Developing Audit Program for a Publicly Listed Company

This report provides a detailed analysis of developing an audit program for Thorn Group Ltd, an ASX-listed financial services company. It begins with an executive summary highlighting the company's audit risk and negative profitability. The report then identifies and distinguishes between tests of control, substantive tests of transactions, and substantive tests of balances. Key business risks, including financial, operational, and compliance risks, are examined, along with corresponding substantive audit procedures. The report explores how assertions relate to account balances and discusses the selection of efficient audit procedures. A sampling plan is presented, and the report concludes with a summary of findings. The introduction provides an overview of audit program planning and its importance, while the company overview details Thorn Group's operations and subsidiaries. The report also includes comparisons of different audit procedures and analysis of key audit matters, such as regulatory provisions.

Developing an Audit
Program

EXECUTIVE SUMMARY
This report summarises a detailed account in regards to how Audit Program is developed
in relation to a publicly listed company. For this purpose, an ASX listed business, Thorn Group
Ltd. Has been taken into account. Here, it can be seen that the company has a high Audit risk
with negative profitability in the current year. For resolving this, five assets viz. Inventories,
small investment, cash, debtors, Financial investment and liabilities viz. Account payable,
share capital, Provisions, Debenture; and Wage payable. Apart from this, Sampling Method has
been taken into account to show which method has been carried out to to carry out Audit in
Thorn Group.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
1.1 Identify and distinguish between tests of control, substantive test of transactions and
substantive test of balances.........................................................................................................5
1.2 Key Business Risks and Substantive Audit Procedures........................................................1
1.3: Explain how assertion are related to account balance..........................................................4
1.4 Selecting most efficient combination of audit procedures to achieve the audit objective....5
1.5 Sampling plan........................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Audit program helps an auditor to validate the regulations of an organisation and ensure
that proper attention is given to various areas of business so that problem can be identify and
addressed effectively (Furman, 2012). Thus, to perform all the operation of business explicitly
proper planning of audit is required. To better understand the topic Thorn Group Ltd company
has been selected which is of Australia country and offer various financial services as well as
solution to the consumer. It basically provide the services to various people within or across the
nation. This report cover following topics such as identify and distinguish among test of control,
substantive test of transaction as well as substantive test of balances. Understand the substantive
audit procedure in response to assessed risk of material misstatement and determine assertion in
relation to account balance. Moreover, evaluation on selection of most efficient as well as
effective procedure of audit that helps to attain the objective of audit. Furthermore, active
participation within audit team context will the professional group are discussed within this
report.
Company overview
Thorn group limited is financial company which emphasize on offering various financial
solution to the business as well as local resident of Australia. It basically perform its operations
in various divisions such as consumer leasing, commercial finance, receivable management as
well as consumer finance. Within consumer leasing the electronic equipment or appliance are
offered in rent yo the various users whether required for both household and office purpose.
These appliances include kitchen alliance, office equipment, laundry or appliance, furniture and
so on. Commercial finance include loans which are offered to an individual as well as business
firm to perform their operations successfully. Receivable management helps to manage the
payment in order to prevent non or overdue payment as well as consumer finance prevails when
respected company pays the credit or extend the loan to the consumer. Moreover, the vision of
the company is to understand the need of individual as well as company and makes effort to
fulfil it by offering electronic item at lease for specific duration and sanctioning the loan to
acquire new technology or asset in order to gain better result. Thus, company employee various
number of manpower so that they can make the affirmative experience of customer within the
geographical nation as well as outside its boundaries. Along with customer company make the
effort the meet the need of small or medium type of business by maintaining the cash inflow of

company. Further, the other subsidiary that assist the company to maintain smooth operations of
business are Thorn Equipment Finance Pvt Ltd , Rent Try Buy Pvt Ltd, Thorn Australia Pvt Ltd,
Hudson Legal Pvt Ltd, Eclipse Retail Rental Pvt Ltd,, Cash First pvt Ltd, and Cash Resource
Australia Pvt Ltd.
1.1 Identify and distinguish between tests of control, substantive test of transactions and
substantive test of balances
Test of control: Test of control are the essential procedure of audit that helps to evaluate
the effectiveness the operations, detecting, preventing as well as take corrective measure at the
level of assertion (Laing and et. al., 2014). In addition to it within this level claim is imposed on
other person and require the intervention of auditor to verify and bring the things to normal state.
The auditor generally perform this test within Thorn group limited when the substantive
procedure fails to provide required evidence regarding the assertive level then the role of test of
control arrives to reach at the desirable result. As per section 314, the auditor must understand
the business entity as well as risk associated with material mismanagement. Simply, during the
substantive procedure if the auditor come to know that the predetermined risk can not be
controlled at assertive level then test of control is performed that helps to gain the evidence
regarding operating effectiveness. Moreover, if auditor find it difficult to maintain the procedure
in that case entity makes effort to conduct their business operation using business technology.
Thus, in that case no documentation is required regarding the transaction except IT system.
Substantive procedure: Substantive procedure is an audit procedure which is performed
to detect the misstatement that prevails at the assertion level within Thorn group limited. It
include test of detail transaction, disclosure, substantive analytical procedure as well as account
balance which should be performed to manage the risk associated with material misstatement
(Martin, Sanders and Scalan, 2014). On contrary, there are limitation on internal control such as
management override that can leads to the risk. Thus, there certain procedure which are related
to financial statement and are the part of audit procedure which are elaborated below:
 The financial statement of an enterprise include the accounting record that helps to
determine the real position of business to the auditor.
 Identification of journal entry as well as other essential adjustments which are required
while preparing financial statement of the respected company.

Hence, it is the responsibility of auditor to perform the substantive procedure in order to
response against the risk. Like if an auditor while maintaining the procedure come to the know
about the situation of organisation that they are finding difficulty to meet the sales or profit
expectation of company. In that case there can be various risk due to which Thorn group limited
company faces difficulty in meeting the standard of organisation such as inappropriate
recognition of revenue. However, to deal with such situation auditor prepare confirmation
request fort outside party to gain real insights about sales agreement and the date regarding
delivery or return. Therefore, such detail helps to gain a clear overview and minimise the
chances of risk (Sarapaivanich and Patterson, 2015).
Comparison between test of control, Substantive test of transaction and Substantive test
of balances
Test of control Substantive test of
transaction
Substantive test of
balances
Such audit procedure is
used by client to detect
material
mismanagement. It is
therefore an essential
part of auditing
performed by auditor to
control as well as
manage internal entity
that helps to mitigate
the changes of risk
Within substantive
procedure of balance all
the data is managed
electronic form and
accessed by auditor to
control all the operations
related to financial
statement. Such model
can be further used to
substantive transaction of
testing as well as control
test.
Such procedure come
into use to determine
the misstatement in
financial statement
that prevails at the end
of financial year.
Thus, the role of
auditor is to ensure
that the entries of
financial startement
can again be tracted as
a source of
documentation
It include enquiry as
well as observation that
helps to verify the
internal control.
It includes deep analyses
of every entry made in
journal entry to make
sure each things are
It involve inspection
for each transaction
such as fixed asset to
ascertain the existence

record significantly of procedure.
If the internal control is
ineffective in that case
substantive procedure
come into use
Substantive test of
transaction take more
time in audit activity as it
include the role of
various transaction that
helps in determine actual
capability of firm
This procedure is more
effective in
comparison to internal
control as it only
comes into use if test
of control gives
ineffective result.

1.2 Key Business Risks and Substantive Audit Procedures
Key Business Risks:
Thorn Group Ltd. is a financial services organisation that has a diverse set of products in
which it deals. The Financial Services Sector is one of the largest contributor to Australia's GDP
with an amount as high as $140 billion in the financial year itself. A business risk, in the context
of auditing, is a situation due to a company such as Thorn Group may not be able to achieve its
financial or other goals and objectives in a predefined manner (Christ and et. al., 2015). The
main factors responsible for generating a situation of such risks include any kind of change
happening in the national, state or territorial regarding regulations as well as economic
conditions, enhanced competition in the external environment of business and nature of the
business itself. One can easily determine key business risks through SWOT or PESTLE
Analysis. This is due to the fact that the such risks directly impact the strategic decisions taken
by the managers of the business. Such risks may also impact upon the financial statements of the
business entity too. Hence, it is important to identify, acknowledge as well as account for key
business risks as failure to do so may result in material misstatement. Therefore, it is important
for the auditors appointed by Thorn Group Limited to follow certain procedures that help in
identification of key business risks of the company in the light of nature of entity as well as the
industry.
Some of the key business risks found relates to high financial risks, operational risk and
Compliance to governing as well as risk management practices. Such risks amount to a material
error in financial statements. These have been explained as under:
 Financial Risk: In the context of Thorn Group Limited, the company is exposed to
financial risk as its independent auditors, KPMG, considers going concern concept of
accounting as one of the key audit matters. This concept and any problems arising due to
it make Thorn a vulnerable subject which is highly exposed to Financial Risk in case due
diligence is not exercised (Page and et. al., 2014). Apart from going concern, over-
trading, failure of accounting systems as well as risks related to credit, interest and
currency also pose a threat to Thorn.
 Operational Risk: Lack of business orders or physical assets and missed opportunities
may hamper the day to day activities of the company. Thus, causing disruption in
operation of the business as a whole. For instance, for Thorn, the company undertakes
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financial lease under which it supplies equipments to others. Loss incurred on such
products may result in operational risk for the company itself.
 Compliance Risk: Such risks are also considered a key business risk as they arise due to
non-compliance with laws and regulations. As business risks are directly impacted by
such circumstances, hence, companies are highly susceptible to such situations (Robson
and et. al., 2012). Also, in the context of given case scenario, one of the Key Audit
Matters considered by the independent auditors of the company are its 'regulatory
provisions'. This is important looking at the level of judgement required in the evaluating
the overall financial statements in the light of relevant governing regulations thereof.
Substantive Audit Procedures:
A substantive procedure is one which is performed in order to detect material
misstatement at a given assertion level. It includes substantive testing in relation to account
balances, classes of transactions and their disclosure as well as assessment. The procedure
includes agreeing with the information reported by a business enterprise such as Thorn in their
financial statements prepared for a given financial period (Moya, Torres and Stegen, 2016).
Examination of journal entries that hold a certain degree of materiality along with relevant
adjustments made thereof. Here, mainly the audit risk is considered which may arise during the
execution of audit procedures. Based on this, an Audit Risk Model may implemented by the
Auditors which has been depicted below:
[AR = f (IR x CR x DR)]; where
AR = Audit Risk
IR = Inherent Risk
CR = Control Risk
DR = Detection Risk
An auditor may undertake substantive audit procedures when the components of Audit
risk, that is, Inherent, Control and Detection Risks are high at relevant assertion levels. These
have been discussed as under:
 Inherent Risk (IR): As far as this constituent of Audit Risk model is concerned, it arises
due to any material error arising due to omission or commission which are not inclusive
of those that are experienced by a business due to failure of controls (Greenfield, Keup
and Gardner, 2013). It is usually observed in those organisations whose transactions are
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of high complexity. For Thorn, this holds true as most of its transactions are of complex
nature and require an intensive assessment of regulatory provisions so as to evaluate the
group's financial statements in an effective manner.
 Control Risk (CR): This component aims to look at those areas of material misstatement
that arise due to failure in systems of control that are being implemented in the business.
In context of Thorn Group Limited, the company has implemented Risk Management
Policies in order to identify risks (Waddock and Lozano, 2013). This has been done by
predefining an appropriate amount of benchmarks which depict the level of risk the
company can undertake. For instance, in order to regulate the Credit Risk in the
company, Thorn's management maintains a provision for receivable losses.
 Detection Risk (DR): As the name suggests, it is one which arises in the course of
undertaking an audit procedure. In case KPMG, the auditor of Thorn Group Limited,
overlooks an item present in the financial statements of the business, such an event may
result in Detection Risk.
Hence one can say that while Audit and Detection Risk are directly dependent of the
auditor conducting the investigation, Inherent and Control Risks are highly independent of such
persons or group of persons.
Application of Audit Risk Model:
While assessing the level of Audit Risk present in Thorn Group Limited, both Inherent
and Control Risks are assessed based on certain criterion. For Inherent Risk Assess0.15ment, the
efficiency as well as effectiveness of Internal Control is taken into account whereas in case of
Control Risk Assessment, both physical assets and risk management practices are taken into
account.
Audit Risk Assessment in Thorn Group Limited
Items Inherent Risk
(IR)
Control Risk
(CR)
Detection Risk
(DR)
Audit Risk (AR)
Credit Risk High High High High
Liquidity Risk Moderate Low Medium Medium
Market Risk Low Low High Medium
Foreign Currency Medium Low Low Low
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Risk
Interest Rate Risk Medium High High High
Overall, one can say that Thorn Group's Audit Risk ranges between Medium to High with
excessive exposure to credit and interest rate risk whereas moderate exposure towards liquidity
and market risk. Based on the inherent and control risk assessment, the detection as well as Audit
Risk have been determined based on the majority of risk faced by the business. Similarly, the
detection risk has been based on level of control Thorn has in averting such exposures
(Thollander and Palm, 2012).
1.3: Explain how assertion are related to account balance
Material account balance: It refer to the account balance that helps to determine the
immaterial balance that can leads to the chance of materiality or exceed it. For instance, in case
of financial statement materiality auditor will identify the larger amount that has caused
misstatement or chances of materiality (Annual Report, 2018). Thus, some of the material
account balance that include asset and liability are explained below:
Asset
Inventory: It refer to the stock of company which needs to be stated in the statements of
company so that the interest investor of company can come to know about the real figures of
stock. Thus, auditor consider these inventory during the time of substantive procedure to tract the
actual inventories of company and posted figure to determine whether it leads to materiality.
Account receivable: It refer to the revenue received or to be gained by company which
enhances its profitability. Thus, auditor review these balances to check the existence of material
misstatement or chances of fraud.
Small investment: It is asset for an organisation that gives the benefit to company for
long duration. Internal control and substantive test makes the balance misstatement free and does
not mislead to the stakeholders of company.
Cash balance: It refer to the liquidity of company that helps the business to run its day to
day performance smoothly. Therefore, the intervention of auditor make sure company makes the
advantage from its balances and does not manipulate the customer.
Financial investment: It refer to the asset on which investment is done by company with
the motive that it will help in adding up the revenue for company. For instance, bond are a king
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of secured investment done by company that gives profitability to business after maturity time
period. Along with that auditor consider these account so that the chances of error as well as
fraud gets eliminated which safeguard the interest of the external stakeholder such as investor,
customer, government and so on who so ever is interested in company.
Liability
Account payable: It refer to the short term obligations made by company to pay back
their liability to the creditors. The role of auditor which conducting test of control is to overview
whether the company are adopting the procedure of generally accepted auditing procedure and
making their payments on the timely basis.
Share capital: It refer to the fund raised by the firm by offering its shares to the
consumer. Thus, external part purchases the share of company with the hope that firm's business
will flourish and they will get profit in return. So auditor maker sure respected company must
state their profit clearly so that every one gets advantage of it in term of dividend.
Wage payable: it include remuneration or salary which is shared among the employee
based on their performances. Therefore, auditor make sure the interest if a staff does not get
exploited.
Debenture: It refer to the fund arises by firm from the public, though it is unsecured loan
but the auditor make sure company pays back the amount once purpose of firm is achieved.
Provision: It is an account of the financial statement of company that record the liability
of the Thorns group limited. Auditor estimate the dues which company has to make sure the
provision are met by company.
Therefore, apart from these asset as well liability there are various balances the need to be
determined by auditor bin order to check the state of maternity and help it effectively. Thus, the
concept of materiality can arise because of following things such as:
 One of the reasons of misstatement is omission which causes materiality and lead to
misinterpretation while formulating economic decision on which the user depend to gain
the deep insights.
 The judgement associated with materiality also gets mismanaged because of nature as
well as size of business entity.
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