PACC6002 AAS Semester 1 2019

This document provides information on Group's chosen company and overall inherent risk assessment for PACC6002 AAS Semester 1 2019.

PACC6002 AAS Semester 1 2019
Table of Contents
Attachment 1.......................................................................................................................................2
Part 1 Template – Information on Group’s chosen company..........................................................2
Attachment 2.......................................................................................................................................5
Part 2 Template – Overall inherent risk assessment.......................................................................5
References.........................................................................................................................................10
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PACC6002 AAS Semester 1 2019
Attachment 1
Part 1 Template – Information on Group’s chosen company
Group No:
Add Chosen Company Name here:
Insert the url (link) to the entity annual
report site/location:
https://groupir.mirvac.com/page/Financial_Reports/
1. Balance date (year-end) As at 30th June 2018 (pp.76)
2. Date of the audit report As at 9th August 2018 (pp.128)
3. Name of the auditor (firm) signing the
report
PriceWaterHouseCoopers (pp.128)
4. To whom the audit report is addressed To the stapled security holders of Mirvac Limited
(pp.122)
5. Type of audit opinion expressed in the
audit report (NOT the wording)
Unqualified opinion with the expression that the
company has complied with the Australian
Accounting Standards and the Corporation Act, 2001
and that its financial reports are showing true and fair
view.
6. Explanation(s) for any modification
(what was the reason for any
modification)
No modification during the year of audit
7. Which ASA does the audit report
comply with?
ASA 701 – Communicating key audit matters in the
independent auditors’ report
ASA 720 – The auditors’ responsibilities relating to
other information
ASA 705 – Modification to the opinion in the
independent auditor’s report
For EACH of the remaining items please
show the amounts (indicating the applicable
currency e.g. $A and amounts in thousands
or millions)
8. Assurance (audit) fees Audit services: (pp.114)
Audit and review of financial reports– $1,600,000
Other assurance services – $ 626,000
Total amount paid for audit services – $2,226,000
9. Non-assurance (non-audit) fees
NOTE: for 8 & 9, make the effort to show
Other services: (pp.114)
Tax advice and compliance services – $145,000
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PACC6002 AAS Semester 1 2019
any breakdown showing what the fees
were for and who they were paid to.
Advisory services –$ 6,000
Total others services –$ 161,000
10. The industry (or industries) the
chosen entity operates in
Property, Investment, Retail Estate
11. Operating revenue $2,159 m(pp.75)
12. Operating profit before tax $1,166 m(pp.75)
13. Operating profit after tax $1,089 m(pp.75)
14. Equity $8,655 m(pp.76)
15. Total assets $13,345 m(pp.76)
16. Total liabilities $4,690 m(pp.76)
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PACC6002 AAS Semester 1 2019
Attachment 2
Part 2 Template – Overall inherent risk assessment
NAME of Company
DISCUSSION
FACTOR According to ASA200.13(n)(i) inherent risk (IR) is a measure of the
susceptibility of material misstatement before considering any
internal controls.
LOW MODERATE HIGH
Nature of client’s business  MRG is one of the diversified and leading Group in Australia
which is dealing in asset management and an integrated
development with lots of capabilities. The company is listed on
the ASX and deals in property investment and development.
MRG was being founded by Susan Lloyd-Hurwitz in 1972. It
has the capitalization of AUD 8.4 billion and therefore the
company falls under the mid cap stock category.
 The industry in which the company deals in is very volatile and
is dependent largely on the economy as well as the government
policies and strategies. If the country wants to invest in the
infrastructure and property development for its public, the
industry will boom and if the economy is slow, inflation is high
and borrowings are dearer, then the people will avoid making
investment in property development. This poses one of the
biggest inherent risks as the company’s risk register needs to be
seen with respect to mitigation measures which they take to
align with the movements in economy (Alexander, 2016).
 Will the rapid change in technology and the densification of the
cities, the potential for the company to grow multiples and the
same has been conveyed in the outlook of the company for
coming 4-5 years.
 In this kind of business, a huge capital investment is required
X
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PACC6002 AAS Semester 1 2019
which may be in terms of equity or in debt. In case of Mirvac
Group, most of the investment is backed by equity capital.
Despite all this, the share prices have dropped and one of the
inherent risks posed here is the quality of the management of
the company. One of the other major risk is from the
competitors and the technology in the sector.
Results of previous audits
2015 ($m) 2016 ($m) 2017 ($m)
Operating revenue 1,690 2,312 2,268
Operating profit after tax 455 482 580
Statutory profit after tax 610 1,033 1,089
Funds from operations 468 500 608
Equity 6,462 7,180 7,972
Total assets 10,403 11,169 12,108
Total liabilities 3,941 3,989 4,136
 In terms of revenue, the company has improved year on year
except in 2018 where there was de-growth due to general
economic pressure and slowdown. The company has also
grown and improved continuously in terms of profitability,
solvency and liquidity positions (Kachelmeier, Schmidt, &
Valentine, 2018).
 With respect to previous audit, though the auditors expressed
clear opinion in terms of financial statements but just pointed
few of the risks in the audit report like the risk in the capital
structure of the company which might lead to liquidity risk in
the future.
 One of the other inherent risk being pointed out was the
determination of the carrying value of the inventories and if the
projects are completed and handed over in the correct time
frame (DeZoort & Harrison, 2016).
X
Initial versus repeat audits  The company is being audited by the consulting firm PWC for X
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PACC6002 AAS Semester 1 2019
the last 10 years Mirvac Group and it had three different audit
partners during this term namely, R l Gavin till 2010, the other
is Matthew Lunn from 2011 to 2015; MRG2011, MRG2012,
MRG2013, MRG2014, MRG2015. Since 2016 to 2019 Jane
Reilly is been audit partner. MRG2016, MRG2017, MRG2018.
Since 2010, each audit performed, the auditor has issued an
unmodified opinion, which increases the inherent risk in the
company (Bumgarner & Vasarhelyi, 2018). Since the auditor
has not been changed for a while, it is quite clear that the
independence might have been compromised in this case
considering the long relationship and it certainly poses a risk on
the internal control as well as financials of the company.
Therefore, not only the audit partners but the auditors should
also be changed from time to time.
 In order to improving the transparency of the quality of audit
and auditors independently, companies must change their audit
partner every five year is required by Act 2001. Therefore,
based on the above assessment, the inherent risk level is
defined as high.
Quantity of non-routine
transactions
 The non-routine transactions are the ones which are non-
recurring in nature and happens once a while. Some of the
examples include losses by fire, natural climates, etc. It also
means acquisition of major property, write off of assets or even
implementation of new product (Knechel & Salterio, 2016).
 The same poses the inherent risk as the company’s
management may not have sufficient and adequate knowledge
and expertise to record that type of transaction correctly in the
books which may lead to misstatement and therefore it is one of
the major inherent risk. Since it is one time event, so the risk of
adjustments by the management is also high and therefore the
auditors needs to check on the same carefully.
 Some of the non-routine transactions in case of Mirvac Group
X
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PACC6002 AAS Semester 1 2019
is payment for investment property, change in the value of cash
flow hedge and therefore the treatment of same in accounting
books should be checked clearly.
Quantity of estimates and
judgement required for accounts
 The company has used a number of estimations and
assumptions while preparation of the financial statements.
These assumptions and estimates may be biased in favour of
the company for reflecting good financial position and
performance of the company towards the investor and
therefore it poses high level of inherent risk. This is based on
positive accounting theory whereby the management adopts
decision on the accounting policies to be followed in the
company (Sithole, Chandler, Abeysekera, & Paas, 2017).
 Being a property development company, the valuation of
inventory and properties and the provision against the same is
based on a number of factors and therefore it needs to be
clearly checked by the auditor. Some of the other areas of
estimates are provision for doubtful debt, provision for warranty
expenses, etc. Thus, it can be said that the inherent risk is high
here.
X
Potential for fraudulent financial
reporting & misappropriation of
assets (fraud risk factors, see ASA
240)
 ASA 240 discusses on the fraud risk factors which are related
to fraudulent financial reporting and misappropriation of assets.
This management may use such measures in order to overstate
or understate the profitability, etc. and therefore there should be
additional audit procedures to check upon the possibility of
same in the company (Heminway, 2017).
 In the case of Mirvac Group, the auditors have been checking
for the possibility of fraud risk factors and the chances of
material misstatements in the company and the same has
been mentioned in the auditors’ report and basis their report, it
can be said that the inherent risk is low.
X
List any other factors (can you see
any illustrations in your client’s
annual report of the examples in
 There are several other factors which have been mentioned in
the auditors’ report under the section key audit matters. Some
of such matters which could pose the inherent risk are:
X
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PACC6002 AAS Semester 1 2019
ASA 315, Appendix 2 and ASA
570.A2)
1. Appropriateness of carrying value of the inventories in the
books;
2. Fair values of the investment properties and the assumptions
in this regard;
3. Recoverability of the deferred tax assets based on the
forecasted income statement of the company
Thus, in order to check these, the auditor should take help of the
experts and also put additional audit procedures in place to minimise
the inherent risk (Linden & Freeman, 2017).
Conclusion:
Overall inherent risk level
 While preparation of the overall audit plan, the first step that
the auditor should take is to fix the materiality limit as it guides
the auditor in fixing the further course of action and identifying
which all areas needs to be checked on priority.
 On the overall assessment of the company’s risk model and
the mitigation measures designed by the company and the
internal control practiced in the company, it can be said that
the company has moderate level on inherent risk.
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PACC6002 AAS Semester 1 2019
References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.
Bumgarner, N., & Vasarhelyi, M. (2018). Continuous auditing—a new view. Continuous Auditing: Theory and Application, 20(1), 7-51.
DeZoort, F., & Harrison, P. (2016). Understanding Auditors sense of Responsibility for detecting fraud within organization. Journal of Business Ethics, 1-18.
Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, 1-35.
Kachelmeier, S., Schmidt, J., & Valentine, K. (2018). The disclaimer effect of disclosing critical audit matters in the auditor’s report. SSRN, 2(1), 1-39.
Knechel, W., & Salterio, S. (2016). Auditing:Assurance and Risk (4th ed.). New York: Routledge.
Linden, B., & Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), 353-379. Retrieved from
https://doi.org/10.1017/beq.2017.1
Sithole, S., Chandler, P., Abeysekera, I., & Paas, F. (2017). Benefits of guided self-management of attention on learning accounting. Journal of Educational
Psychology, 109(2), 220. Retrieved from http://psycnet.apa.org/buy/2016-21263-001
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