REH Company Audit Report and Analysis - ACCT20075

REH Company
ACCT20075 – Auditing and Ethic
Assessment Task 2 - Term 2, 2018
Name of the author-
University Name-

Table of Contents
INTRODUCTION......................................................................................................................3
SECTION 1................................................................................................................................3
MATERIALITY........................................................................................................................3
ANY SIGNIFICANT MATTER FOR AUDIT.........................................................................4
SECTION 2................................................................................................................................4
 INVENTORY.................................................................................................................5
 FIXED ASSETS..............................................................................................................5
 PAYABLES....................................................................................................................5
SECTION 3................................................................................................................................5
CASH FLOW STATEMENT....................................................................................................5
AUDIT REPORT.......................................................................................................................6
REFERENCES...........................................................................................................................6
1

INTRODUCTION
The annual report of a company depicts the overall results that company has achieved
during the financial year. It is published for the stakeholders to get knowledge about the
affairs of the entity. The report is prepared so that it can be used by the users to help them in
making powerful decisions. However, the report is prepared by the entity itself for its own
results. Hence, it is difficult for the stakeholders to believe on the reliability of the same. To
establish credibility of the report it has become necessary and mandatory as per law to get the
financials audited. This function of auditing is to be performed by a professional and
independent Chartered Accountant. The opinion laid by the professional is unbiased and
hence generate trust of the users over the financials issued (Pool, 2017).
The current report accommodates the study of a company named REH Company
(Reece Limited). The company is listed on Australian stock exchange. The company deals in
plumbing and bathroom products. The concept of materiality is defined in the upcoming
section of the report with the help of this company. Later, the analysis of the cash flow
statement of the company and the auditor’s report is also done. In between, the key ratios
relevant for the analysis of company’s balance sheet and profit and loss account are observed
to get an understanding of prevalent trend. The going concern risk is also checked for.
Written representation must be called from management. Further external confirmation must
be obtained from the two parties with whom agreement is made (REH, 2017).
SECTION 1
MATERIALITY
When the independent professional conducts an audit function, he is not able to check
100 % of the transactions that takes place. This is the inherent limitation an audit faces. As a
result only a reasonable assurance can be provided by the auditor. This reasonable assurance
however is not given on the basis of ambiguous transactions. Selection of transactions is done
on the basis of the importance they hold in influencing the decision of user. That level of
importance is called materiality. The level at which the auditor believes that the
misstatements, including the omissions are able to bring a change in the decision of users, is
set as the materiality level. The materiality level can be reached by the misstatements either
individually or as a sum total. This all is a simplified version of materiality as defined by
2