Audit and Assurance Report: Key Audit Risks and Analysis

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This report provides an analysis of key audit risks within the context of audit and assurance. It identifies and explains various risks associated with profit and loss accounts, current assets, non-current assets, foreign currency balances, and controlled entities. The report details potential misstatements, assertions, and the degree of judgment involved in financial reporting. For each area, the report outlines the specific audit risks, explains the potential for misstatement, and suggests relevant assertions. The report also considers the impact of unusual or complex transactions, such as those involving foreign currency and inter-company balances. It emphasizes the importance of proper valuation, allocation, and the elimination of unrealized gains and losses. The report concludes with a reference list of supporting literature.
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Running head: AUDIT AND ASSURANCE
Audit and Assurance
Name of the Student
Name of the University
Authors Note
Course ID
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1AUDIT AND ASSURANCE
Table of Contents
Key Audit Risks:........................................................................................................................2
Reference List:...........................................................................................................................6
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2AUDIT AND ASSURANCE
Key Audit Risks:
Audit risks Accounts Explanations Assertions
Susceptibility to
misstatement
Profit and loss
accounts
Adavale is exposed
to the risks of
susceptibility to the
misstatement. The
company is exposed
to the risk of
material
misstatement that
may hamper the
preparation of the
financial reports that
provides the correct
view of the financial
statement (William
et al. 2016).
Additionally, the
group has
inappropriately
valued the assets
which required the
group to carry out
sufficient evaluation
of the assets.
An assertion can be
bought forward by
stating that there is
the lack of rights and
obligations among
the managements of
the company. The
exposure to each of
the liability requires
joint operations to
the lines of items
stated in the
financial statement.
The revenues can be
recognized by taking
into the account the
effective yield on the
monetary assets.
Degree of judgement
involved
Current Assets The collectability of
the requires effective
judgement.
Therefore, Adavale
is exposed risk of
making ineffective
judgements the
relating to the
An assertion of
valuation and
allocation is lacking
in the case of
Adavale.
The financial report
of the Adavale is
prepared based on
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3AUDIT AND ASSURANCE
collectability of
debts that is
assessed by the
company at the
reporting date and
with incorrect
specific provision
may made for any
form of doubtful
accounts.
the accruals basis
(Arens et al. 2016).
The measurement of
current assets
requires application
of effective
judgement regarding
the collectability of
the debts.
Susceptibility of
assets or risk of
misappropriation
Non-Current Assets Adavale is exposed
to the risk related to
susceptibility of the
carrying value of its
non-current tangible
and intangible
assets. Adavale may
fail to determine any
indications of assets
that have been
impaired (Kend,
Houghton and Jubb
2014). The
recoverable fair
value may not reflect
a true and fair view
of the carrying value
of the asset.
An assertion can be
carried out by stating
that the impairment
of the assets needs to
be carried out with
completeness as the
company has carried
the further than the
recoverable value of
the assets. The
carrying value of the
assets are overstated
and it is necessary to
bring down the
assets to the
recoverable amount.
Unusual or complex
transactions
Foreign Currency
Balances
The company may
be exposed to the
risk of foreign
currency
transactions. The
An assertion can be
bought forward by
stating that there is a
lack of existence or
occurrence in
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4AUDIT AND ASSURANCE
functional currency
for each of the
company entities
may not be
measured by using
the currency of
primary economic
surrounding in
which the company
currently operates
(Leung et al. 2014).
As a result the
present income tax
expenditure that is
based on the profits
may not be valued
correctly at the
reporting date.
foreign currency. It
must be hedged in
order to reduce the
instances of usual or
complex recording
of transactions.
Transaction not
subjected to ordinary
processing
Controlled Entities
Accounts
There may be
situations where
unrealised gains and
losses and inter-
company balances
may be exposed to
risks. The company
is exposed to the risk
of misappropriate
recording the
unrealised gains
between the inter-
entity originating
from the transactions
among the
An assertion can be
bought forward by
stating that there is a
lack of appropriate
presentation and
allocation. The
unrealised gains and
losses originating
from the transactions
must be eliminated
through
consolidations.
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5AUDIT AND ASSURANCE
controlled entities.
The financial
instruments of the
company might not
be measured at costs
and may omit the
transactions related
to the transactions of
contractual rights or
obligations exist.
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6AUDIT AND ASSURANCE
Reference List:
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance
services. Pearson.
Kend, M., Houghton, K.A. and Jubb, C., 2014. Competition issues in the market for audit and
assurance services: are the concerns justified?. Australian Accounting Review, 24(4), pp.313-
320.
Leung, P., Coram, P., Cooper, B.J. and Richardson, P., 2014. Modern Auditing and
Assurance Services 6e. Wiley.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A
systematic approach. McGraw-Hill Education.
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