Advance Auditing and Assurance Services: Mayne Pharma Group

This report provides a detailed analysis of auditing and assurance services, emphasizing ethical principles and their application. It examines the auditing practices of the Mayne Pharma Group, an Australian-listed pharmaceutical company, and explores the laws and regulations affecting its operations. The report delves into the company's business risks, including strategic, compliance, and operational risks, and discusses the potential impact on key accounts such as sales, inventory, and cash. Furthermore, it analyzes the role of corporate governance within the Australian business environment, with a focus on the ASX corporate governance principles. The report concludes by discussing the concept of materiality in auditing and its application in the context of the Mayne Pharma Group, including the determination of planning materiality. The report offers a comprehensive overview of auditing practices, risk management, and corporate governance within the pharmaceutical industry.

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Advance auditing and assurance services
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Executive summary
This report is discussed about auditing and assurance service of Mayne pharma group. Then code
of ethics applied in auditing is discussed. Then a research has been done on Mayne pharma
group limited by analyzing its annual report. In-depth operation has been done to understand the
company operation, laws and regulation that affect its operation, risks in this types of business
and different risk in its accounts.

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Table of Contents
Introduction......................................................................................................................................3
Part A...............................................................................................................................................3
Part B...............................................................................................................................................5
Conclusion.....................................................................................................................................10
Reference list.................................................................................................................................11

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Introduction
Auditing refers to the examination of financial statement of an organization to check the
true and fair of the financial record. It can be done by internal audit employee or can be hired
from outside. All companies has to do audit of their financial statement every year as it is
required by the external sources like investors and stakeholders. It is now become a legal
requirement for most of the firms as it will help to keep check on the fraud. Audit is performed
by following the guideline issued by the generally accepted auditing standard which is set by the
international auditing standard (Appelbaum, Kogan and Vasarhelyi 2017)_. Whereas assurance
service is an auditing activity performed independently with the objectivity of assuring the
management and the board of directors that the financial statement are accurate and done
according to the applicable laws and regulation. This service is provided by a certified chartered
accountant. It reviews the correctness of the audited financial statement. This is done to check
the risk and opportunities that is available in this competitive environment with improving the
quality of audit (Brown-Liburd and Vasarhelyi 2015).
Part A
Ethic are the principles that governs the behavior of individual and organization. Ethic of
auditor consist of framework that provide a sets of guidelines that are required in audit
profession to maintain the professionalism. It is set by the Global Institution of Internal Audit. In
the profession of auditing ethic plays an important role by acting as a trust. Ethic is not just for
ethical behavior but also helps in assuring the service provided by an auditor. It make sure that
the auditor are independent to make judgment without any personal benefits (Byrnes et al.,
2018).

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Auditors must follow the guidelines by promoting ethical conduct. So auditors are expected to
consider some basic principle of ethic before accepting a new auditor engagement are as follows:
 Independence – Auditor must be free from influences. They play an important role in
establishing the independence of audit. Decision must be made independently without
coming in someone pressure. An independent audit decision helps the company for
decisions making.
 Integrity and objectivity – Auditor shall be honest and truthful to his work. They should
act with professionalism and in fair way. Auditor should avoid unfair practice without
taking benefit of his position.
 Professional care – Auditor must do his work with due diligence and care by applying
professionalism. Proper attention to prevent omission are to be done.
 Confidential – Auditor must not use their position to benefit himself or to anyone else.
They should keep the companies information confidential and shall not be shared with
third parties (Cohen and Simnett 2014).
 Skills and competence – Auditor should use their knowledge and skill to perform their
task without leaving a space for fault.
 Objective – Auditor should perform its task to meet the objective of the firm without
influencing from others.
 Decision making – Auditor should focus on the quality of the work and provide its client
with correct information for decision making process.
Part B

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1. Mayne group is an Australian stock exchange listed company who are specialist in
producing pharmaceutical, healthcare and logistic company. In healthcare it provide
commercial and generic pharmaceuticals in the worldwide. They provide multiple
therapeutic drug for woman health, oncology, dermatology and cardiology. It subsidiary
are Armaguard, corporate wellness solution and health care of Australia. It has global
reach through its distribution system in North America, Europe and Asia (Dai and
Vasarhelyi 2016).
In logistic company it provide services like global freight forwarding, custom brokerage,
supply chain management, project logistics, global trade management, warehouse
management and global business intelligence. Mayne logistic service is basically operate
in the area of North America, Asia, Europe, Africa, New Zealand, Middle East and Latin
America.
2. Law’s and regulation that can affect the Mayne’s operation are as follows:
 Australian accounting standard – It is developed by the Australian Government to
maintain the financial statement in both public and private sectors. It includes the
interpretation that can be applied by the companies to prepare financial report
according to the corporation act 2001. It helps the government in preparing
financial statement in all government sectors (Green and Zhou 2013).
 International financial reporting standard – This are accounting standard which
are issued by the International Accounting Standard Board to provide a common
accounting system with the objective of increasing transparency in the financial
statement. This consist of common rules and accounting language to be followed
around the world.

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 US federal corporate rate – This is a taxation system in United States of America
which are imposed at every level on income, payroll, property, sales, capital gain,
and dividend. US federal tax rate are from 21 percent to 35 percent (Knechel and
Salterio 2016).
3. Business risk are the unexpected events which are beyond controls or anything that does
not allow the company to meet its goals. In business risk there is a chance of loss or
incurring low amount of profit than expected. This are influenced by numerous factors
like per unit cost, competition, government laws and regulations. Risk comes from many
sources which can be from internal or external sources. Business risk affects the
operation of a company as it reduce the ability of providing adequate return to its
investors and stakeholders. The three business risk that Mayne group may may face are
as follows:
 Strategic risk – This risk arises when a business does not operate according to the
business plan. This risk create loss that arise from different reasons like
unsuccessful business plans, poor business plans, problem in executing decisions
and failed to flexible with business environment (Bukhsh and Weigand 2013).
 Compliance risk – This risk arises in business sectors which are highly regulated
by the Government laws and regulation of that country. This risks are like legal
penalties, payment for environmental damages, fines for violation of rules and
regulation, health & safety risk, corrupt practices and quality issues.
 Operational risk – This risk arise when the company fails to performs its day to
day operations. This are uncertain events that result from internal problems like

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breakdown of system or from external sources like political or economic event
(Hahn 2015).
A company may not be able to protect himself from the business risk completely but it
can minimize the risk to some extent by adopting some policies like:
 Identifying the risky situation and avoid itself to enter in it.
 Precaution measures can be taken in advance.
 Taking insurance for minimizing the risk.
 Merging of two company to share risk in case of any loss.
 Can choose capital structure that will reduce the debt ratio which will ensure to
meet its financial obligation (Lombardi, Bloch and Vasarhelyi 2014).
4. The accounts that could be at risk of MYX is the followings:
 Sales – Profit is the base for any company growth after managing cost which
includes variable and fixed cost. Direct raw material and labor cost are variable
cost which depends on sales volume. Every business has to incur fixed cost even
without any sale. So fixed cost remain constant and any sale below this fixed cost
will incur loss for the business. So by decrease in sales results in decrease of
revenue of the company.
 Inventory – Decline of inventory shows sales which also decrease the current
asset balance. It also shows a stable cash flow. Inventory account can show losses
due to any calculation which can be verified by doing physical verification.
Indirectly it increase the current liability (Marques 2019).
 Cash and cash equivalent – Cash is a critical part of a business. Both increase and
decrease in cash has great impact on business. Poor cash management can affect

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the company’s performance. Having too much cash can negatively impact the
business like increasing the cost of goods without increasing the price, lower of
returns on assets, increase the cost of capital and also increase the risk of
damaging the business value.
5. Corporate governance plays an important role in Australian business environment. It
consist of rules and regulation needed in business operation. It consist of internal and
external factors that affect the interest of company stakeholders. The framework of
corporate governance is created by the board of directors by considering the business
objectives (Mock, Rao and Srivastava 2013). It outlines the action plan, disclosure
practice, dividend policy, performance measurement, contracts between company and
stakeholders. The key feature of corporate governance in Australia are :
 Extensive regulation and liability of directors.
 Principle based governance system.
 Influence large investors with strong investment infrastructure.
The ASX corporate governance council operates under a charter which is an independent
body. The primary role of the council is to develop and provide principle based
recommendation to the ASX listed entities. It helps to promote investors’ confidence and
assist the listed entities to meet all of its stakeholder’s expectation. In principle 4 of the
ASX corporate governance entities are required to make their own corporate governance
practice where they can disclose their facts and reasons. This rule force the listed
company to adopt the council practices (Peters and Romi 2014).

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Based on 2018 MYX annual report it can be conclude that it does not comply with the
principle 4 of the ASX corporate governance instead it follows the 3rd principle of the
corporate governance (Walker and Hay 2013).
6. Materiality is the threshold limit in the financial statement which shows the percentage of
incorrect information. There is a possibility of misrepresentation, misstatement, or errors
in the financial statement. So materiality sets the limit up to which a statement should be
accurate and reliable for usage.
Financial accounting uses the appropriate base of materiality to determine the threshold
level. Traditionally the accounting items like net income, asset and liabilities are used to
set the benchmark. After materiality it sets the base percentage of threshold. The most
base that is used in auditing is the net income. In case of MYX appropriate base
percentage is 5 percent. The most conservative approach is by choosing low percentage
of 5 percent because MYX is a high risk industry that can face frauds, competitions,
accounting risk and high staff turnover. When profit before tax is uncertain than the
benchmark can be set by sale by using lower percentage (Zorio, García‐Benau and Sierra
2013).
Planning materiality refers to the misstated amount set by the auditor during planning
audit base materiality of financial statement. It is used by the auditor to check whether the
misstatement in the financial statement is by individual or total material misstated. After
identifying the materiality in financial statement auditor applies planning materiality
which perform larger materiality. Factors that are used to calculate planning material is 5
percent on sales revenue, 1 percent of total assets, 1 percent of gross profit, 2 percent of
equity shareholders and 5 percent of net profit. In case of MYX auditor take the highest

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amount that is 5 percent of sales revenue which will ensure that the financial statement
are true and fair.
Conclusion
Ethic is very important in the auditing activity as it provide assurance, trust services and
increase value of the organization. Audit are designed to check in-depth companies’ records and
to deal with quantitative data. Ethics are qualitative in nature and requires research techniques to
make an audit ethical. A company’s commitment toward ethic is the key to ethical audit.
Auditing is done to check the quality of financial statement by determining the accuracy with
applicable rules and regulation. External auditor is hired from outside the business to give a fair
and independent opinion whereas the internal auditor is the employee of the organization who
records and examine the data to provide information to the higher authority for decision making.
Auditing standard provide the guidelines to perform the auditing by giving it a support of law.

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