University Audit Case Study: Financial Risk and Audit Procedures

This case study analyzes the audit of AGL Energy and Qantas Group, focusing on the identification of inherent risks, including stakeholder issues, infrastructural risks, and financial risks. It outlines specific audit procedures to address these risks, such as reviewing internal controls, verifying transactions, and assessing credit ratings. The analysis includes an analytical review of financial statements, comparing revenue, net income, and share prices to identify areas of concern. The study also delves into substantive audit procedures, like verifying transactions and assessing environmental impacts. Furthermore, it highlights the ethical and legal responsibilities of auditors, emphasizing the importance of understanding business operations, presenting true facts, and maintaining confidentiality. Finally, it discusses safeguards to protect auditors from threats like self-interest and familiarity, ensuring independence and objectivity in the audit process. The report is a comprehensive analysis of auditing practices within these two companies.

Running Head: AUDIT
AUDIT
Name of the Student
Name of the University
Author Note

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1. Inherent Risks
AGL Energy
 Stakeholder’s risk- AGL is involved in risks related to stakeholders issues. The
company is not appropriately handling the customer’s data. They are not focused on
ensuring safety and ethical behaviours towards the talented people of the organisation.
It also has problems in systemically controlling the cyber security. According to ISAs
stakeholder’s engagement guidelines, the relationship of an organisation must be
ethical, transparent and human rights with their stakeholders. They should be
accountable & communicate effectively with the stakeholders like employees,
shareholders, customers, society and suppliers (Isa.co.2020). The most important
thing is that they must make ethical relationship with all of them.
 Infrastructural risks- AGL has done investments in its infrastructure to expand its
portfolio. It has critical technology infrastructure that can cause insecurity in
maintaining the privacy data of the company. This may result in complex
organisational structure & cause difficulty in controlling & recording the transactions.
According to ISA audit standard 315 under requirements 11 tells that auditing must be
done on the basis of internal control (Ifac.org. 2020). The way an entity is structured
depends on the audit process. Hence, any complexity in the structure will affect the
audit process.
 Risk Management- AGL inherent risk is involved in inefficient risk management.
This will be risky for their operations. There are risk involved in market disruptions
for not responding better to change in customer demands. This affected the operations
and transactions (Auasb.gov.au. 2020). According to ASA 315 standard of authority
statement, an entity must understand its environment to mitigate any risk and manage
the risks for setting the executive standard.

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Qantas Ltd
(a) Financial risk- The group has various financial risks. There is a fluctuations in the fair
value of the assets and liabilities due to change in the foreign exchange rate.
According to AS 11 standards, the foreign currency rate must be reported at closing
rate and reported in currency value at their realized form.
(b) Credit Risk- There is related to loss of transactions from the counter party during a
particular term. This is elated to financial assets, financial liabilities and cash & cash
equivalents (Auasb.gov.au. 2020). The counter parties are trade debtors and parties
that have only credit ratings & party limits. According to ASA 315 A47 standard, the
auditor must use credit rating agency reports to use the information’s to report in
auditing process.
(c) Material risk- Various material risks like competitive intensity, cyber security and
improper data governance in the business process. Risk is also involved with their
business partners & alliances. This may also effect the transactions of the business.
According to ISA audit standard 315 under requirements 11 tells that auditing must be
done on the basis of internal control because way an entity is structured depends on
the audit process (Ifac.org. 2020).
2. Audit Procedures
AGL Energy
 Stakeholder’s issue- The auditors must collect the effective information related to
changes in the reporting & accounting process, changes in management & business
process, changes related to suppliers and vendors. This will help the auditors to
control the risks or issues related to stakeholders (Stakeholders, 2017). This will
help them to anticipate the audit risk due to stakeholders. They must follow ISAs

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stakeholder’s engagement guidelines of ethical, transparent and human rights with
their stakeholders.
 Infrastructure issue- The auditor must reveal and overall internal control system and
design to understand that their security system is compiled with the internal system.
The infrastructure assessment should be done by properly identifying its strengths &
weaknesses, effectiveness and stability of the system. ISA audit standard 315 under
requirements 11 tells that auditing must be done on the basis of internal control.
 Risk Management issues- The auditor should proper identify, manage and monitor the
organisational opportunity to ensure proper risk management. They should be
involved in various training programs related to enterprise risk management. This will
help them to assess risks & take responsibility to control the structure. ASA 315
standard of authority statement, an entity must understand its environment to mitigate
any risk and manage the risks for setting the executive standard.
Qantas Group
(a) Financial risk- The auditors should prepare an audit program for verifying the
accuracy of transactions. They should inspect the business records and conforms it to
the management. They should identify the current transactions in the document and
compare it with current trends with related to foreign exchange transactions of the
previous year. . According to AS 11 standards, the foreign currency rate must be
reported at closing rate and reported in currency value at their realized form.
(b) Credit risk- Auditors should develop policies & strategies to inspect whether the
credit risk management is properly developed or not. This should be linked with the
organisational objectives. They should recognise the problems involved with the
elimination of such risks. According to ASA 315 A47 standard, the auditor must use
credit rating agency reports to use the information’s to report in auditing process.

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(c) Material risk- The auditors should perform a procedure for analysing whether there is
any type of error in the system. The risks related to cyber security, improper data
governance and competitive intensity of the business should be properly done with
this procedures. The auditor must understand the company and its business
environment to assess the risks related to competitive intensity of the business. They
should report everything related to internal control of the group for controlling the
risks related to cyber security or any type of improper data governance. This can be
done by performing the analytical procedures for mitigating the risk assessment. ISA
audit standard 315 under requirements 11 tells that auditing must be done on the basis
of internal control because way an entity is structured depends on the audit process.
3. Analytical Review
AGL Energy
(a) It can be compared from the previous year financials that, the total revenue of the
business is fluctuating, that is it is increasing and decreasing. The net income of the
business has been decreased since the year 2017. In 2017 it was $1,587,000 and then
decreased to $905,000 in the FY at 2018 and then increased to $938,000 in FY 2019.
Hence, high risk is involved in the business operations. This may affect the business.
(b) According to ESG (Environment, Social and Governance) data, AGL has severe risk
involved in related to environmental constraints. The company is not effectively
responding to the environmental certainty, which could be risky for the business and
also to the natural environment. Environmental Risk Score is highest and it is
14.3.The challenges is related to lower emission of coal and carbon footprint into the
products and services. This could affect the business operations and may be
dangerous.

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(c) High level of risks is also involved related to its projects. The share price is
continuously fluctuating and it has come down at FY 2019. The closing share price
was 22.48 in FY 2018 and decreased to 20.01 in 30th June of FY 2019. This volatility
on share price may affect various hydropower projects of the organisation.
Qantas Group
(a) The group is not able to properly manage its financial liquidity of the business. This
may affect the long-term commitments of the business. This means that the business
will face difficult to meet the short term demand of the company.
(b) There is a fluctuations in the share price of the company. There is a decrease in the
share price in the FY 2019 as compared to the previous year. The closing share price
of the company was 6.16 in FY 2018 and then decreased to 5.40 in FY 2019. This
means the investors are not willing to invest in the company stock. There is a high
chance that the demand of the company stock may decrease and hence, business find
difficult to compete in the competitive market (Kajihara et al., 2018).
(c) There is high level of political risk involved in the business because the group
operates in the unpredictable international and domestic business environment. It
needs a high stability to perform in international economy. There is a high level of
corruption involved in the transportation sector.
4. Audit procedures for problem areas:
AGL Energy
(a) The audit process of the business should first follow the revenue accounts of the
organisation to analyse the statements. They should test the revenue with the trade and
receivables in the balance sheet (Matombo, 2019). This will help the auditor to

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recognise the issues related to revenue fluctuations and helps the business to solve the
problem.
(b) The auditors should first evaluate the collect information related to the impact of
environmental matters in the company financial statements. Initiatives must be taken
to prevent from any type of damage to the environment. This must be done according
to the environmental laws (Agl.com.au. 2020). The auditor will properly recognise the
environmental cost, liabilities & assets.
(c) The auditor must properly verify the transactions and confirm that all the
shareholders equity transactions are properly recorded (El-Helaly, Georgiou & Lowe,
2018). They must look forward whether the management is protecting the interest of
shareholders or not. All equity related transactions are recorded properly to allow the
company adjust their disclosures.
Qantas Group
(a) The auditors must assure that the senior management is effectively managing the
liquidity risk according to the organisational regulations. They should provide advice
regarding the proper management of risks that can harm the business functions. They
should be aware of frameworks and Basel III frameworks to evaluate the liquidity
risk.
(b) The auditor must properly verify the transactions and confirm that all the shareholders
equity transactions are properly recorded (Carvalho, 2018). They must look forward
whether the management is protecting the interest of shareholders or not (Habib,
Muhammadi & Jiang, 2017). All equity related transactions are recorded properly to
allow the company adjust their disclosures.
(c) The auditor must follow the Enterprise risk management framework to assess the
external risks of the business. This framework contains all the necessary guidelines to

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follow the nature & influence of the government, tax, tariffs, political stability and
labour laws. They must use risk assessment tool to evaluate, identify these external
environment and the risk involved in the business. They should follow the compliance
process of assessing the risk. This process include identify the external business
conditions, evaluate the reliability of the document, verify the documents using
various methods and then accept the information (Investor.qantas.com. 2020) This
will help the business to identify the risk.
5. Ethical & Legal responsibilities of Auditors
(a)An auditor has an ethical responsibly of gain a complete understanding of the business
operations (Huber & Crumbley, 2017). They must clearly evaluate the internal control of the
business and properly audit the account balances & financial transactions.
(b) An auditor must produce a true value of material facts in the financial statements of a
business. They should completely omit the material errors and eliminate mislead of private
information of the business.
(c) They are also responsible to ethically perform the ethical practices by keeping the
information confidential within the stakeholders, they should be competent and perform a
bias free auditing activity (Garcia-Marza, 2017). They should also keep an update of current
trend of the business and relay more on personal & professional development to handle the
overall process (Saha & Roy, 2016).
Safeguards to auditors
 The auditors and the team should be focused to avoid any kind of self-interest threat
that could harm the independence of other auditors.
 They should also avoid self-review threat and should advise and direct the supervisor
to assign the personal (Wilson, 2017).

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 The auditors are advised to avoid the familiarity threat due to engagement in audit
practice for a long period of time. This will avoid any kind of threat that an audit
manager can do in the audit practice (Church, Jenkins & Stanley, 2018). Instead they
can go for rotational audit practice, having a professional who was not in the audit
team and regular review of the audit documents for better quality in the system.

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References
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Retrieved 31 March 2020, from https://cpahalltalk.com/audit-stakeholders/
Matombo, S. C. (2019). The constitutionality of the audit procedures and information
gathering powers of the South African Revenue Service (Doctoral dissertation,
University of Pretoria).
El-Helaly, M., Georgiou, I., & Lowe, A. D. (2018). The interplay between related party
transactions and earnings management: The role of audit quality. Journal of
International Accounting, Auditing and Taxation, 32, 47-60.
Habib, A., Muhammadi, A. H., & Jiang, H. (2017). Political connections, related party
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García-Marzá, D. (2017). From ethical codes to ethical auditing: An ethical infrastructure for
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Church, B. K., Jenkins, J. G., & Stanley, J. D. (2018). Auditor independence in the United
States: Cornerstone of the profession or thorn in our side?. Accounting Horizons,
32(3), 145-168.

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Carvalho, R. (2018). Public Private Partnership Health Programme in Portugal–Court of
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