Auditing & Assurance: Financial Statement Analysis in Australia

This report provides an analysis of auditing and assurance in Australia, focusing on financial statement risks and audit opinions. It identifies key financial statement assertions at risk for a hypothetical company, Matrix, specifically concerning accounts receivable and goodwill, and discusses the valuation and allocation assertions, along with factors affecting the goodwill account. The report emphasizes the importance of quality control and inventory management to mitigate these risks. Furthermore, it addresses the appropriate audit opinion when a company's ability to continue as a going concern is uncertain, advocating for management to disclose material uncertainties in the financial statements and for auditors to assess the company's compliance with going concern criteria. Desklib offers similar solved assignments for students.

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and Assurance in Australia
Name of the Student:
Name of the University:
Author Note

1AUDITING AND ASSURANCE IN AUSTRALIA
Table of Contents
Answer to Question A................................................................................................................2
Answer to Question B................................................................................................................2
Answer to Part 1.....................................................................................................................2
Answer to Part 2.....................................................................................................................2
Answer to Part C........................................................................................................................3
Answer to Question 2.................................................................................................................3
Answer to Part a.....................................................................................................................3
Answer to Part b.....................................................................................................................3
References..................................................................................................................................5

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Answer to Question A
The two significant financial statements of financial assertion account at risk for
Matrix are the accounts receivable account and the goodwill account. The accounts
receivable is an account that appears under the head of asset especially the current asset of the
balance sheet. The goodwill account will also be affected. The account appears under the
head of intangible asset in the balance sheet.
Answer to Question B
Answer to Part 1
One key assertion at risk regarding the accounts receivable account is the valuation
and allocation assertion. The disclosure made by the management regarding the receivables
as to who were the customers, who have purchased the most controversial products and the
terms for such purchase. If the purchase have been done on credit then such assertions in the
financial statements are at risk.
The key assertion at risk (inherent risk) regarding the goodwill account is the
valuation and accuracy assertion associated with the account. As the valuation of such an
account is difficult, the assertion by the management regarding the goodwill of the company
is likely to change and observe a diminishing trend in all probabilities.
Answer to Part 2
The accounts receivable is at the risk of valuation and allocation assertion because the
transactions that may have been recorded in the books of accounts may not be appropriate.
This is because the product sold by the pharmaceutical firm that resulted in the
hospitalization of a number of customers may not have been properly accounted for. These

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products that resulted in a major health issue may belong to old stock or ld batch of
production and may be was compiled into the current batch of products for the purpose of
stock clearance. Therefore, the accounts receivable account is at risk.
The goodwill account on the other hand is at risk because the goodwill of the
company is likely to fall due to the recent occurrence of the health issue faced by the
customers due to one of its products (Abbott et al., 2016).
Answer to Part C
The firm should be more responsible about the quality of the product that is being
shipped to the market for the purpose of sale. A detailed and rigorous quality check is
essential to avoid such assertion risks. Secondly, the firm may also develop an inventory
system that does not allow the products which do not belong to that respective batch of
production.
Answer to Question 2
Answer to Part a
The audit opinion in this case is that the management of the company should be asked
to republish its financial statements. The management should be specifically asked to provide
the disclosure in the financial statements about whether the company is meeting the
conditions to be a going concern. The auditor should also ask the management to specify the
amount of materiality applied to the financial accounts.
Answer to Part b
If the management provides the disclosures regarding the material uncertainty, it
would not be enough. This is because whether the company is a going concern or not should

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be determined by reviewing whether the company matches the criteria for being recognized
as a going concern (Knechel & Salterio, 2016).

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References
Abbott, L. J., Daugherty, B., Parker, S., & Peters, G. F. (2016). Internal audit quality and
financial reporting quality: The joint importance of independence and competence.
Journal of Accounting Research, 54(1), 3-40.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.