformity with financial reporting framework such as GAAP.
Materiality in Auditing: This concept is given by International Auditing and Assurance
Standards Board which provides the high quality standards regrading auditing, assurance and
other important standards.
As per the terms of ISA 200, the main purpose of audit is to improve the confidence of
users on the financial reports (Gehani and Tariq, 2012). This can be achieved through the true view
of auditors on the financial statements by the use of such standards. Such opinion depicts that the
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statement is on the basis of full material respects and in confirmation with all the frameworks
which are provide by IAASB.
ISA 320, is the important auditing standards which governs the important matter of
planning materiality. This includes about the set the limit of materiality before commencement of
the testing of financial statements. Paragraph 12 of ISA 320 also provide the requirement of
revise materiality if it is set lower by auditor. It is the duty of auditor is to revise the materiality
before submission of final report to the management of company. This helps in providence of
their true opinion and view on financial statements.
ISA 320, paragraph 11 provides the responsibility on auditor to fix performance
materiality. This includes the process which helps in identification of the amount which is less
than the overall materiality which is fix by the auditors. This provides the opportunity regarding
reduce the risk which is arise due to uncorrected misstatements.
ISA 320, Paragraph A1, shows the relationship between audit risk and materiality. This
helps the auditor in preparation of their policies and determination of the materiality which is
going to set by them. It shows that the relationship between the two factor audit risk and
materiality is reverse (Apostol, 2015). This means that, if the risk is high the materiality set by
auditor is lower. And if, the risk is lower than the materiality is fixed high.
Identification of risk associated with material misstatement
ISA 315, is the auditing standard which governs the matter regarding the assessment of
the risks which are associated with the misstatement happens in financial statements. Such
identification helps in assessing the impact of such errors on financial information and
contributes in preparation of such strategies which reduces the adverse impact of such risks.
Before assessing the risks, it is important to understand the meaning of misstatement
which is defined in ISA 450. This standard is provides about the Evaluation of misstatements
identifies during audit.
Misstatement: It is considered as the difference between the actual and expected. For
example, Some value present in financial statements is wrong from expected and affects
reliability of information which provides by such statements (Vasarhelyi, Alles, Kuenkaikaew and
Littley, 2012). This misstatement can be arise because of the two reasons which are fraud and
error. This situation is considered as the breach of the conditions which are mentioned on the
auditing standards due to acceptance of some unsuitable technique and inappropriate policies.
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d) What can go wrong in audit risk assessment
Audit risk assessment is the process to determine the risk factors remain associated with
the planning and forecasting of audit plan. There are various factors are analysed while making
audit plans. It helps the organisation to maintain an ethical and legal structure of business in
general context. Existence of organisation is considered separate in the eye of law. Risk
assessment defines the legal structure of company in respect of evaluating and measurement of
assets and liabilities, something bad and misfortune, loss or injury (Domokos, 2015). A systematic
procedure is followed in respect of evaluating the potential risk remain associated with the
business activities and operations. There are five major components are keep in mind while
preparing the audit plan such as frauds and errors, nature and structure of design, time and the
further audit procedures.
Risk assessment is a process used by the organisation to classify the audit work in respect
of effective operation and management. To analyse the errors and illegal structure followed by
the company to run the operations and management. This process contains the formal description
of associated risk. The compliance structure is a major field where all the risk factors generates
and transferee to sub sections. Compliance structure is the main key area around which entire
audit plan is prepared and assigned to audit managers (Becken, 2013). ISA 315 covers the rules
related to risk assessment in respect of susceptibility of the financial statements to material
statement. There are five major accounts audited and checked
1. Integrated audit Accounts: Evaluating the legal structure, regulatory and other external
factors including applicable financial statements. As per ISA 315 and ISA 450 contains
the rules related to misstatement determined during the audit process. Identifying the
regulatory factor is one account which is considered in preparing audit plan. Financial
reporting, strategies, statements are analysed properly. These are the major areas when
risk assessment mould the direction of audit plan.
Fraud risk: Nature of the entity contains the regulations and guidelines related to operations and
ownership and governance structure of company. Details of investments, stock holding and
ownerships are audited as per the legal structure made for ethical reporting. There are chances of
fraud and misrepresentation of financial statements and reports in respect of ownership and
control on share holding and stock holdings (Turner, 2016). This is the main factor which affect
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the audit plan or may violate the sections and regulations made around materiality and risk
assessment.
2. Work of others and materiality: Large business groups and entities remain connected
with other organisations in addition to its core business. All the details and information
related to other business groups should also be cleared. There are chances that the
Chancellorship and partnership remain undisclosed in financial reporting and statements.
Auditor's revaluation helps to communicate the internal controls as per the SAS 109 (AU
314) which are issued by AICPA.
Top down approach: Sometimes the structure remain complex in respect of managing the
financial accounts and statements for better formation. Implementing the rules and strategies in
respect of framing the audit plan must be relevant to subject. Risk management is one of the tool
which is widely used by the organisations (Laing, 2012). There are some sectors in which
associated risk assessment may fails such as agency risks, changes and variation of agency risks
landscapes, failure in respect of increments.
3. Entry level controls: Risk factors also remain associated with the financial reporting and
entry level controls. Entry level controls are considered as internal controls in respect of
managing operations and management. Top down approach is the approach used to
understand the risk of an organisation and refers to complete company. Compliance
structure, data retention policies and standards, code of conduct and self assessments are
covered in entry level controls.
CONCLUSION
It has been concluded from the above report that, It is the duty of of all the auditors of
KPMG audit consultancy firm to apply all the auditing standards perfectly regarding appraisal of
the financial statement of Australian Agriculture Company Limited. This helps in providing true
and accurate view on the financial statements. Identification of the accounts which have the large
chance of misstatement provides support to auditor to easily perform their work. For this
purpose, the auditors are required to plan the materiality level which shows that the misstatement
has some effect or not on information of financial statement. This will have huge importance for
all the users to improve their decision making.
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REFERENCES
Books and Journals
Laing, G.K., 2012. Service learning: An auditing project study. International Education Studies. 6(1).
p.174.
Turner, R., 2016. Gower handbook of project management. Routledge.
Becken, S., 2013. Operators’ perceptions of energy use and actual saving opportunities for tourism
accommodation. Asia Pacific Journal of Tourism Research. 18(1-2). pp.72-91.
Domokos, L., 2015. Strengthening Integrity against corruption: the Integrity Project of the State audit
office of Hungary. International Journal of Government Auditing. 42(3), p.22.
Vasarhelyi, M.A., Alles, M., Kuenkaikaew, S. and Littley, J., 2012. The acceptance and adoption of
continuous auditing by internal auditors: A micro analysis. International Journal of Accounting Information
Systems, 13(3). pp.267-281.
Apostol, O.M., 2015. A project for Romania? The role of the civil society’s counter-accounts in facilitating
democratic change in society. Accounting, Auditing & Accountability Journal. 28(2). pp.210-241.
Gehani, A. and Tariq, D., 2012, December. SPADE: support for provenance auditing in distributed
environments. In Proceedings of the 13th International Middleware Conference(pp. 101-120). Springer-
Verlag New York, Inc..
Camcı, B., Bayar, S. and Ülkar, M.G., 2015, October. A simple auditing mechanism for financial reports in
e-Ledger project. In Application of Information and Communication Technologies (AICT). 2015 9th
International Conference on (pp. 244-248). IEEE.
Li-ying, C.H.E.N., 2013. PERFORMANCE AUDITING UNDER THE IDEA OF FOLLOW-UP AUDITING
OF CONSTRUCTION PROJECTS IN UNIVERSITIES. Journal of Henan University of Technology (Social
Science Edition), 2, p.015.
Online
Undertaking a successful project audit. 2018 [Online]. Available through;<
https://www.projectsmart.co.uk/undertaking-a-successful-project-audit.php>.
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