Audit Report: Financial Analysis and Risk Assessment of Konekt Ltd

This report presents a professional auditing analysis of Konekt Ltd, focusing on the company's financial performance, risk assessment, and audit procedures. The report begins with an executive summary and introduction, outlining the scope of the audit and relevant auditing standards (ASA210, ASA220, ASA230, and ASA315). It then delves into understanding the client, including their objectives, operations, performance, stakeholders, accounting policies, internal controls, and the industry environment. The main body of the report identifies significant accounts at risk of material misstatement, such as work in progress, trade receivables, trade payables, employee salaries, and provisions. The report also sets planning materiality based on ASA 320. Finally, it assesses audit risk, providing a comprehensive overview of Konekt Ltd's financial position and potential risks. The report concludes with a summary of findings and recommendations, supported by references and an appendix. This report provides insights into financial analysis, risk management, and auditing practices within the context of Konekt Ltd's operations.

PROFESSIONAL
AUDITING

Table of Contents
Executive Summary ........................................................................................................................1
INTRODUCTION...........................................................................................................................2
MAIN BODY...................................................................................................................................2
(a) Gain an Understanding of the client......................................................................................2
(b) Significant accounts at risk being materiality misstated.......................................................5
(c) Set planning Materiality........................................................................................................6
(d) Audit Risk Assessment..........................................................................................................7
CONCLUSION................................................................................................................................9
APPENDIX....................................................................................................................................10
REFERENCES..............................................................................................................................11

Executive Summary
As per the above report it summarises that Konekt Ltd provides skilled and experienced
candidates to different company who helps to run a business effectively. The company is
growing continuously by providing number of applicant who make efforts to increase the
profitability. As it has good diversified manager who works together and provides training to
staff. This company conducted audit programme that help to know the financial position and risk
of business enterprise. This report will covered gain an understanding of the customer,
significant accounts like trade payable, receivable, provision, working progress and salary
accounts that help to show the profit in direct and indirect way. Moreover, it helps to signify the
risk which are arising in business activities.
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INTRODUCTION
Auditing is referred to a systematic assessment of records, data, statements, financial
performances and operations of a business enterprises which are independent among themselves.
In the report develop plan and procedure is being discussed in context to the audit of financial
report of Konekt Limited, which provides management solutions in Australia (Boussebaa, M.,
2015). The company has been provided injury prevention solutions like pre employment
assessment, manual handling assessment and seminars. The plan follows the procedures as set
out in in auditing standards ASA210, ASA220, ASA230 and ASA315 in which first to do an
large assessment on the company. In the business consist of internal factors are stakeholders,
internal control and performance as well as external environment, industry and regulations. A
materiality threshold is then derived which guides the nature, timing and extent of audit. Based
on risk assessment identify five significant account that are most subjected to risk of material
misstatement and where material misstatement can occur using the audit risk model.
MAIN BODY
(a) Gain an Understanding of the client
As ASA 315 is emphasis to understand the requirement of the clients regarding the audit.
Their internal and control information consist of but not limited to measure of control,
regulations, environments and industry which guide the following subsections
Objectives and operations
Konekt Limited is a private company which can provide human services to other
company to supply new employment, return to work, healthy space, consulting solution and safe
employment. The purpose of the company is that belief that work is good for all, purpose is to
maximise workforce participation and safety. The company has been employed about 800
employees where included about 300 allied health professional and operating from a national
footprint of 120 branches across Australia. They are setting committee for auditing and risk
management, nomination as well as remuneration which can oversee its operations and board's
performance. The goals of the company to focus on the customer and their products & services,
strong sales culture and develop trusted advisor.
Performance
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For the financial year 2018, they can provide more than 50,000 services to assist
individuals in reference to placement programs. The revenues of the company has been grown by
67% to $89.1 M, consisting $41.3 M from the 9 months contribution of mission providence since
acquisition. In the financial year of 2017, EBITDA increased by 56% to $9.1M ($5.8M in
FY17). The acquisition and integration costs of $3.1 m and excluding $160,000 income from
deferred consideration write backs (Bowlin, Hobson and Piercey, 2015).
Stakeholders
The entity's significant shareholders are corporate entities with largest shareholder being
Nidmas Pty Ltd and its related with a holding of 30.68% Noticeable, Four directors from the
board are also significant individual share holders as below:
Philip small is crucial shareholders and mange to director of the company, they are
recognised as independent director. In hence, Damian banks is CEO of the company and major
shareholder due to fully paid 15,382,916 on their ordinary shares and 86042 regarding to their
performance right share. Konekt Limited have leading customers which is related to fixed and
employee services regarding and they are together contribute to more than 20% revenues of the
group. The risk has been identified through employee concentration and identified risk by board
which would be managed by revenues diversification strategy of the entity.
Accounting and remuneration policies
The company has been followed different standards regarding to financial reports and it
is issued by IASB with the adoption of Amendments AASB 2014-1, AASB 2015-1 and AASB
2015-2 as per declaration of company and if it does not emphasis by the corporation than
financial statements can not prepare as per the requirement. which did not reason of any
influence on the financial statements. In the financial year there has been no other disclosure of
changes in accounting policies.
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In reference to chief executive officer and executives of Konekt Limited has been paid
with a combination plan of fixed and incentive remuneration that awards executives with the
performance right share to obtain right performance. The company have same benevolent
incentive plan as a way of remunerating their management at higher level. There are all senior
management and executives can participate into Long term incentive plan along with executive
share based incentive plan at various level. LTIP has a performance period evaluate of three
years with their objectives of EPS growth of 10% or more and total shareholder return ranks
more than 80 percentile in the suitable peer group. ESBIP has performance period for one year
on the basis of different conditions which is based on the EPS's growth reaching at least 15% for
the performance period or 10% aggregated compound.
Internal controls
As set out in ASA 315, assessment of Konekt Limited, internal control has affected by
various factors which are as mention below:
 Control Environment – It is based on the overall management ASA 315.A77 where are
including attitude, awareness and actions to control environment of company regarding to
internal procedures. It is analysing ethical values in corporate governance which can
oversees its corporate social responsibility as well as audit and financial reporting.
 Entity's risk assessment process helps to identify risk management tool after adopting
standards of AS/NZA 4360-2004 to guide regarding to risk assessment process and
internal control.
 Information system consist of financial accounting and reporting system and their
infrastructure. In reference to Konekt Limited, define about the information system and
related up to date applications.
 Control activities are policies that are setting and implement with the help of
management of entity where includes information processing, performance reviews and
segregation of duties.
 Monitoring of control is a process which is evaluated and improve effectiveness of
internal control. In the company consider risk register to record identified risks and apply
risk treatment plan. Through current control mechanism improve existing control
procedure and risk treatment plan (Cannon and Bedard, 2016).
Environment, industry and regulations
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Konekt Limited has been developed strong culture of performance, engagement,
retention in making a differences across Australian workplaces. It can show positive impact on
people's lives and their participation regarding to their business activities and help to improve
company and the community. There are mainly values where company has been focused on the
area leadership, diversity, personal impact, career diversity and the community. They are
believing into nurturing an exceptional work environment.
Source of finance involves: shares, debentures and bank loan and the existing players
who provide the same product and services in better way are the competitors of organisation. As
the economic conditions of country can affect client and its business with the firm. Financial
crises and interest rates influence the business and profitability of corporation and the
shareholders are expecting that higher returns from the organisation. As per the dynamic
environment changes of technology is require to be adopted so that business can perform in
smooth manner.
(b) Significant accounts at risk being materiality misstated
On the basis of significant accounts of the client analysis on the basis of materiality.
There are selected five accounts which can indicate most subjected to risk of material
misstatement. The result can be related to human mistakes or intentional fraud. Therefore, there
has been concluded that managing director and executives to provide award if there is earning
per share of 16/17 exceeds 10% growth with vesting choice for all incentive plans which can
depend on the highly results. Through higher profit provide motivation to those executives who
already exists. These accounts can affect to profit in direct and indirect way and monitor all
expenses nearly. Simple comparison and trend analysis were employed in addition to analysis of
predicted amounts that will be used in the calculation of profits. Work in progress – It is important part of process system because it is mid way where all
process go through for final procedure. The particular account is one of the major account
that will affect to profit in direct and indirect way. In WIP identify that it has been
decreased as compare to 2017 because it is $298 in 2018 and in 2017, $367. work in
progress has been important for company because it is provided detailed information
about material and employees who are working in an organisation.
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 Trade Receivables – The particular account has been allowed to net of allowance for
impairment of receivables and in the financial year of 2018, 174. In the financial report of
2018, indicate about all receivables above 1 month were recoded with allowance
impairment of receivables. There are provision of doubtful debtors is presenting to
objective evidence. So there are predict current doubtful debt approx $9818 was also
questionable due to practice for prior years. This may be a practice to reserve this year for
profit in reference to future time period (Chiang, 2016). Trade payable – There are including those people who take amount from company
regarding to providing facilities. These are need to reduce other wise increase liquidity of
the company. It is increasing in much more way that is 13082 in 2018 on the other hand it
is 5572 in 2017.
 Employee salaries and benefits – The particular account related to employee salaries
where time to time need to increase salaries to those employees who can work in
effective manner. They are helping to increase productivity of employees and they are
working in effective manner. But some time it shows negative effect so who can not get
future opportunities they can reduce their work and it can affect to profit of the company.
Konekt limited identified their costs of employees so getting that it will be increase by
12% so it is $57903 in 2018 compare to 2017 ($34581).
 Provisions – These are preparing by company to reduce risk which can come in future
period of time. These provision can affect to company image if they are not aware for
risk assessment so it is very important part of any organisation. There has been analysed
that it has been increase in 2018, 1773 and it is 136 in 2017.
(c) Set planning Materiality
As per the ASA 320.0 describe material information to be one that if misstated or
omitted, individually of in collective could impact the economic decision of financial reports
users. The concept of materiality has been applied on the performance and planing about audit
which enables to analysis of misstatement. There are discussing about the overall materiality
which belongs to same standard and it is materiality for financial report as a whole and provides
suitable assurance that the financial report is free from material misstatements. The judgement
based on overall materiality, factoring in both quantitative considerations and qualitative
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threshold to guide the scope of audit, nature, timing and extent of audit procedures (Di Castro
and et.al., 2016).
Overall Materiality $9,380,500
How It's evaluation 3% of the group's total revenue for FY ended 30 June 2017
($538,400,000)
Rationale for materiality
benchmark
The particular entity based on the profit and basis depend on
the profit before tax, total revenue and gross profit may be
relative bases. However, ASA 315.A5 also suggests that if
company's profit before tax swing then total revenues will be
a more relevant base of the case in Konekt Limited with
recent year volatile profit before tax. A threshold can accept
about 3% is within the industry's acceptable benchmark range.
It is very crucial for any of the auditor to prepare any of the report only once the accurate
data and reports are submitted to him. If this file are not given then chances of obtaining accurate
result is very less. In context of Konekt limited, their audit had got all the relevant documents
which are required for preparing the annual audit report. As appropriate report were presented so
the results were also in favour of auditor because it didn't took their additional time preparing the
report and even file which is prepared is true and fair and their were no contravention of any of
the application code.
The consolidated statement shows that the total assets of Konekt in June 2018 is
$74,110,000 which was almost three time greater then previous year. When it comes to total
liability it was about $44258000 which was also around four times higher then 2017. It shows
that company has lots of progress in the market and because of that they were able to perform
well in the market. Even it shows that they have increase the number of customer which is
willing to connect and do business with Konekt Limited. The amount which is present in the
reserve and surplus is $ 3040000 which as total equity is $29852000 which has also increase in
year 2018 (Gustavson and Sundström, 2018).
Here, each and every reports were based as per the accounting standard which is set by
corporation act 2001. The reports which were prepared were based on including all relevant
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accounting documents of it's subsidiary company. Even company have deposited all the tax
amount which must be given as per the guidelines of Goods and service tax (GST). The divided
which is paid the Konekt Limited in year 2018 is $547,000 which is 1.5 times more then of
prevision year which shows that company is progressing days by day and even it is able to
delivery its best in the market which it is willing to do since very longer period of time. The
total amount of expenses which was done on income tax is $689000 which is almost half of year
2017. When it comes to total deferred tax asset, it is $ 11461000 where as total deferred tax
liability is $2311000. Thus, it can be said that company has shown the upward moment in recent
period of time due to which profit has also increased.
(d) Audit Risk Assessment
Audit Risk Assessment, as the name suggests, is a procedure carried out by auditors or
investigators in order to measure the efficiency by taking into account the risks of material
misstatement. These procedures help in evaluating the key accounts in which the possibility of
material misstatement either exists or is present. Hence, conducting of an Audit Risk Assessment
is of paramount importance for any business organisation including Konekt. As per the
guidelines provided by the ASA 330, an auditor is required to gather adequate evidence by way
of designing and implementing responses to the material risks identified and assessed by such
parties. It is to be noted that such a task is to be undertaken by the auditor in accordance with
ASA 315 which enlists the steps required to be followed in order to identify and asses risks
related to material misstatement (Kadous, Nolder and Peecher, 2017).
Auditing Standard ASA 330 states that a substantive procedure is designed in order to
detect such misstatements at the assertion level itself. Such a procedures comprises tests of
details as well as their analysis. Here, the test of details includes the classes of financial
transactions carried out by Konekt along with account balances and disclosures. Apart from this,
a test of control is also conducted so as to evaluate the operating effectiveness of controls that are
implemented by Konekt to prevent, detect or correct such misstatements at assertion level. In the
context of given case scenario, the five significant accounts that can gravely impact the
financials of Konekt due to material misstatement are as follows:
 Work-in-Progress: The Work-in-Progress is an important part of the Balance Sheet as
they include partially finished products present at various stages of completion that are
carried forward to the next financial period. A rule of thumb associated with this account
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is that higher the amount of raw materials, labour and invested, the more would be the
value of Work-in-Progress. One of the practices undertaken by managers is to inflate the
prices of this account that results in the depiction of an healthier image of the
organisation. Thus, if WIP is inflated from $298,000 to $350,000 would result in
overstatement of closing stock in company's Balance Sheet and an understatement of
Cost of Sales incurred during the current financial period
(<https://www.sdmayer.com/insights/blogs/audit/work-in-progress/>).
 Trade and Other Receivables: Another crucial account of Konekt is Trade Receivables.
For the period of 2017 to 2018, the Account Receivables stand at $9,818,000 which has
increased from $9,001,000 of previous financial period. As can be seen, these account
form a substantive part of Konekt's Balance Sheet. One of the major risk associated with
this account is its existence itself. As they are an aggregated value of smaller debtor
accounts, non-confirmatory obligations can give rise to suspicions. Thus, leading to an
in-depth investigation of Konekt's Accounts .
 Trade and Other Payables: Konekt'd Trade Payables, for the period of 2017 to 2018,
the Account Receivables stand at $13,082,000 which has increased from $5,572,000 of
previous financial period. As can be seen, these accounts also form a substantive part of
Konekt's Balance Sheet. One of the major risk associated with this account is its
existence itself (Lee and et.al., 2016). As they are an aggregated value of smaller creditor
accounts, non-confirmatory obligations can give rise to suspicions. Thus, leading to an
in-depth investigation of Konekt's Accounts .
 Employee Salaries and Benefits: This account is mainly impacted by how accurately
company is able to pay the due wages to their workforce. Interim Audit helps in
recognising the important indicators which ensure that the salaries will be paid on time to
the staff. Hence, an interim audit involves the monthly comparison of actual and
budgeted payroll costs. If there is a deviation between the two which cannot be justified
such as creation of fictitious employees on the payroll, it may result in material
misstatement (Employee Salaries and Benefits, 2019).
 Provisions: The value recorded for Provisions Account by Konekt stands at $472,000 for
the FY 2017-18. It is worthy to note that such an account did not exist previously for the
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business. Any inflation or creation of unnecessary provisions for the purpose of tax
evasion can result in material misstatement (Power and Gendron, 2015).
CONCLUSION
As per the above report it has been concluded that professional auditing important part of
any organisation to know their performance. It can help to analysis their assets and liabilities
value in front of their shareholders as well as investors.
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