HA3032 - Ridley Corp Audit Program: Risk Assessment & Planning

This report develops an audit program for Ridley Corporation Limited, an ASX-listed company in the feeds and dairy products industry. It identifies key business risks, including operational (cyclical fluctuations, domestic grain harvest, regional considerations) and financial risks (currency fluctuations, commodity, liquidity, and interest rate risks). The report analyzes the company's compliance with accounting standards and the absence of material misstatements. Financial ratios (liquidity, profitability, leverage, and activity) are calculated and analyzed for the years 2015-2017. The report also discusses the audit risk model (control risk, detection risk, and inherent risk) and the calculation of planning materiality. Finally, a sampling plan is developed for material account balances to be tested during the audit process. Desklib offers a wide array of similar solved assignments and past papers for students.

ATP 1
Audit theory and practice

ATP 2
Executive summary
The purpose of the report is to identify auditing as a control function that is carried out at the
organizations to assure the proper functioning, operational efficiency and effectiveness. There
are two of audits that are carried out at the organizations one is internal audit carried out by the
management and other is external audit where management appoints external party for verifying
accuracy in financial and operational performance. This report is based on the development of
the audit program for Ridley Corporation Limited. It is ASX listed company that dealing in the
feeds and dairy products along with poultry, pig beef and pet food. The report identified the key
business risks such as operational and financial risks which involve currency fluctuations,
commodity, liquidity risk and interest rate risks. The other operational risks are cyclical
fluctuations, domestic grain harvest, risk of regional consideration and customer concentration
and so on. It is also identified that the company is complying with the accounting standards and
no material misstatements are identified during the commencement of the audit program.

ATP 3
Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Key risks associated with Ridley Corporation Limited...................................................................5
Operational risks..........................................................................................................................5
Financial risks..............................................................................................................................6
Audit risk model..............................................................................................................................7
Analytical procedures for the financial statements..........................................................................7
Calculation of the planning materiality of Ridley Corporation Limited.........................................9
Sampling plan for material account balances to be tested.............................................................13
Conclusion.....................................................................................................................................15
References......................................................................................................................................16

ATP 4
Introduction
This report will be focused towards the analysis of the Ridley Corporation Limited operating in
the Food, beverage and tobacco industry. The report will also analyse the key business risks
associated with the company focusing in Inherent and control risk. It will evaluate risks in three
categories such as low, medium and high risk. The next part of the report will analyse the
financial position of the company for the past three years with the use of the financial ratios to
measure financial performance of the company. This will also help to identify the various
account balance that are considered as ‘material’ for Ridley Corporation and will provided the
reasons for the materiality of the various accounts. Thereafter, material accounts were selected
that consists of five liabilities and assets. Finally, sampling plan is developed for complete the
audit process of each material account.

ATP 5
Key risks associated with Ridley Corporation Limited
There are a number of risks associated with the companies that are operating in the field of
finished animal feed and feed ingredients. In case the risks are not identified in timely manner
then it will lead to significantly impact the business and profits of the company. The various
risks involve operational risk, regulation and process risk, quality and financial risk in
accounting. The major operational risks identified for Ridley Corporation are as under:
Operational risks
Cyclical fluctuations: The demand of the nutrition products for animals is fluctuating
continuously. The company is offering packaged and rendering products. It is also offering
poultry, Pig, dairy, Aqua and sheep which are having negative correlation that leads the company
to diversify the risk due to non-dependency on single business sector (Ridley, 2018).
Domestic grain harvest: There is risk of fluctuations in the raw material prices that is associated
with the world harvest and domestic cycles through the proper management procurement
practice this issues is overcome.
Impact of natural pasture in supplementary feed decision making: it is difficult to control the
availability of the natural pasture and company believes that it is needed to compelling the
commercial justification for supplementary feeding in various sectors of operations (RIDLEY,
2016).
Impact of domestic and export markets in the event of event of disease outbreak: It is a
significant risk due to the product contamination across various species. The organization has
tried to functions at different geographical locations to overcome form the issues of infection

ATP 6
such as Avian Influenza leading to closure of almost all the export markets of poultry and meat
products.
Risk of regional consideration and customer concentration: the company is focusing towards the
long term contracts and relations within the suppliers so that it assures them the surety towards
volumes of products for procurement and supply chain in short term and capital expenditure
programs (Louwers, et al., 2015).
The other risks involve surplus property holding and corporate risk arise due to large amount of
property needs and failure to realize the surplus land assets (RIDLEY, 2017). So the company is
making efforts towards engaging the state government and developing partner to secure
appropriate redevelopment to optimize shareholders value.
Financial risks
The organisation is commencing a number of diversified activities and has to deal at different
geographical locations that lead to some of the financial risks. The main identified risks are
market risk such as currency fluctuations, commodity, interest rate and liquidity risk. It is
determined that the group is having focus towards minimising the potential adverse effects of the
unpredictability of the financial markets to overcome the adverse effect on the financial
performance of the company (RIDLEY, 2016). The organization is also discussing with the
board and management evaluates and tries to hedge the financial risks. There is also a written
approval system for the overall risk management that covers areas of mitigating foreign
exchange, credit risks, interest rate and investing excess liquidity (RIDLEY, 2017).

ATP 7
Audit risk model
There is presence of a model that supports auditors to identify the critical impact of the various
types of the risks associated with the audit. It not only helps to identify the associated risks but
also provides assistance to manage the possible obstacles. In the absence of proper attention and
due diligence there is possibility that some of the risks remains unidentified that may possibly
lead to under stated or overstated financial statements (Louwers, et al., 2015).
The audit risk can be identified by identifying three major risks such as control risk, detection
risk and inherent risk. Control risks are the risks that are caused in case the incorrect financial
statements. On the other side, detection risk is the risk that is caused when auditors fails to detect
an important mistake in final accounts (Griffiths, 2016). There is one more risk associated to
audit model, inherent risk is the risk that arise due to error or omission of recording of a complex
event or transaction.
AR = CR x DR x IR
Analytical procedures for the financial statements
Ratio's Formula's
Ridley Corporation
Limited
2015 2016 2017
Liquidity ratio
(in
$000)
(in
$000)
(in
$000)
Current ratio Current assets/current liabilities 1.410 1.368 1.345
Current assets 251864 228503 218123
Current liabilities 178639 167085 162120
Quick ratio Quick assets /Current liabilities 0.953 0.843 0.829
Current assets - prepaid expenses -closing
stock 170161 140820 134406
Current liabilities 178639 167085 162120
Profitability ratio
Gross margin ratio (Gross margin/ net revenue)*100 8.550 8.792 8.336
Gross margin or Operating income 77597 80232 71097

ATP 8
Net Revenue 907599 912561 852923
Profit margin ratio (net income (after tax)/revenue)*100 2.836 2.981 3.027
net income 25743 27,203 25,815
Net Revenue 907599 912561 852923
Return in Assets Net income/Average total assets 0.054 0.057 0.053
Net income 25743 27,203 25,815
Average total assets 476553
480701
.5
487726.
5
Leverage
ratio/Capital
structure ratio
Debt to Equity ratio Total liabilities/total equity 1.073 0.956 0.888
Total liabilities 246719 236966 230780
Total equity 229834 247884 259823
Equity ratio Total equity/Total Assets 0.482 0.511 0.530
Total equity 229834 247884 259823
Total Assets 476553 484850 490603
Activity ratios
Inventory turnover COGS/Average inventory 10.159 9.828 9.123
Cost of goods sold 830002 832329 781826
Average inventory 81703 84693 85700
Debtors turnover Net credit sales/average account receivable 8.983 8.553 7.422
Net credit sales 907599 912561 852923
Average accounts receivables 101037
106694
.5
114921.
5
Analysis of liquidity ratios
The above calculations indicate that the current ratio of the company is slightly lower in
comparison to year 2015 indicating little complex condition of the company. The industry
average is 2.28 so it is needed that the company must control on liabilities and better
management of the working capital is needed to match industry average (Reuters, 2018). In
addition to this, the same trend is analyzed in terms of quick ratio the industry average of quick
ratio is 1.74.
Analysis of Profitability ratio

ATP 9
While analysing the profitability position it is identified that the gross margin remains almost
stable and the same time the profit margin ratio of the company is having inclined trend over the
time the profit margin ratio of RCL was 2.836 in year 2015which has improved to 2.981 in 2016
and again improved to 3.027 in 2017 (Noreen, et al., 2014). The company is generating fewer
margins in comparison to industry average of 28.69. The return on the assets is also stable during
the period but it is far below the industry average of 3.71 (Reuters, 2018).
Analysis of the leverage position
The debt to equity ratio indicates that the company has able to control liabilities and has able to
increase capital to control it from 1.073 in years 2015 to 0.888 in years 2017. At the same time,
the company has able to generate higher equity ratio indicating better leverage position from
0.482 to 0.530 in years 2015 to 2017 respectively.
Activity ratio analysis
The inventory ratio indicates that the company has failed to rotate the inventory in efficient
manner as it has performed in year 2015 which was 10.159 times. The inventory turnover ratio is
9.123 in year 2017. Similarly, the debtors turnover ratio is also declined indicating that the
company failed to collect the payment from the debtors in significant manner (Noreen, et al.,
2014).
Calculation of the planning materiality of Ridley Corporation Limited
The disclosure of the information whether it will lead to negative impact on the image of the
company but it is needed to be communicated to the stakeholders and audience is the materiality
concept. It ensures that the firm will not withhold critical details from the owners, investors or

ATP 10
lenders (Griffiths, 2016). First of all it is needed that the auditor must have to go through the
financial statements of the organisation as it will support to familiar with the activities and status
of the company which helps to build an estimate of the audit program.
Substantive approach is needed to gather information in an accurate, valid and complete manner.
Since the company is offering diverse kind of cattle feed and live stock so it is needed to
maintain high level of quality and standards as per the food and safety authority (Louwers, et al.,
2015). There revisions in the accounting standards are also having no specific material impact in
the company towards the disclosure and future period statements. AASB 9 dealing with financial
instruments is also needed to be accessed although it is considered that it will be having no
material effect (RIDLEY, 2017). It indicates that auditor is needed to apply different classes for
the purpose of testing. This includes sampling testing of the transactions, stock audit, asset
counting and numbering, disclosure and implications of the changes in accounting standards
(Harris, et al., 2017). It is also needed that the internal and external audit activities are to be
planned in such as manner that the all the financial aspects are covered it will include exchange
transactions, depreciation and taxes on the assets and income, valuation of the physical
inventory, accounts payable and receivables and validity of the expenses and revenue with the
evidences such as inward and outward register (Ghanbari, and Sarfia, 2016). It is also needed
that the internal auditor’s report is to be consulted for the purpose of identifying the materiality
of the accounts (Louwers, et al., 2015). It is also needed that the subordinates will cross check all
the information with the available evidences to provide true and fair picture of the company.
The overall steps that are to be taken or audit programme for the audit of the Ridley Corporation
Limited will start from planning phase. In this stage, the auditor and its subordinated will analyse
the various fields that are to be analysed and audit team is provided with the responsibility of the

ATP 11
areas that are to be covered by them at the time of commencing the audit of the company. The
auditor is also needed to inform the management about the audit program (Harris, et al., 2017). It
is also needed to analyse the possible risks so that the auditor will be able to maintain the audit
and objectives to manage the effectiveness of the audit plan.
The next step in the process is entrance meeting where the statutory auditor will meet with the
internal auditor and management regarding the functional areas of audit. Ridley Corporation
Limited will be provided with the scope and objectives and they are also be communicated the
possible risks and audit limitations and the time for the audit program and submission of the
audit report (Miglani, et al., 2015). Thereafter, audit is carried out which is also called field work
where audit staff is involved in the audit of the various heads such as financial statements,
inventory, assets and other heads such as tax, foreign exchange, loans and standard operating
procedures. After collecting and verifying the various heads some of the evidences are collected
audit report is drafted consisting of the outcomes of the audit and suggestions for the
management (Andon, et al., 2015). The management go through the report and take corrective
decisions with in stipulated time frame to avoid any consequences and implement procedures to
avoid such issues at the organisation. There after auditors provide final audit report and it is
provided to the management and the stakeholders.
Material account balances and Audit procedures and evidences
Account balance Amount in
AU ($’000)
Assertions Audit procedures and audit
evidence
Cash and cash
equivalents
16535 Occurrence or
existence
There is significant decrease so
there is need to test bank

ATP 12
reconciliations. The gains are due to
non-cash share based payments and
foreign exchange gains and decline
in the cash is the result of decrease
in receivables and increase in tax
and deferred tax liability.
Receivables 117491 Accuracy,
Subsistence,
Recording
Calculation of the sales and
reconcile the balances by tracing the
general ledger.
Inventories 83717 Existence,
Disclosure
Counting or weighting the physical
stock along with reviewing the cost
of each item.
Property, plant
and equipment
182794 Valuation,
Completeness,
Depreciation rate and consistency in
the method along with purchase or
sale of assets.
Intangible assets 79284 Presentation and
Disclosure
Includes software, contracts and
goodwill disclosed at cost less
accumulated amortization for
software’s. Contracts represented
and amortized at 6 years period as
per contractual rights.
Payables 148580 Occurrence, Need to reconcile with the invoices