ACC707 Auditing and Assurance: ABC Learning Centre Case Study Report

This report provides a comprehensive analysis of the auditing and assurance failures of ABC Learning Centre, focusing on the application of ASA701 Communicating Key Audit Matters. It examines the background of ABC Learning Centre, its rapid growth, and the subsequent factors leading to its insolvency, including rising competition, unreported financial discrepancies, and personal use of company funds. The report highlights key audit matters that should have been reported in the auditor's report, such as impairment of loans, goodwill, and the impact of new government policies. It explores the usefulness of ASA701 in addressing these issues and emphasizes the importance of robust auditing and assurance services in maintaining stakeholder trust and preventing financial misconduct. The report concludes by underscoring the significance of ethical practices and effective internal controls in ensuring the financial stability and integrity of organizations.

AUDITING, ASSURANCE & SERVICES ACC707
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Contents
Introduction................................................................................................................................3
Introduction of New Auditing standard: ASA701 Communicating Key Audit Matters............4
Background of ABC Learning Centre........................................................................................6
Key Audit Matters that shall be reported in the Auditors report of ABC Learning Centre.......7
Rise in Competition................................................................................................................7
Financial Discrepancies not reported to Management...........................................................8
Personal usage of company`s fund not reported...................................................................10
New Government Policies that impacted Going Concern Concept.....................................11
Usefulness of ASA701.............................................................................................................12
Conclusion................................................................................................................................13
References................................................................................................................................14
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Introduction
Auditing and assurance services are regarded as one of the important services, as with the
help of these services the stakeholders of every business organization can trust on business
organization. In this report of audit and assurance, an auditor is appointed by the organization
to verify and check the accounts books of the organization. In addition to this, the job of an
auditor is to represent the audit report to stakeholder and to the management of the
organization, with the help of audit report the analysis can be done such as key findings
during the audit, the opinion of the auditor, key audit matters and other important
information. Shareholder and the investors of the organisation depend on the audit report
while making the decision regarding further investments.
Besides this discussion is done on the findings presented in the auditing report, which leads to
the insolvency of the center. In this report, the discussion is done on the ASA701
Communicating Key Audit Matters. Besides this report, an analysis is being done on failure
or insolvency of ABC Learning center.
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Introduction of New Auditing standard: ASA701 Communicating Key Audit Matters
In this report it has been noticed that there are several issues has been faced by the big
Australian companies in the recent past as a result of this is failure or insolvency. In this
failure there is a big company that has been fallen down and it concluded as execute like
ABC Learning Centre, HIH Insurance, One Tel Phone Company, etc. there is the another
reason for fallen down of these companies i.e. internal irregularities in business, financial
issue is an another reason and the big reason is loop holes in audit and assurance services
(Johnstone & Gramling, 2015). Due to this Australian auditing standard board has taken the
few steps for alternation so that loopholes can be blocked in existing auditing standard. By
this changes the new auditing standards ASA701 Communicating Key Audit Matters is
introduced. Key Audit matters term defines the important matters which are recognized by
the auditors from their high experience and with the way of judgment method. In addition,
this these are the most important matters in which auditors have to pay more attention to this
matters while performing the audit procedure (Knechel & Salterio, 2016). Some of the
procedure have to follow for the results related to audit matters of the business organization:
Important to identify the risk by using the method of ASA 315 this method is used in those
aspects or areas where the risks have been taken by the higher level of management of
organization.
Important areas and factors where the management decision is required and also the
accounting method is required for the Key audit matter (Knechel & Salterio, 2016). The
matters where is involvement of auditors judgment is necessary is known as key audit
matters.
As a result of this audit standard board has issued new auditing standards control and to get
the real face of the company in the market. In addition to this, the confidence of the
shareholder and the investors were at risk of the business and the government has given the
order to protect and provide simplicity in the market. The government has introduced the new
audit act ASA 701 (Obana, 2015). The main work of AUASB is to introduce the new act and
raise the standard of auditing show that people can take the interest and focus on the business
and can produce the high-quality business. With the help of ASA701 has eased the
requirements and also help in providing the material and the applications for communicating
on this key audit matters that can be used further in independent audit reports. The important
factors of ASA701 are given below:
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 The ASA107 has made it compulsory that the statement of key audit matters has to be
involved in the auditor’s report of the audit has been done.
 The ASA 107 has given the authority to auditors to include the key audit matter of
other entries in the audit book or not (Spencer , 2011).
 To find out the missed key audit matters and send message to auditor to maintain an
accounts book in the audit report
 The ASA107 helps the auditors to mention the documentation required for the
auditing and also helps in introducing the individual key audit matter.
 The ASA107 explain act in details and also explain the key audit matters for the
auditing purpose.
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Background of ABC Learning Centre
In this report of 1988, Australia has introduced the new concept of taking the care of
preschool kids and also provide the proper training to the kids and old people this concept is
introduced on a higher level by the ABC learning center. This concept is new and increasing
rapidly and can become the largest learning center in Australia. In coming five years ABC
Learning Centres climb to 800 learning center all over Australia and sharing the 20%share of
the child care centers in the country. The progress of the center has increased and well
noticeable in the stock market. The price of the share of child care has increased up to 300%
in the period of five years of working. According to report 50 million of profit is earned by
ABC Learning Centres.
In this report, it is an important to point that the growth of any company can easily rise but to
maintain is at the top is very difficult as a result of this ABC Learning Centres has involved
in the frauds activities. Due to this reason company face the downfall and there is many other
reasons of falling down and most important reason is irregularities in audit and assurance
services. Falling down of ABC Learning Centres shows their weak audit and assurance and
auditing standards are cannot maintain by the company due to this they are not enabled to
find out the frauds and cannot control the frauds activates.
There are a number of reasons which can be regarded as the cause of the collapse of ABC
Learning, as making a huge profit was being considered as the objective of the center and the
considerations for the interest of the public was being ignored. Some of the reasons behind
collapse of the ABC Learning center are-
1. Higher fee was charged by the center and rebate on tax was availed for providing
child education.
2. Weak management system and inefficient internal control
3. Low salary to employees of the center.
4. ASX also banned the center due to misconduct.
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Key Audit Matters that shall be reported in the Auditors report of ABC Learning Centre
In this report of ABC Learning Centres fall down of centers is because of the various failure
of the auditing and assurance services. These issues can be controlled if the auditor works
without doing any fraud activities. Due to this reasons, the picture of ABC Learning Centres
is falling down.
Impairment of loans and advances to the customers: It is considered as a key matter that
shall be reported in the auditor`s report. As subjective and complex judgements were being
made by the directors of the ABC Centre over both estimation as well as timing of
recognition of such impairment.
Goodwill- As per the IFRS, ABC Centre was required to test the goodwill`s amount in
annual basis for impairment.
Rise in Competition
In this report, it has been explaining that the success of one sector support in the success of
another sector. In this, due to this the expense of the day care centers is increased day by day
and the rest of the day care centers is also increased every year (Oringel , 2012). Due to this,
there is an increment in the company cost. As a result of this parent of children who are not
capable of paying the fee of the center, they have to bring the proof from the government and
the result of this centers have to teach them free of cost. Therefore the no of students
increased and the ratio of staff is less than student and quality of work is fallen down by the
centers. As a result of this, many companies in the market became a computer for the ABC
learning center ( Rachchh, et al., 2015). In addition to this small centers are providing the
more profit to their staff in comparison to big company centers. The government is also
introducing the new policy day to day for supporting the care center and due to this new
centers are rise every day.
The auditor has to pay the more attention to this matters because this matter is very crucial. In
this case study, it has been examining that due to higher competition in market management
is not capable of managing the company. ASA 701 is introduced early then the auditor has to
give the full information related to audit to the audit report.
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Financial Discrepancies not reported to Management
The biggest reason of downfall of the company is not the higher competition the reason is
that the misconduct is done by the financial management in the company is purchase of more
assets. The company also did the fraud activates by providing the fake financial information.
The result of this increase the share value in the market (Spencer , 2011). In 2008 there is
distress due to this many issues of misconduct by the companies in their financial records
have been found and the government is not paying the attention that time. As a result of this
ABC Learning Centre assets are shown on the balance sheet, 82% of intangible assets were
not covered by the linked so the government has to consider the issues. The result of this
company has to pay the higher price for linked obtain (Whittington, 2012). As a result of this,
the misconduct done by ABC Learning Centre is come out in the market as result of this
economy of the company has been crushed. So that management of the company has
understood the value of intangible assets.
In this case study report if new auditing standard were introduced early then the whole
business operations of the company and financial system have been growing up.
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Personal usage of company`s fund not reported
The stakeholder of the company such as investor lost their confidence on ABC Learning
Centre. As the company`s director used the funds for some personal use such as self-
enrichment and lending money to the relatives. The payment made to the companies that
were owned by relatives of directors was being listed. ABC Learning Centre`s shares were
majorly owned by the booking company in comparison to company`s director i.e. Mr.
Grooves (Vona, 2012). A payment of $74 was being made to the firm i.e. Queensland whose
owner was the brother-in –law of ABC company`s director. One of the other matter related to
the personal use of fund was that the basketball team owned by the company`s director was
being sponsored through company`s fund. In contrast to this, the company repudiated for
such expenses ( Hoelzer, 2011). Usage of company`s fund shall not be done for the personal
use as this can affect the firm`s reputation and confidence of investors as they may not prefer
to invest in a company who is indulged in such practices.
Hence, the personal use of company`s fund is also one of the other reason that contributed to
company`s liquidation. The auditor as well not reported such practices carried out within the
company, as in the case, all these matters were reported in the auditor`s report then the
company may get saved from liquidation ( Fernando, 2012). It is requisite to comply the
auditing standard i.e. Key Audit Matters so that such practices could be detected and reported
in the audit report.
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New Government Policies that impacted Going Concern Concept
Financial support is used to be provided to the centers related to the child care. Alterations in
the government policies have been made because of the upsurge in a number of child care
centers. As one of the modifications in policy was related with drawing out financial support
to child care centers. Private companies took advantage of this policy and opened child care
centers (Gramling, et al., 2012). As a result, the competition in this sector has increased and
the quality of services decreased. Not only the child care centers were opened but also the
family care centers were opened by the private companies. The fee was determined by the
income. In addition to this, the fees were associated to the rebate on tax, however, it made an
adverse effect. As more fee tends to less tax benefit. It resulted as less concern of parents in
these child care centers (Oringel , 2012). An enormous amount was spent by the centers in
investigating the financial background of parents. Such activity escalated the center`s cost
and slowly but surely augmented loss on the balance sheet.
ABC Learning Centre`s going concern concept was also influenced by the policies regulated
by the government. Expenses of the center had increased and this resulted in less profit and
befallen quality services.
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Usefulness of ASA701
The breakdown of a child care or the biggest learning center led to the commencement of a
new auditing standard. In context to the auditing, ASA 701 is very useful and essential and
this standard has wide scope in auditing. This standard has also made the auditing
transparent. The requisite information shall be gathered to produce preeminent outcomes
from the auditing standard i.e. ASA 701.
To find the key audit matters
An auditor must have the capability to assess the key matters of audit as of several matters,
such as- matters which requires auditor`s special attention; as well as the matters which have
been charged by the government (Obana, 2015). However, a number of aspects shall be
considered in course of determining the key matters of the audit, some of such aspects are
discussed below:
a. Auditing standards shall comply while identifying the areas that are related to the utmost
risk of material misstatement. In context to ABC learning Centre misdeeds related to
financial aspects was there; such misdeeds could be stated in independent auditors report
( Moeller, 2016). Such consequence of ASA 701 is able to disseminate real financial
situation.
b. It is essential to account the consequence of every single transaction on the process of audit
comprehensively at the time when the event has occurred. As per ASA 701, management`s
act or transactions shall be stated in the report of audit and this information can be evaluated
by stakeholders.
c. In the financial report, the significant matters and auditor`s judgment shall be revealed.
Auditing standard`s scope has vast and wide aspects (Gramling, et al., 2012). ABC Learning
Centre’s breakdown has improved the audit standard`s scope in context to reporting key audit
matters in the independent auditor`s report so that stakeholders and management shall
evaluate the financial information properly.
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Conclusion
The whole report concludes that in the independent auditor`s report, the key audit matters are
important to be stated. The auditing process which was not carried out in an effective manner
led to the liquidation of several big companies in Australia; as the audit report was created by
not following the audit standards. The issues related to the financial reporting and auditing
report gave rise to the liquidation of the business. In case the new auditing standard had
compiled during the auditing of ABC Learning Centre, then this could play a crucial role.
Several occasions were there in context to ABC Learning Centre, which instigates to starting
key audit matters in the audit report. In the auditor`s report, issues related with Going concern
shall be reported as it might save the failure of the business.
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