Audit Strategies and Planning Memorandum for ABC Learning - BAP41

This report presents an Audit Strategies and Planning Memorandum (ASPM) for ABC Learning, an early childhood education provider. The memorandum outlines the audit process, including an executive summary, company overview, and development analysis. It delves into analytical review procedures, such as trend analysis, common size analysis, DuPont analysis, and Beneish M-Score, to assess the company's financial performance and identify potential risks. The report covers audit scope and approach, audit planning processes, control environment assessment, IT general controls assessment, fraud responsibilities, and internal audit procedures. The report also addresses materiality, risk assessment, audit engagement, and reporting, concluding with an overview of the audit team and fees. The report concludes with the analysis of various trends and the importance of financial statement audits for stakeholders. The report provides a detailed overview of ABC Learning's financial statements and internal controls, providing insights into the company's performance and potential risks.

Running head: Audit Strategies and Planning Memorandum
Audit Strategies and Planning Memorandum
Name of the Student
Name of the University
Author Note

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Audit Strategies and Planning Memorandum
Executive Summary
The report deals with audit of the financial statement, it help the users to know how and why
an audit is done. It takes all the aspects which are required in the process of audit. The
report deals with the company name ABC Learning and show the auditor different audit
perspective related to the company. It show how the auditor should check the financial
books of the company and how it should treat the material misstatement in the financial
statement. Lastly the report concludes different trend of ABC Learning such as trend
analysis, common size, dupont analysis and Beneish M-Score model. It help the company to
know different trends of the company.

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Audit Strategies and Planning Memorandum
Table of Contents
Introduction............................................................................................................................ 3
Discussion.............................................................................................................................. 3
Overview of the company...................................................................................................3
Company Developments....................................................................................................3
Overall Analytical Review...................................................................................................4
Audit scope and Approach.................................................................................................6
Audit Planning Process...................................................................................................6
Scope of Work.................................................................................................................6
Control Environment Assessment...................................................................................6
IT General Controls Assessment.....................................................................................7
Responsibilities Related to Fraud....................................................................................7
Internal audit................................................................................................................... 7
Confirmation of Independence........................................................................................8
Materiality........................................................................................................................... 8
Risk Assessment and Areas of Audit Focus.......................................................................8
Audit Engagement and Reporting.......................................................................................9
Outline of Fees................................................................................................................... 9
Team of audit..................................................................................................................... 9
Conclusion........................................................................................................................... 10
REFRENCES....................................................................................................................... 11
Appendix.............................................................................................................................. 13

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Audit Strategies and Planning Memorandum
Introduction
Audit is the systematic examination or inception of the books of accounts, statutory
books and other important document related to the financial statement of the company. It is
done to know whether the company financial statements are showing the real value of asset
and liabilities (MINUTTI‐MEZA 2013). As financial statements is a base from which financial
user decide whether to do business with the company or not, so the financial statement
should be true and no material misstatements should be there in the books.
Audit is done by a professional who is termed as auditor. Auditor is the one who
perform the audit procedure in the company and comment whether the company is showing
true and fair view or not. It is done by many methods which the auditor think reasonable for
the company, the audit procedure is depend upon the company and each company audit is
done by different methods (Griffith 2015). Auditor can be of two type internal auditor and
external auditor, internal auditor are the one who are the employee of the company and they
do audit of the internal control and internal system of the company where as external auditor
are the outsider of the company who do audit of financial books of the firm.
Discussion
Overview of the company
The report is based on the company named ABC Learning. ABC Learning was one of
the largest early childhood education provider in Australia. It was founded in 1988 in
Ashgrove. It was a child care chains which was providing education to children. The purpose
of the company was to provide education from six weeks up to pre-school age. In some
centre they also provide before school, after school and vacation care services. It also own a
training centre which trained it child care staff.

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Audit Strategies and Planning Memorandum
Company Developments
The development of the ABC Learning was on a huge scale as after the company got
listed in Australian Stock Exchange, it then take over Kids Campus in March 2006 and then
it got merge with Peppercorn Management Group which also help them to grow their
centres. It keep on increasing with years and as a result of it in 2006 the company had
almost 70000 child care centres. The profit of the ABC Learning was been rising from 2001
onwards as they were increasing their services and also keeping the quality of service
maintain so they were earning more profit and name year by year.
Overall Analytical Review
The analysis of the company has been done using four method. The four methods
which are used for the ABC Learning analytical review are:
Trend Analysis- It is the technique of analysing of the financial books of the
company, it help the company to know how they are performing in regard with the industry.
In the given case trend analysis has been done of both Income statement and
balance sheet of the company as per the balance sheet of the company is concern it can be
seen from the total current asset trend that the company has a increasing trend which
means company is investing more in the current asset and as result of this the working cycle
of the company is moving fast and the risk involve in it is company may have some ideal
cash which is not been proper utilized by the company. The total non-current asset of the
company was rising in the beginning year but than it got decreasing from 2004 onwards so it
can be said the company were have much idle non-current asset in beginning but they have
manage to utilize it from 2004 as the non-current asset were decreasing from than onwards.
The liability side of the company is keep on increasing from year to year so this signify it that
the company had got increase in liability it means company is increasing their debt, the risk
involve in it company can go for insolvency if they unable to meet the debt requirement of
the company.

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Audit Strategies and Planning Memorandum
Dupont Analysis- It is the technique in which the company analysis return on equity
on the basic of asset turnover, financial leverage and Net Profit Margin.
In the given case it can be seen from the analysis that dupont were increasing than
its decrease and again it increase on the last year so it signify that the company is able to
increase their return on equity in the coming years, it can help the shareholder to get more
return from the company.
Common Size Analysis- It is the analysis of the company financial data on one on
one basic. It is done so that the company can know how they are performing in years to
years. It is done of both balance sheet and income statement of the company.
In the given case the common size analysis of balance sheets say that the total
current asset is decreasing day by day it signify that the company is able to do fuller
utilization of its resources, the non-current asset of the company show that the company
asset are not much decrease nor increase it were neutral so that company is using their
asset in a proper way and no under or over use of asset is taking place. The liability side of
the company say that it have a decreasing year by year so it means the company is able
meet its debt requirement and no need of increasing liabilities is required. It is good symbol
as company have a good position regarding its liability.
As per the Income statement is consider the net profit compare to its revenue was
increasing in first 4 years but then it kept on decreasing so this justify that the company is
not able to get more profit and is lacking behind its competitors so they should do some
changes which can help them in increasing the profit of the company.
Beneish M-Score Model – It is a statistical model which calculate the high
profitability of the company with the help of financial ratio which are calculated with the help
of accounting data of the company. If the company score below -2.22 is not manipulating
there accounts but if it goes above that than the company is manipulating their accounts.

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Audit Strategies and Planning Memorandum
In the given case the Beneish M-Score model of the company is -3.24 so it shows
that the company is doing high level of manipulation so It say that the company accounts are
not properly maintained and the company is doing fraud and material misstatement is very
huge in the company financial accounts
Audit scope and Approach
Audit scope refers to the time which the auditor will invest in doing the audit. The
scope tell how deeply the audit procedure has been done, it depend upon the type of audit
which is going to take place in the organization (Endaya and Hanefah 2013). The audit is in
normal course than the scope will be less and if fraud and all than the scope had will be
more
Audit approach is the process from which the audit is been carried out (Johnstone,
Gramling and Rittenberg 2013). It is a risk analysis of the ABC Learning and the auditor see
what are the material things it have to see in the organization and for that a process or
approach is carried out.
Audit Planning Process
It is the first step in audit procedure, in this the auditor plan how the audit will be
done. It is done to ensure that all the important aspects will be covered, it help to identify all
the important aspects which are required to be address while doing audit (King 2014). It
include to know about the company ABC Learning and the business which they are dealing
in and also the material facts which should be seen while doing the audit
Scope of Work
As per the ABC Learning the scope will be decided, the audit was of normal business
so the scope will also be normal, the scope will be the auditor will check all the financial
books which the company has and should verify each amount which company gives to the
auditor (Henczel 2013). It will also the financial statement of previous year to ensure that all
the values have been carried forward properly.

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Audit Strategies and Planning Memorandum
Control Environment Assessment
It is system which help to know the internal control of the ABC Learning. It focus
upon the how the internal control has been managed in the organization. The auditor must
check what are the risk assessment procedure which the company follow (De Simone, Ege
and Stomberg 2014). If the company does not give emphasis on its internal control than the
auditor have to give more emphasis on internal control side as there will be huge number of
errors and if company internal control is not good than they will not able to earn their
financial objective.
IT General Controls Assessment
Under this the auditor will check the IT department of the ABC Learning. It will check
how the company keeps their records in the computer, which kinds of software are using in
the company and how the backup of the information is been carried by the company (Chui
and Pike 2013). It make ensure about the system of the company and also see how the
company deal and no misuse of the system is been done. The auditor will check whether the
company is using latest technology and the system which are generally used in the industry
are being used or not and how they have trained their staff regarding the usage of the
system.
Responsibilities Related to Fraud
The primary responsibility of fraud lies with the management of the ABC Learning.
The auditor will check that the financial statement are true and fair or not (Chong 2013). The
auditor is only responsible to check that there is no material misstatement in the financial
statement and to ensure that it should do all the possible ways to see the matter and even
the audit is done in best way still there are some material misstatement which cannot be
concluded by the auditor (Chou 2015). If the auditor get any things related to the fraud than
it should first go in deep and check. If it found something than should talk with the
management related to it and if the management is unable to justify it than it should be
reported in the financial statement.

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Audit Strategies and Planning Memorandum
Internal audit
Under internal audit the auditor check the internal control of the ABC Learning to do
these an auditor should have the knowledge of the company internal control system (Endaya
and Hanefah 2016). The auditor will check how the company manages their risk and what
are the steps the company takes to identify and minimize the risk. The auditor stays with the
management as it is the audit of the work which the management does and how they control
it.
Confirmation of Independence
The auditor should give a letter of independence before starting the audit of the ABC
Learning. It is because the auditor should give an independent view on the financial
statement and should not be affected by the decision of the company (Tepalagul and Lin
2015). Auditor is the one who approves that the financial statement of the company is free
from any error or fraud so if the decision is being influence by the management than it will be
fraud to the users of the financial statement (Fiolleau et al. 2013). The auditor should do his
work with professional behaviour and should have a proper gap with the management and
all others principle should be followed by the auditor while doing the audit. The auditor
should asses the financial books as per it judgement and not by the management so its
decision should not be manipulated by the management decision.
Materiality
Materiality is the matters which the management have omitted to record in the
financial report it can be quantitative as well as qualitative. The auditor will check both
materiality information of the ABC Learning (Nofantika and Sukirman 2016). In quantitative
the auditor will see whether all the details have been properly recorded and it will see them
in amounts terms as leaving small amount in huge can also make a materiality effect on the
business. In qualitative the auditor will check proper disclosures are there or not in the
financial statement and how the disclosures have been adjusted in the financial statement.

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Audit Strategies and Planning Memorandum
Risk Assessment and Areas of Audit Focus
The auditor will check all the financial books of the ABC Learning and assess
whether the value is correct or not (CoP 2014). The auditor will focus upon the investment
whether the investment are done in correct place and the return are as per the industry
norms or not. It will check whether there are any material misstatement or not and also it will
check details regarding the fraud in the company and do proper analysis regarding it.
Audit Engagement and Reporting
It is the services which auditor and ABC Learning engage before starting the audit
service. It is a letter which is signed by both parties which include what are the services and
requirement of the auditor. It include the scope of audit, objective of audit and what will be
the responsibility of auditor regarding the financial statements (Appelbaum,Kogan and
Vasarhelyi 2017). It also includes the audit fees and payment term which the auditor will get
after completing its service of audit.
Auditor should report the financial statement after completing its audit services if the
financial statement are true and fair than auditor will report it as un-qualified or clear report
and if it found some material misstatement than the auditor will be qualified report to the
ABC Learning (Cordoş and Fülöp 2015).
Outline of Fees
The fees is been decided by the auditor and client. The audit fees which the ABC
learning pay to the auditor in the year 2001 was $132299 which included services of the
auditor like auditing of the financial statement, prospectus assignment and share registry but
in 2002 the auditor were pay as $88837 which include the services auditing of the financial
statement and share registry so it can be seen that auditor can get different payment in
different year as per the services provided by them. So there is no fixed amount is there for
the payment of the auditor of the company.

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Audit Strategies and Planning Memorandum
Team of audit
The auditor of the company was Pitcher Partners. The auditor company is also based
in Australia. They did the audit of the company ABC Learning and seen their financial
statement whether they were showing true and fair view or not. The auditor were responsible
to judge the financial statement of the company.
`

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Audit Strategies and Planning Memorandum
Conclusion
It has been concluded in the above report about the audit of the financial statement.
An audit is the process of analysing financial books of the company , as financial statement
are the base from which financial user takes decision regarding doing business with
company or not. So an financial statement should be from any error or fraud so to see
whether the financial statement are free from all material misstatement audit is done of the
company. The audit is done by the person termed as auditor. It is the one who do audit of
company.
The above report has been made upon the company name ABC Learning which was
one of the largest early childhood education provider in Australia. The report deal how the
audit of ABC Learning should be carry by the auditor. It show various process of audit, what
were the scope of audit, what are the responsibility the auditor have with the financial
statement. It gives a brief of all the audit process in the company also there are many
analysis of the company which are done to know about the company. The analysis are as
follows trend analysis, common size analysis, Dupont analysis and Beneish M-Score
analysis. It is the auditor which show different position of the company with the help of above
analysis. The beneish score of the company is more so it clearly justify that the company is
manipulating their accounts and material misstatement is present in the financial statement
of the company.

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Audit Strategies and Planning Memorandum
REFRENCES
Appelbaum, D., Kogan, A. and Vasarhelyi, M.A., 2017. Big data and analytics in the modern
audit engagement: Research needs. Auditing: A Journal of Practice & Theory, 36(4), pp.1-
27.
Chong, G., 2013. Detecting Fraud: What Are Auditors' Responsibilities?. Journal of
Corporate Accounting & Finance, 24(2), pp.47-53.
Chou, D.C., 2015. Cloud computing risk and audit issues. Computer Standards &
Interfaces, 42, pp.137-142.
Chui, L. and Pike, B., 2013. Auditors' responsibility for fraud detection: New wine in old
bottles?. Journal of Forensic and Investigative Accounting.
CoP, I.A., 2014. Risk Assesment in Audit Planning, A guide for auditors on how best to
asses risk when planning audit work. Internal Audit Community of Practicess.
Cordoş, G.S. and Fülöp, M.T., 2015. Understanding audit reporting changes: introduction of
Key Audit Matters. Accounting & Management Information Systems/Contabilitate si
Informatica de Gestiune, 14(1).
De Simone, L., Ege, M.S. and Stomberg, B., 2014. Internal control quality: The role of
auditor-provided tax services. The Accounting Review, 90(4), pp.1469-1496.
Endaya, K.A. and Hanefah, M.M., 2013. Internal audit effectiveness: An approach
proposition to develop the theoretical framework. Research Journal of Finance and
Accounting, 4(10), pp.92-102.
Endaya, K.A. and Hanefah, M.M., 2016. Internal auditor characteristics, internal audit
effectiveness, and moderating effect of senior management. Journal of Economic and
Administrative Sciences, 32(2), pp.160-176.

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Fiolleau, K., Hoang, K., Jamal, K. and Sunder, S., 2013. How do regulatory reforms to
enhance auditor independence work in practice?. Contemporary Accounting
Research, 30(3), pp.864-890.
Griffith, E.E., Hammersley, J.S., Kadous, K. and Young, D., 2015. Auditor mindsets and
audits of complex estimates. Journal of Accounting Research, 53(1), pp.49-77.
Henczel, S., 2013. The information audit: A practical guide. Walter de Gruyter.
Johnstone, K., Gramling, A. and Rittenberg, L.E., 2013. Auditing: a risk-based approach to
conducting a quality audit. Cengage learning.
King, N., Oracle International Corp, 2014. Audit planning. U.S. Patent 8,712,813.
MINUTTI‐MEZA, M.I.G.U.E.L., 2013. Does auditor industry specialization improve audit
quality?. Journal of Accounting Research, 51(4), pp.779-817.
Nofantika, M. and Sukirman, S., 2016. The Effect of Professionalism, Knowledge Detect
Errors and Auditor’s Experience to Judgment of Materiality Level of Financial Statements
Audit. Accounting Analysis Journal, 5(4), pp.282-289.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.

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Appendix

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TABLE NO 1 – Trend Analysis of ABC Learning Balance Sheet
Source – Annual reports of the company

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Audit Strategies and Planning Memorandum
TABLE NO 2 – Trend Analysis of ABC Learning Income Statement
SOURCE- Annual reports of the company
TABLE NO 3 – Dupont Analysis of ABC Learning
SOURCE- Annual Report of the company

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TABLE NO 4 – Common analysis of ABC Learning Balance sheet
Source – Audit report of the company
TABLE NO 5 – Common analysis of Income Statement of ABC Learning
SOURCE – Annual reports of the company

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TABLE NO 6 – Beneish M-Score Model
SOURCE- Annual reports of the company