Risk Assessment Report: Altium Limited Financial Statement Audit

This report, prepared by a senior auditor at EA Partners, assesses the audit risks associated with Altium Limited's financial statements for the year 2018. It begins with a profile of Altium Limited, an Australian-American software company, and then outlines the audit planning process, including compliance with ASA 300 and ASA 315. The report delves into inherent, control, and detection risks by analyzing Altium Limited's income statement and balance sheet data from 2015 to 2018, conducting analytical reviews, and performing ratio analysis to evaluate profitability, liquidity, and efficiency. It considers the nature of the business, the beta value of the IT industry, and previous audit reports. The report concludes with recommendations for substantive procedures to address identified risks, emphasizing the importance of detailed investigation and analytical procedures to ensure the accuracy of financial statements. The assessment is crucial for effective audit execution, ensuring that potential material misstatements are identified and addressed.

Running head: AUDITING ASSURANCE SERVICES
Auditing Assurance Services
Name of the Student:
Name of the University:
Authors Note:

1
AUDITING ASSURANCE SERVICES
Executive summary:
The EA Partners, a firm of chartered accountants, has been appointed as the auditor of Altium
Limited to conduct the audit of its financial statements for the year 2018. As a preliminary step
to discharge the responsibilities as an auditor effectively it is essential to conduct through risk
assessment of the new client. Hence, the senior auditors of the firm have been assigned with the
task of risk assessment of the new client to identify inherent, control and detection risk in the
audit of financial statements of Altium Limited. A detailed discussion in this document on the
various aspects of financial statements of the company shall be made with the objective of
assessing the inherent, control and detection risk in the audit of financial statements of the
company.

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AUDITING ASSURANCE SERVICES
Contents
Executive summary:........................................................................................................................1
Profile of Altium Limited:...............................................................................................................3
Audit planning:................................................................................................................................3
Inheritance, detection and control risk factors in audit of Altium Limited:....................................4
Business of the company:..........................................................................................................11
Risk in relation to the nature of business:..................................................................................11
Analytical review and procedures:............................................................................................11
Ratio analysis and interpretation:..............................................................................................11
Profit margin and Return:......................................................................................................11
Liquidity position:.................................................................................................................13
Efficiency:..............................................................................................................................13
Beta value:.............................................................................................................................14
Analysis of previous audit reports:........................................................................................14
Conclusion and recommendation:.................................................................................................15
References:....................................................................................................................................16

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AUDITING ASSURANCE SERVICES
Profile of Altium Limited:
Altium Limited is an American-Australian software company known as Protel Limited until
2001. The company provides electronic design software for engineers used in computers. The
business operations of the company is stretched to different parts of Australia and America.
Established in 1985 by the Protel Systems Pty Ltd the company has come a long way since its
inception. A detailed and closure look at its financial statements over the years shall be helpful in
risk assessment of the company for the purpose of audit (Farrar, 2017).
Audit planning:
Auditing and Assurance Standards Board in Australia is an autonomous body of the Australian
government responsible to formulate and issue auditing and assurance standards to guide the
auditors in the country to discharge their responsibilities as auditors effectively. ASA 300 on
planning and performing an audit of financial report states the requirements to be followed by
the auditors in auditing the financial statements of companies. It is important to comply with the
guidelines provided in ASA 300 to properly discharge the responsibilities as an auditor. Planning
an audit in case of new client is much more detailed and braid as opposed to the planning of
audit of an existing client. The difference is mainly in risk assessment of the new client as the
auditor must conduct thorough risk assessment of a new client to unearth all possible areas of
risk in the audit of its financial statements (Glover, 2015).
In this case audit planning of Altium Limited include a thorough review of the affairs of the
company to understand the entity and its environment as per ASA 315. This will help the auditor
to have preliminary idea about the kind of transactions and nature of business of the company.
Subsequent to that a thorough review of its financial statements over the last few years or more

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shall further help the auditors to assess the possible areas of risk in financial reporting.
Conducting analytical review on the financial reports of the company will help the auditors in
identifying the areas that have shown abnormal variation. Accordingly, extent of substantive
procedures shall be designed by the auditor to deal with these areas during the audit of the
financial reports.
Inheritance, detection and control risk factors in audit of Altium Limited:
As discussed earlier that assessing the risk in audit of financial statements of Altium Limited
shall be started from review of financial statements of prior periods of the company before
reviewing the previous audit reports of the company to assess inherent, detection and control risk
in the audit.
Income statement of the company over the last few years:
INCOME STATEMENT OF ALTIUM LIMITED
All amounts are in AUD millions 2015-
06
2016-
06
2017-
06
2018-
06
Revenue 104
.00
126
.00
144.
00
188.
00
(A): Gross profit 104
.00
126
.00
144.
00
188.
00
Less: Operating expenses
Administrative and sales expenses 6 7 80 100.

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2.00 1.00 .00 00
Merger and restructuring expenses 3
.00
Other expenses 1
6.00
2
2.00
21
.00
36
.00
(B): Total operating expenses 7
7.00
9
3.00
103.
00
136.
00
Earnings before interest and tax (A-B) 2
7.00
3
3.00
41
.00
52
.00
Less: Interest Expense
- - - -
Other income (expense)
1.00 -
(3
.00)
2
.00
Earnings before tax 2
8.00
3
3.00
38
.00
54
.00
Less: Provision for taxation (92.
00) 2.00
2
.00
3
.00
Earnings after tax 120
.00
3
1.00
37
.00
51
.00
Earnings available to common shareholders 120 3 37 51

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.00 1.00 .00 .00
Earnings per share
Basic
0.97 0.24
0
.28
0
.39
The ordinary income statement of the company shows that the gross revenue and net income of
the company over the last few years have shown continuous growth. Analytical review on the
information provided in income statement shall be helpful in identifying the abnormal and
extraordinary fluctuations in financial and operating parameters to indicate possible area of
material misstatement in financial statements of the company. Thus, along with income
statement the statement of financial position of the company shall also be reviewed to conduct
analytical review properly (Guthrie, 2017).
BALANCE SHEET OF ALTIUM LIMITED
Amounts are in Aud millions 2015-
06
2016-
06
2017-
06
2018-
06
Assets
Current assets:
Cash 81
.00
51
.00
58
.00
71
.00
Accounts receivable 26 40 42 51

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AUDITING ASSURANCE SERVICES
.00 .00 .00 .00
Inventories in hand
-
Deferred income taxes (current)
-
1
.00 -
1
.00
Other current assets 3
.00
2
.00
4
.00
6
.00
Current assets in total 110.
00
94
.00
104.
00
129.
00
Non-current assets:
Property, plant and equipment 8
.00
10
.00
14
.00
11
.00
Less: Depreciation (3
.00)
(3
.00)
(5
.00)
(3
.00)
Net PPE 5
.00
7
.00
10
.00
8
.00
Goodwill 23
.00
25
.00
37
.00
Other Intangible assets 22 24 30

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AUDITING ASSURANCE SERVICES
.00 .00 .00
Deferred income taxes (non-current) 106.
00
111.
00
108.
00
111.
00
Long-term assets (others) 2
.00
7
.00
3
.00
2
.00
Total non-current assets 113.
00
170.
00
170.
00
187.
00
Total assets 223.
00
264.
00
274.
00
317.
00
Liabilities and equity
Liabilities
Current liabilities
Leases
- -
Accounts payable 1
.00
1
.00
4
.00
3
.00
Deferred income taxes (Current) 6
.00
4
.00
1
.00
1
.00
Revenue deferred 37 43 50 60

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.00 .00 .00 .00
Other current liabilities 10
.00
13
.00
19
.00
23
.00
Total current liabilities 54
.00
62
.00
74
.00
86
.00
Non-current liabilities
Leases (Capital)
- -
Deferred taxes liabilities (non-current) 6
.00
7
.00
8
.00
Revenue deferred 8
.00
12
.00
9
.00
8
.00
employee benefits
- - - -
Long-term liabilities (Others) 3
.00
8
.00
2
.00
8
.00
Total non-current liabilities 11
.00
27
.00
18
.00
24
.00
Liabilities in total 65 88 92 110.

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.00 .00 .00 00
Equity:
Equity share capital 159.
00
169.
00
163.
00
170.
00
Other Equity 10
.00
12
.00
15
.00
17
.00
Retained earnings (13.
00)
(6
.00)
3
.00
19
.00
Comprehensive income (Accumulated) 2
.00
2
.00
1
.00 -
Total equity 158.
00
176.
00
182.
00
207.
00
Total liabilities and stockholders' equity 223.
00
264.
00
274.
00
317.
00
Using the above data a detailed analytical; review shall be conducted to assess risk in audit of the
company.
Business of the company:
As discussed earlier that the company is involved in providing software designs in PCs for
engineers thus, it is an information technology based company.

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Risk in relation to the nature of business:
The associated risk in a business is mainly manifested from the nature of the business. The
auditor shall have a basic idea about the financial transactions and account balances from the
nature of a business of an organization. In case of Altium Limited, the risk associated with nature
of business manifested from its software designs for PCs to support the engineers. The financial
statements review along with analytical procedure shall enable the auditor to assess the risk in
the audit of the company.
Analytical review and procedures:
Analytical review process include conducting ratio analysis of the financial statements of the
company. Financial statements of the company over the last four years have already been
provided to conduct the analytical review process correctly (Wágner, 2018).
Ratio analysis and interpretation:
Profit margin and Return:
Profitability 2015-
06
2016-
06
2017-
06
2018-
06
Net Margin % 115.
19
24
.63
25
.34
26
.99
Asset Turnover (Average) 0
.74
0
.52
0
.54
0
.64
Return on Assets % 85
.71
12
.71
13
.56
17
.18