Analysis of Pushpay Holdings Ltd Annual Report

The report analyses the annual report of Pushpay Holdings Ltd and covers materiality, preliminary analytical review, cash flow statement and more. The quantitative estimate of materiality for the company has been derived using various parameters. The preliminary analytical review has been carried out using basic ratios of the profit and loss account and balance sheet. The cash flow statement of the company has been analysed to understand the cash receipts and payments and the main non-cash financial and investing activities. The report concludes with the analysis of the audit report of the company.

Finance Assignment

1
By student name
Professor
University
Date: 25 April 2018.
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Executive Summary
In the given assignment, a report has to be prepared using the annual report of the company. The
company being chosen here is Pushpay Holdings Ltd, which is listed on the Australian Stock
Exchange. Furthermore, the company has been analysed through its annual report pertaining to
the year 2017 and materiality has been established as to what should be the quantitative estimate
of materiality for the company. The concept of materiality and why it is important from audit of
financial statements perspective and what the different ways and criteria has to arrive at
materiality. The various draft notes and the disclosures being shown in the annual report of the
company have been analysed and commented upon in the report. In section 2 of the report, the
preliminary analytical review has been carried out for the company using the profit and loss
account and the balance sheet of the company and using various ratios and trends. The audit plan
has been prepared basis that using relevant assertion and one audit procedure to support the
same. Finally, in section 3 of the report, the cash flow statement of the company has been
analysed as to what are the cash receipts and payments and what are the main non-cash financial
and investing activities. The going concern assumption of the entity has also been checked and
finally the audit report of the company has been analysed to see what was the opinion expressed
and are there any audit issues, which have been raised.
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Contents
Section 1: Materiality concern of the entity................................................................................................3
Section 2: Preliminary analytical review of the company............................................................................5
Section 3: Review of the cash flow statement of the company...................................................................7
References.................................................................................................................................................10
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Section 1: Materiality concern of the entity
Materiality is one of the concepts, which is being covered by ASA 320 as per which materiality
is very crucial for the auditor in terms of planning and performing the audit of the financial
statements. The misstatements, errors and significant omissions’ either individually or in
aggregate are considered material if the same has the ability to change the economic decision of
the users of financial statements (Farmer, 2018). Materiality is a measure of professional
judgement, which may vary from individual to individual and from company to company. For a
small company, an amount of $ 50000 may be material whereas for the large listed company, the
amount of even $ 500000 may not be material. Thus, it is situational. It can be qualitative as well
as quantitative. As recommended in ASA 320 and IASB there are some common materiality
levels which have been prescribed some of which are 0.5% to 1% of sales revenue, 2-5% of the
shareholders equity, 5-10% of net profit of the company, 1-2% of the total assets of the company
or the gross profit being made by the company (Grenier, 2017).
(in ‘000 Mn.)
Pushpay Holdings Ltd
Quantitative estimate of materiality
Criterion Base Amount Materiality level/range
0.5% to 1% of gross revenue
Gross
Revenue 34,271.00 171.36 to 342.71
1% to 2% of the total assets Total Assets 30,102.00 150.51 to 301.02
1% to 2% of the gross profit Gross Profit 12,045.00 60.23 to 120.45
2% - 5% of the shareholders’ equity Equity 18,805.00 94.03 to 188.05
5% to 10% of the net profit Net profit -25,306.00 -126.53 to -253.06
The company, which has been chosen here for analysis Pushapy Holdings Limited that is listed
on the New Zealand Stock Exchange. It deals in building of mobile applications for making the
mobile payments between the customer and the merchants and is operative predominantly in the
charity, non-profit organizations and faith sector. Its office is in Auckland and has more than 200
employees worldwide (Werner, 2017). It delivers its products on the software as a service model
(SaaS) and most of its products are based on the subscription model with the earning in the form
of the fees based on the transaction volume. The quantitative materiality level of the given
company has been derived using the parameters mentioned above but the auditors have
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mentioned in the auditor’s report that they have considered the materiality to be $400000, which
is slightly above the levels shown in the below table. Hence, the calculation of materiality is
justified.
Section 2: Preliminary analytical review of the company
There can be two types of procedures, which can be applied by the auditor during the conduction
of the audit. These can be substantive test and the analytical review procedures. Substantive test
include the vouching of incomes and expenses whereas verification includes checking of the
completeness, valuation, appropriateness and change in the values of the assets and liabilities. In
case the auditor is not sure on giving an opinion based on substantive measures, he performs
preliminary analytical procedures, which includes understanding the business environment and
his business as whole based on the financial performance of the entity over the past, the relevant
industry and the comparison groups (Alexander, 2016). This includes trend analysis, variance
analysis and many such procedures based on which the auditor sets the audit planning and
assesses the risk of material misstatement in the entity and understands the nature, timing and
extent of the audit procedures. In the given case, the preliminary analytical testing has been using
the basic ratios of the profit and loss account and balance sheet and analysing the same using the
trend over the year 2014 to 2017 (Erik & Jan, 2017).
Pushpay Holdings Ltd
Ratio Analysis
Particulars 2014 2015 2016 2017
Sales Growth
1415.19
% 208.50% 224.34
% 97.78%
COGS Growth 765.71% 236.92% -13.50% 96.31%
Gross Income Growth -455.22% -274.01% 269.45
% 99.33%
SGA Growth 348.46% 53.42% 807.61
% 38.27%
Net Income Growth -356.53% -170.46% -76.53% 8.79%
Current Ratio 97% 336% 159% 195%
Quick Ratio 97% 336% 159% 195%
Debt Equity Ratio 0% 0% 0% 0%
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Form the above analysis, it can be seen that the company has progressed a lot in terms of
increase in the topline or the sales revenue but over the years, the growth has minimised and it
has come down from 1415% in 2014 to 97% in 2017. Similarly, the cost of goods sold has also
grown over the years but in the recent years, the same has stabilised. The Gross Income has
grown from negative 455% in the year 2014 in which the company became public to 99% in
2017. This goes on to show that the company is improving not only on the topline but also on the
bottomline as well. On the cost side, the company has done well but needs to improve further
with the Selling general and administration cost (Belton, 2017). It increased at levels of 348% for
the year 2014 whereas for the year 2017, it has increased by 38%. Savings can still be made in
this area. The company has moved from loss making company to the profit making company.
The company became public in 2014 and since then it has made considerable improvement in
terms of the net profit lowering it from 356% loss in 2014 to 9% profit in 2017. This goes to
show the huge improvement in the bottom line of the company and thus the internal
fundamentals of the company is strong. When we analyse the current ratio, we see that the it has
grown from 97% in 2014 to 336% in 2015 and then again cash down to 195% in 2017 (Arnott,
Lizama, & Song, 2017). Since the company does not holds any stock nor it has any prepaid
expenses, therefore the quick ratio also remains the same. This is as per industry trend and shows
that the company possesses the ability to make the short-term payments to its creditors and meet
off its current liabilities. The company is trading entirely on equity and does not hold any debt
balances as of now and thus its debt equity ratio is zero throughout the years. It thus, has a scope
of improving the profitability and return of equity in the years to come by utilisation of the low
cost debt (Goldmann, 2016).
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Audit assertions are the implicit representations and claims, which are being done by the
management who is generally responsible for the preparation and presentation of the financial
statements that the data being disclosed in the financial statements are all appropriate (Choy,
2018). On the other hand, audit risks are the risks that hints that the accounts of the company
may be materially misstated and still the same is not being highlighted by audit. The risks can be
of 3 types namely detection risk, the inherent risk and the control risk. With respect to the
company in hand and studying its financial statements, some of them are highlight below.
Sl
No.
Key risk areas Relevant assertion Audit procedure
1 The company suffers from
the financial risk in terms of
capital risk as well as
currency rate risk as the
company does not enters
into any hedging
arrangement or any
speculative business.
As per the management,
the company has only
equity and not debt burden
to pay to the 3rd party and
thus, they protect
themselves from capital
risk. On the other hand, for
covering up against the
currency rate risk, the
company has done a
careful study of the interest
rate changes over the past
year as it has 2 currencies
NZ$ and $ but the impact
was found to be low
The auditors can check
this through the impact
analysis that the foreign
currencies is having on
the New Zealand based
company and how the
same is having an overall
impact on the assets and
liabilities situation of the
company. If the amount
is material, then the
company should go for
hedging of its exposures.
2 The company also suffers
from the credit risk such
that many of its customers
may default payment and
hence the financial debtors
in the books may be
overstated.
The company and the
management monitors and
manages the exposure of
credit risk by having a
careful study of the
customer and their credit
history over the past years.
The auditors can have a
random check for the
health and ageing of the
receivables if it is
showing a true reflection
of the affairs of the
business or else the
provision for bad and
doubtful debts needs to
be carried in the books.
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Section 3: Review of the cash flow statement of the company
In this section of the report, the cash flow statement of the company has been analysed.
From the above statement, we can see that the majority of the cash inflows are generated from
revenue form customer $ 20572000 and other from issues of the share capital amounting to $
29510000 (Das, 2017). Therefore, the major cash inflows for the company is coming from
financing activity. Both investing as well as operating activities accounted for the major portion
of the cash outflows. Amongst operating activity, the payment to creditors was $ 39380000
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whereas in terms of investing activity, cash outflow was there in purchase of property, plant and
equipment amounting to $ 1074000, development and intangible costs amounting to $ 2740000
and acquisition of software licenses and customer contracts amounting to $ 2100000 (Kim,
Schmidgall, & Damitio, 2017).
The primary cash receipts and the primary cash payments have been discussed in the above
option with most of inflows and outflows from sales and payment to creditors respectively.
There was no major non-cash financial and investing activity except for amortization of the
intangible and tangible assets (Trieu, 2017). In case the company would have declared the
dividend, it would have accounted for non-cash financial activity.
From the above study and analysis, it can be said that the company has prepared its financial
statements on a going concern basis. The company has suffered a major loss this year amounting
to $ 25.3 Mn and hold the net assets position of $ 18.8 Mn as on 30th June 2017. The company
has been driving on the market growth strategy and has requirement of additional fund to execute
growth strategy and maximise the shareholder’s return and the company has been respecting the
same thus it can be said to meet the going concern assumption. The requisite audit procedures to
counter the risks have been highlighted above in the table (Sithole, Chandler, Abeysekera, &
Paas, 2017).
From the study of the financial statements and the annual report of the company, the auditor
Deloitte has expressed a clear opinion mentioning that it has been prepared in all the material
respects and is prepared in compliance with New Zealand International Financial Reporting
Standards and the local GAAP (Jefferson, 2017). Furthermore, they have highlighted few
sections in the key audit matters highlighting the risks and how they addressed the same during
the audit. Some of these were capitalization of software development costs, recognition of
subscription revenue and the going concern assumption of the company over the coming 12
months as the funding is required for its operation.
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References
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Das, P. (2017). Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science
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Erik, H., & Jan, B. (2017). Supply chain management and activity-based costing: Current status and
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Werner, M. (2017). Financial process mining - Accounting data structure dependent control flow
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