Detailed Audit Report: Connected IO Limited (BFA713 Assignment)

This report provides a detailed analysis of Connected IO, a company specializing in networking and embedded systems, based on its 2018 annual report. It examines the company's operations, industry challenges, and financial performance, including negative earnings and a lack of analyst coverage...Read More

AUDIT
2019

Connected IO
Answer - 1
Connected IO, Inc. is specialized in areas of networking, mobility, industrial design, cloud
infrastructure, and embedded systems. CIO provides services related to software
development, industrial design services, and embedded product engineering to consumer
electronics, home automation, energy management software markets and product and
technology companies in communication and networking. CIO provides consulting services
that include proof-of-concept as well. The company also offers embedded 2G/3G/4G USB
M2M modems, 4G LTE M2M modems, 4G LTE flex MIMO antennas, 4G LTE modems,
2G/3G/4G LTE embedded M2M modems, 4G MIMO LTE antennas, Y-cables, and 4G LTE
portable dipole antenna sets (Connected IO Limited, 2018).
CIO is a company based in Australia and trades in the tech hardware industry. It is a small
capital company with a total net worth of AU$24.86 million. There are enormous
opportunities for companies that trade in providing technologies due to the fact that there are
several organizations in almost every domain that highly rely on technology so as to enhance
its business. At present, the organizations are drifting to software-defined hardware from
pure-hardware and to services and solutions from products. It is predicted that in the year
2020, there will be at least 5.51% growth in the overall hardware tech industry. The following
report will highlight the growth of the tech industry and will analyze if CIO is a dominant
player in its domain or not.
There are a lot of challenges faced by tech companies out of which dealing with the hectic
global regulations is the most difficult one. The global regulations are highly complex in
nature and therefore, tech companies might have to deal with various rules and regulations
for governing security, privacy, and managing of data along with issues pertaining to
cybersecurity. The tech industry dropped to a -32.88% in the previous year which negatively
impacted the Australian economy. Analyzing the CIO financials of the last foregone years it
can be seen that it has a trend of making negative earnings and also a lack of certainty is
reflected from its outlook. The company lacks analyst coverage which makes it doubtful for
an investor to make investments in its stock. Connected IO not only lacks in growth but also
in transparency as well which justifies why the same is lacking behind its competitors in the
industry.
A company must always adhere to the necessary statutory requirements and such other laws
and regulations that fall into its domain. This enhances the Australian economy and allows
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Connected IO
organizations to compete in the overseas market. Australia is a country best known for its
statutory and regulatory requirements. Adherence to laws and regulations is crucial in order
to protect the social and environmental concerns of the Australian community. As the world
is pacing at a fast rate it can be said that technology is developing way quicker and the
business models are also changing rapidly as a result of it. This makes it difficult to predict
the future of business models and also allowing the regulations to become redundant.
Established products, alliances and firms are displaced with technological innovation and
disruptive business models which may have the capability to alter the nature of work, better
goods, and services and also enhance consumer choice (Kehoe & Ruhl, 2013).
The tax system has undergone numerous alterations in Australia. Earlier before 1897, the
Australian companies were taxed on the basis of profits earned on the basis of a fixed tax rate
while the shareholders were asked to pay taxes on the dividends received. This allowed the
double taxation system to prevail. In order to end the double taxation system, the country
implemented an Australian dividend imputation system in the year 1897. In 1988, the
companies were taxed at 39% and it was then reduced to 33% in 1993. In the year 1995, the
tax rate was increased to 36% which was then reduced to 34% in the year 2000. Ultimately in
2001, the tax rate was dropped to 30% (Connected IO Limited, 2018). Therefore, it is right
enough to say that CIO is hugely impacted by the ever-changing tax structure of the country.
The rise in income earned by MNCs has allowed the tax claims to overlapping one after
another and this has complicated the collection of tax for the concerned authorities (Lapsley,
2012). The international financial cash flows and allocation of investments are most likely to
suffer if the authorities are indulged in malpractices like avoidance to collect the tax.
Answer -3
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Connected IO
Answer 4
As per the explanation of the auditor, the financial report of the Group is in tune to the
Corporations Act 2001 and that the accounts provide a true and fair view of the financial
position of the group and its performance.
The audit was performed in accordance with the AAS and the views were independent. While
performing the audit the Corporation Act 2001 together with the APES 110 has been
followed. As per the auditors, the audit evidence that is obtained is sufficient and appropriate
in nature (Connected IO Limited, 2018).
For providing the audit opinion, the auditor stressed upon the methodology of the
management model. The assessment of the value in use model for the adherence to the AAS
was considered. Further, a sensitivity analysis was done on the major inputs that can be
utilized in the forecast of the cash flow and the impact on the model (Livne, 2015).
Moreover, it was considered whether the assets that comprise of the cash generating units
have been allocated in a proper manner.
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Information required Answer
ASX code (0.5 Mark) CIO
Listing date (1Mark) 28/02/2017
Industry (1 Mark) Research & investing information
Number of subsidiaries (1Mark)
Financial year end date (1 mark) 30th June 2018
Audit firm’s name (0.5 Mark) HLB Mann Judd
Audit partner’s name (1 mark) NA
Type of audit opinion (1 Mark) Unqualified opinion
Audit report date (1 Mark) 30 June 2018
Total annual audit fees (1 Mark) $ 48,250
Total- non-audit fees (1 Mark) $2,750

Connected IO
The key audit matter stressed upon goodwill because goodwill had a balance of $2,418,610
and it is a part of the business combination (Connected IO Limited, 2018). It is important for
the group to perform impairment for goodwill on a yearly basis. It is the key audit matter
because of the importance it comprises for the users and the degree involved in its estimation.
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Connected IO
References
Connected IO Limited. (2018) Connected IO Limited 2018 annual report &
accounts. Available from: https://www.asx.com.au/asx/share-price-research/company/CIO
[Accessed 8 May 2019]
Kehoe, T. J., and Ruhl, K. J. (2013) How important is the new goods margin in international
trade?. Journal of Political Economy, 121(2), 358-392. Available from:
https://experts.umn.edu/en/publications/how-important-is-the-new-goods-margin-in-
international-trade [Accessed 8 May 2019]
Lapsley, I. (2012). Commentary: Financial Accountability & Management. Qualitative
Research in Accounting & Management [online]. 9(3), pp. 291-292.
https://doi.org/10.1111/1468-0408.00081
Livne, G. (2015) Threats to Auditor Independence and Possible Remedies. Available from:
http://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-
and-possible-remedies?full [Accessed 8 May 2019]
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