Professional Auditing: Audit Plan for Konekt Limited

This assessment focuses on applying detailed knowledge for conducting the audit of Konekt Limited for the year 2018 to ensure that the financial statements are free from any material misstatement. It includes an audit plan, risks faced by the business, planning materiality, and audit risks of selected account balances.

Running head: PROFESSIONAL AUDITING
Professional Auditing
Name of the Student:
Name of the University:
Author’s Note

1
PROFESSIONAL AUDITING
Executive Summary
In this assessment we would be applying our detailed knowledge for conducting the audit of
Konekt Limited for the year 2018 in order to ascertain whether the financial statements are
appropriately presented and ensure that the financial statements are free from any material
misstatement. We would be preparing the audit plan for the business after confirm terms of our
engagement as per ASA 210 Terms of Audit Engagements and according the guidelines
provided by ASA 300 Planning an Audit of a Financial Report. The report would be analysing
the risks which are faced by the business and the same would be done in accordance with ASA
315 Understanding the Entity and its Environment and Assessing the Risks of - Material
Misstatement. In addition to this appropriate documentation of the key matters would be done on
the basis of ASA 220 Audit Documentation. We would be considering the planning materiality
for the business on the basis of which it would be identified if the financial statements are free
from material misstatement or not. The guidelines which are provided in ASA320 Materiality
and Audit Adjustments would be considered for such a case. Once the risks have been identified,
the auditor would take appropriate steps considering the guidelines of ASA330 The Auditor’s
Procedures in Response to Assessed Risks. Finally, the report would be including an opinion as
to estimate if the financial statement are showing true and fair view of the annual reports of
Konekt Limited or not.
Table of Contents

2
PROFESSIONAL AUDITING
Introduction......................................................................................................................................3
Key Information...............................................................................................................................3
Nature of the Clients Business.....................................................................................................3
Audit Program.............................................................................................................................4
Identification of Materially Misstated Account Balances...........................................................5
Planning Materiality....................................................................................................................7
Audit Risks of the Selected Account Balances............................................................................8
Conclusion.....................................................................................................................................13
Reference.......................................................................................................................................15

3
PROFESSIONAL AUDITING
Introduction
The main purpose of the assessment is to analyse the financial performance of Konekt
Limited from the perspective of audit. The assessment would be considering the audit program
which is to be formulated for the purpose of assessing whether the financial statements are
showing true and fair view. The assessment would be focusing on gaining an understanding of
the business of Konekt Limited in order to effectively formulate a plan which can help the
auditor to collect appropriate audit evidences (Konekt.com.au. 2019). In addition to this, the
assessment would also be identifying five significant account balances which are subjected to the
risks of being materially misstated. In order to identify the accounts which are materially
misstated, planning materiality is to be computed. In addition to this, what are the risks which is
faced by the five account balances which have been recognised would be discussed in details.
Key Information
In order to effectively conduct an audit for a business, appropriate planning is required to
be conducted by auditor so that more audit evidences can be collected. The audit planning
process also involves estimation of planning materiality on the basis of which performance
materiality of different items are computed (Coetzee and Lubbe 2013). The auditor would also
be requiring to perform appropriate audit procedure so that each and every item which is
represented in the annual reports of the business can be analysed.
Nature of the Clients Business
The business which is considered for the purpose of conducting audit is Konekt Limited
which is private listed company operating in Australia and the company is known for the health
and risk management solutions which is provided by the business. The company is one of the

4
PROFESSIONAL AUDITING
recognizable businesses which provides appropriate services relating health and risk
management of the business (Kumar and Sharma 2015). The focus of the company effectively
aims to provide businesses safer working environment so that there are no incidents of injury in
workplace and the overall working environment of the business remains safe. The auditor would
be applying the guidelines provided in ASA 210 Terms of Audit Engagements for ascertaining
the role which the auditor is required to play and would also set the scope of audit. The auditor
would also refer to the provisions which are stated in ASA250 Consideration of Laws and
Regulations in an Audit of a Financial Report in order to comply with all rules and regulations
of the business of Konekt Limited
Audit Program
The audit program of the business aims to appropriately plan for different activities and
procedures which would be carried out by the auditor of the company in order to ensure that the
reporting framework is in conformance with the corporate regulations applicable on the business.
The audit program is formulated by the auditor at the initial stages of the audit of a business. As
per Para 7 of ASA 300 Planning an Audit of the Financial Report, the auditor needs to
establish an overall audit strategy that sets the scope, timing and direction of the audit, and that
guides the development of the audit plan (Auasb.gov.au. 2019). The audit program which is
formulated by the business appropriately shows the planning materiality estimate which the
auditor would be considering while assessing whether there is any material misstatement in the
annual reports of the business (Kannan, Skantz and Higgs 2014). In addition to this, the audit
program also incorporates the substantive and compliance procedures which are followed by the
auditor for collecting appropriate audit evidences of the business (Tricker and Tricker 2015). The
audit program would further incorporate documentation of all the evidences which the auditor

5
PROFESSIONAL AUDITING
collects while conducting audit of the business as per the guidelines which is provided in ASA
300 Documentation. This would help the auditor of the business to formulate the time frame for
the audit and also the special area where the auditor needs to pay attention while conducting the
audit of the business (Auasb.gov.au. 2019).
Identification of Materially Misstated Account Balances
The identification of the material misstatement or omission in the books of account is one
of the objective of the auditor of the business and all the audit procedures which are applied by
the auditor are with a view to satisfy that the financial statements are showing true and fair view.
As per para 5 of ASA 315 Identifying and Assessing the Risks of Material Misstatement
through Understanding the Entity and Its Environment, the auditor would be applying risk
assessment procedures in order to provide a basis for the identification and assessment of risks of
material misstatement at the financial report and assertion levels (Auasb.gov.au. 2019).
Therefore, the auditor needs to check apply risk assessment procedures and also check the
internal control of the business for the purpose of collecting appropriate audit evidences
(Vovchenko et al. 2017). In order to effective check whether all the items which are presented in
the annual report of the business are giving a true and fair view or not, the auditor needs to check
certain key items which are presented in the annual reports of the business and ensure that the
same are providing an accurate view. On the basis of analysis of the annual reports of Konekt
Limited for the year 2018, some of the key items which might be materially misstated are
discussed below in details:
 Sales: The profit and loss statement which is prepared by the management of the
company shows that the sales of business have tremendously enhanced in 2018 when a
comparison is made from previous year estimate. This suggest that the management has

6
PROFESSIONAL AUDITING
generated more revenue during the period. The risk which is associated with the situation
is that the figure of sales might be overstated in order to show a favorable position for the
business (Legoria, Melendrez and Reynolds 2013). The auditor needs to apply
appropriate audit procedures so that the financial position of the business is appropriately
disclosed to the users.
 Expenses: The profit and loss statement also show different expenses which is associated
with the business and some of the expenses which are presented in the annual reports has
increased significantly. Some of the expenses which shows abnormal increase is the
depreciation, finance costs, salaries and wages and other expenses from continued
operations of the business. The above-mentioned expenses directly affect the profitability
of the business and as per the annual report, the business incurs a loss even though the
sales revenue has increased significantly. The auditor needs to properly assess each of the
values of expenses which is represented in the profit and loss statement and judge
whether the same are showing true and fair view or not.
 Cash and Cash Equivalents: The figure which is represented of cash and cash
equivalents shows that there has been a significant increase in the estimate shown in the
financial statement. This shows that the business is appropriately looking after the
liquidity position of the business. There is a chance that the cash and cash equivalent
balances might be materially misstated which would then affect the entire financial
position of the business. The auditor needs to check all cash inflows and outflows and a
detailed scrutiny is required so that the auditor is able to assess whether the financial
statements are showing accurate view or not.

7
PROFESSIONAL AUDITING
 Intangible Assets: The intangible assets are used by businesses for gaining an upper
hand in the market and develop a competitive advantage so as to generate more revenues
for the business. The intangible assets of the business are shown to have increased during
the period significantly. There is a chance that the same might be overstated which would
have direct impact on the presentation of financial information of the business. The
intangible assets of the business can be overvalued or even there is a chance that proper
impairment charges are not applied to the same. The auditor would conduct a detailed
analysis of the intangible assets of the business and ensure that the same are showing
proper valuation of the financial position of the business.
 Borrowings: The annual report for the year 2018 shows a tremendous rise in the level of
debts which is undertaken by the business for financing the activities of the business. The
borrowings of the business have an impact on the capital structure which is used by the
business for generating profits for the business. The auditor of the business needs to
assess if the same is actually present and if the same is showing appropriate amount so
that the financial position of the business is not affected in any manner.
Planning Materiality
In an audit process, the role of materiality of an item is very important as the same is
considered to be the basis for decision making for the auditor whether the financial statement is
showing true and fair view. The materiality of an item is determined by considering the nature of
the item or importance of the item to the business. It is also considered to be material if the item
is recurring in nature or the figure is very large. The items which are of material nature are given
special emphasis by the auditor as a misstatement in such items can impact the financial
statements of the business (Eilifsen and Messier Jr 2014). The professional skepticism principle

8
PROFESSIONAL AUDITING
of audit requires the auditor to apply appropriate audit procedures to material items so that the
auditor can confirm or deny whether the financial statement is showing appropriate view or not.
The auditor relies on planning materiality which is estimated for identifying and
assessing the material account balances which are shown in the financial statements of the
business. The planning materiality of the business is considered to be the basis on which the
accuracy of the annual reports of the businesses depends. The planning materiality for a business
can be computed considering the highest value which is presented in the annual report of the
business. In most of the cases, figures like total assets or sales are considered for the purpose.
The annual report of Konekt Limited for the year 2018 shows that the sales of the business has
increased significantly. The auditor would be considering the figure of total revenue for the
purpose of estimating the planning materiality which would be then used for estimating the
performance materiality of each and every item of the annual report. The figure of total revenue
which is shown in the annual report of the business is shown to be $ 87,914,000. The
computation of planning materiality of the business is shown below:
Planning Materiality=Total Revenue∗0.5 %
¿ $ 87,914 , , 000∗0.5 %
¿ $ 439,570
The planning materiality of the business effectively is computed in the above equation and the
same is shown to be $ 439,570. On the basis of planning materiality of the business, performance
materiality of the business is computed.

9
PROFESSIONAL AUDITING
Audit Risks of the Selected Account Balances
The audit risks which are associated with the balances which is presented in the annul
report of the business need to be properly assessed by the auditor so as to ascertain the assertions
of the risks and the steps which can be taken by the auditor for managing the risks which is
associated with the account. The auditor would be applying audit risks model for the purpose of
analyzing the risks which are associated with the business.
AR=DR × CR× IR
AR – Audit Risks
DR – Detection Risks
CR – Control Risks
IR- Inherent Risks
The above equation shows the audit risk model which states that the audit risks are
inclusive of inherent risks, control risks and detection risks. The auditor the business needs to
consider all these risks while applying audit procedure to the business.
Account
Balances
Assertions Audit Work Steps Audit Sampling
Sales The auditor needs to check
the accuracy of the figure
which is demonstrated in the
annual report of the business.
In addition to this, the auditor
needs to establish that the
amount of sales is for current
The auditor needs to
apply vouching
practices for all
revenue which is
generated from sales
and also expenses as
the same can also be
The auditor needs to
follow variable
sampling technique
for collecting
appropriate
information regarding
the amount which is

10
PROFESSIONAL AUDITING
year only and whether such
sales actually took place or
not.
materially misstated
causing misstatement
in the financial
reports.
considered by the
auditor.
Expenses The auditor of the company
needs to ensure that the
expenses which is shown in
the annual report are
appropriate and shows a true
and fair view of the financial
situation or not. The auditor
would also check whether the
same has been actually
incurred by the business or
not.
The auditor of the
business needs to
apply vouching
practices to ascertain
the expenses are
showing true and fair
view (Edgley, Jones
and Atkins 2015).
The auditor needs to
apply ASA 505
provisions External
confirmation so as to
confirm some of the
expenses of the
business
appropriately. The
auditor would be
relying on the
evidences which is
The auditor of the
business need to
apply random
sampling approach
for ascertaining the
costs figures which
are showing in the
financial statements
of the business.

11
PROFESSIONAL AUDITING
collected from
internal as well as
external sources for
forming an opinion.
Cash and
Cash
Equivalents
The auditor of the business
needs to evaluate initially
whether the balance of cash
actually exists in reality or
not. In addition to this, the
auditor also needs to confirm
whether the company can
rightfully represent the assets
in the balance sheet of the
business. The auditor also
needs to check whether the
cash balances are presented in
an effective manner in the
annual report or not.
The auditor needs to
assess the inflows
and outflows of cash
and assess the cash
register of the
business along with
other cash records
which can help the
auditor to make
appropriate
judgement whether
the same are showing
appropriate view or
not (Vîlsănoiu and
Buzenche 2014). In
addition to this, the
auditor of the
company would be
applying vouching
The auditor of the
business needs to
apply variable
sampling test on the
balances of cash so
that ample evidences
can be collected in
order to develop an
opinion on the basis
of the same.

12
PROFESSIONAL AUDITING
practices to the cash
balances for the
purpose of evaluating
the balance which is
shown.
Intangible
Assets
The auditor of the business
needs to check whether the
asset actually exists or not
and also ensure that the same
are valued in accordance of
relevant accounting
standards. The auditor needs
to also assess if the asset is
under the licensing of the
business or not. This would
be proving the ownership of
the asset (Christensen et al.
2016). The auditor of the
business also needs to check
the impairment charges which
is made on intangible assets
of the business.
The auditor would be
applying verification
practices in the
business so that
proper valuation can
be done. In addition
to this, the auditor
would also be
evaluating if the
impairment charges
made on the asset are
suitably done or not.
The auditor of the
business would be
applying attribute
sampling so that an
estimation of
efficiency of the
internal control can
be derived by the
business
Borrowings The auditor needs to assess The auditor needs to The auditor would be

13
PROFESSIONAL AUDITING
the value of the loan which is
represented in the financial
statement so that it can be
confirmed that the business
has appropriately valued the
loan and the same is
appropriately shown in the
financial records. The auditor
would check if the records
maintained are complete or
not. The auditor would also
be checking the accuracy of
the reporting.
apply verification as
an audit procedure to
judge if the loan
amount is properly
valued and would
also engage in
external confirmation
under ASA 505
External
Confirmation so that
appropriate
information can be
collected from the
management
regarding the
circumstances the
loan was taken and
also ley information
related to the loan of
the business (Ruhnke
and Schmidt 2014).
applying variable
sampling test for
assessing the value of
the loans. The auditor
of the business would
check if the value of
loan is appropriate by
collecting ample
evidence regarding
the same.

14
PROFESSIONAL AUDITING
Conclusion
The above discussion effectively shows the audit process which is conducted for the
business of Konekt Limited for the year 2018. The discussion above shows development of an
appropriate audit program which could help the management to formulate appropriate strategies
for ensuring that the financial statement is free from material misstatement. The discussion above
further shows identification of five account balances from the annual report of Konekt Limited
which are under the risks of being materially misstated. In addition to this, the auditor would also
be analysing the risks which is involved and the audit procedures which the auditor needs to
undertake for collecting appropriate evidences so that the auditor is able to form an opinion on
the financial statement of the business. The audit risks model is also applied in the above
discussion along with the steps that the auditor needs to undertake for managing the risks related
to audit in a business.

15
PROFESSIONAL AUDITING
Reference
Auasb.gov.au. (2019). [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_ASA
_300.pdf [Accessed 28 May 2019].
Auasb.gov.au. (2019). [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_315_Compiled_2015.pdf [Accessed
28 May 2019].
Christensen, B.E., Glover, S.M., Omer, T.C. and Shelley, M.K., 2016. Understanding audit
quality: Insights from audit professionals and investors. Contemporary Accounting
Research, 33(4), pp.1648-1684.
Coetzee, P. and Lubbe, D., 2013. The use of risk management principles in planning an internal
audit engagement. Southern African Business Review, 17(2), pp.113-139.
Edgley, C., Jones, M.J. and Atkins, J., 2015. The adoption of the materiality concept in social
and environmental reporting assurance: A field study approach. The British Accounting
Review, 47(1), pp.1-18.
Eilifsen, A. and Messier Jr, W.F., 2014. Materiality guidance of the major public accounting
firms. Auditing: A Journal of Practice & Theory, 34(2), pp.3-26.

16
PROFESSIONAL AUDITING
Kannan, Y.H., Skantz, T.R. and Higgs, J.L., 2014. The impact of CEO and CFO equity
incentives on audit scope and perceived risks as revealed through audit fees. Auditing: A Journal
of Practice & Theory, 33(2), pp.111-139.
Konekt.com.au. (2019). [online] Available at:
http://www.konekt.com.au/wp-content/uploads/2018/08/KKT-Annual-Report-2018.pdf
[Accessed 28 May 2019].
Kumar, R. and Sharma, V., 2015. Auditing: Principles and practice. PHI Learning Pvt. Ltd..
Legoria, J., Melendrez, K.D. and Reynolds, J.K., 2013. Qualitative audit materiality and earnings
management. Review of Accounting Studies, 18(2), pp.414-442.
Ruhnke, K. and Schmidt, M., 2014. Misstatements in financial statements: The relationship
between inherent and control risk factors and audit adjustments. Auditing: A Journal of Practice
& Theory, 33(4), pp.247-269.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.
Vîlsănoiu, D. and Buzenche, S., 2014. Determining Audit Materiality in the Banking Industry–A
Knowledge Based Approach. Procedia Economics and Finance, 15, pp.935-942.
Vovchenko, N.G., Holina, G.M., Orobinskiy, A.S. and Sichev, R.A., 2017. Ensuring financial
stability of companies on the basis of international experience in construction of risks maps,
internal control and audit. European Research Studies Journal, 20(1), pp.350-368.