Auditing and Materiality: Konekt Limited Financial Statement Analysis

This auditing report analyzes the financial statements of Konekt Limited, an Australian service industry company. It begins with an executive summary and introduction, providing an overview of the company and the concept of materiality in financial statements. The report identifies and discusses five significant accounts—Other Assets, Cash Account, Intangible Assets, Provisions, and Trade and Other Payables—highlighting potential material misstatements. It details the planning materiality, risk assessment procedures, and relevant auditing standards (ASA 300 and ASA 320). The report examines qualitative and quantitative aspects of materiality and includes a table showing the calculation of planning materiality based on the company's revenue. It concludes by emphasizing the importance of risk assessment in the audit process and references relevant sources. The report's structure includes an introduction, discussion, conclusion, and references, fulfilling the assignment brief's requirements for an audit planning document for an Audit Manager.

Running head: Auditing
Auditing
Name of the Student
Name of the University
Author Note

1
Auditing
Executive Summary
The assignment show about the auditing in the company and the materiality concept which is
there in the financial statement of the company. It also show about the planning materiality
and risk assessment procedure which is been carried by the auditor in regards of the financial
statement of the company.

2
Auditing
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Overview of the Company.....................................................................................................3
Materiality in the Company financial statement....................................................................4
Planning Materiality...............................................................................................................7
Risk Assessment in Audit......................................................................................................7
Conclusion................................................................................................................................10
Reference..................................................................................................................................11

3
Auditing
Introduction
The process of the inspection and evaluation of the financial statement of the
company is known as auditing. This process is to be carried upon the financial statement of
the company so that it can be know that the company had comply with all the rules and
regulation while preparing the financial statement of the company1. The process of auditing is
can be carried by both the employee of the company and the external auditor of the company.
The internal audit is been carried by the employer of the company it is been done so that it
can able to inspect the strategies of the management so that it can able to know the mistake
which are there in the strategy and help the company to overcome the mistake in the
strategy2. External auditor are the one who carry it audit process in the company as it from
external source so it can able to give an independent opinion on the financial statement of the
company. It have to carry some procedure in the company business so that it can able to
know how the company is performing its activities and it will able to judge the risk which is
been associated in the company so that the auditor is able to know the materiality and
misstatement in the financial statement and able to carry the audit process as related to it in
the company financial statement3. The report show about the Konekt Limited which is listed
in Australia, it contain an details of the concept of materiality and also show about the 5
account which are there in the company having material misstatement of the company. It also
1 Brusca, Isabel, et al., eds. Public sector accounting and auditing in Europe: The challenge
of harmonization. Springer, 2016.
2 Cannon, Nathan H., and Jean C. Bedard. "Auditing challenging fair value measurements:
Evidence from the field." The Accounting Review 92.4 (2016): 81-114.
3 Chiu, Victoria, Qi Liu, and Miklos A. Vasarhelyi. "The Development and Intellectual
Structure of Continuous Auditing Research 1." Continuous Auditing: Theory and
Application. Emerald Publishing Limited, 2018. 53-85

4
Auditing
shows about the planning materiality of the company and how it can be affected the auditing
process of the auditor.
Discussion
Overview of the Company
The reports deal with the company Konekt Limited. The company is based upon
Australia and it a service industry which provide the service in different industry as it help the
company to reduce the employee turnover and also show how the company can able to keep
the minimization of injury happens in the company regarding employee. The company have
much experience industry so it helps to build a good image of the industry in regards of the
public so it help them in gaining more business in the company.
Materiality in the Company financial statement
The auditors carry different procedure in the company to check whether it contain any
material misstatement of not in the financial statement of the company4. So the error and
misstatement of the company financial statement are been treated as materiality in the
business. It is the biggest type of risk which can be there in the financial statement of the
company and auditors have to be very much careful while checking the materiality in the
financial statement of the company5. As if there will error or omission in the financial
statement than it will directly affect the financial user decision as they take information from
the financial statement so it able to know the position of the company in the industry but if
4 DeFond, Mark, and Jieying Zhang. "A review of archival auditing research." Journal of
Accounting and Economics58.2-3 (2014): 275-326.
5 Furnham, Adrian, and Barrie Gunter. Corporate Assessment (Routledge Revivals): Auditing
a Company's Personality. Routledge, 2015.

5
Auditing
the company financial statement is having some error than it will make a false
misrepresentation of the company upon the stakeholders of the company. The materiality can
be of two types in the financial statement and it is been given below:
Qualitative Aspects of Materiality
1. No Disclosure in Notes of Account – As per the accounting standard an company
should disclose all the material facts in the financial statement notes so that the
stakeholder are able to know about the adjustment which is done by the company in
order to make the financial statement 6. There are some matter which are to be done
by the company and all the matters required to be disclosed properly so that it can
able to know the user about the need of the transaction in the company.
2. Misstatement or error in the Financial Statement – The accountant of the
company should do all the transaction properly and should record the same in the
financial statement of the company so if the company financial statement have some
types of error than it will not able to provide a fair report to the financial user so it is
been a misstatement which is consider so the company should not have any error in
their financial statement and should show a fair value to the user of the financial
statement7.
Quantitative Aspects of Materiality
6 Griffiths, Phil. Risk-based auditing. Routledge, 2016.
7 Groomer, S. Michael, and Uday S. Murthy. "Continuous auditing of database applications:
An embedded audit module approach." Continuous Auditing: Theory and Application.
Emerald Publishing Limited, 2018. 105-124.

6
Auditing
In order to get the materiality of the company an auditor has to follow certain in
regards of the financial statement of the company. These steps help the company to know
which is there in the financial statement of the company. The steps are:
1. It should make a estimation of the materiality which can be there in the financial
statement of the company, this step is been done by the auditor before its start the
audit process in the company so that it can able to plan the audit accordingly8. It
should make a base of the account so that it can able to get a proper amount of the
materiality in the financial statement of the company.
2. It should analysis the financial and should check the account which can have material
misstatement and can directly affect the financial statement of the company.
3. After doing the assertion of the account than it should do the total of the amount
which it have found out so that it can know the actual amount of materiality
4. Lastly it should do the comparison of the estimated and the actual so that it can able to
know the risk which is been associated in the financial statement as if there is a big
difference than it should check all the document properly in the financial statement of
the company.
Company Accounts which contain materiality
1. Other Assets – Company annual report show that there is an increase in other asset
account of the company which can be consider as material misstatement from the
auditor viewpoint as it can happen that the company have increased it so that it can
show a good position of the company as if there is an increase in the other asset than it
will show a good increase in the overall financial position of the company.
8 Hall, James A. Information technology auditing. Cengage Learning, 2015.

7
Auditing
2. Cash Account – Company annual report show an increase in cash so this show this is
been consider as a material misstatement of the company as there cannot be so much
increase in the financial statement in regards of cash9. It may be done by the company
so that it can able to show a good position of the company and let investors do the
investment in the company.
3. Intangible Asset – Company annual report show that there is an increase in the
intangible asset so this is been consider as a material misstatement by the auditor as
how in one year the intangible asset can increase so much, so the auditor have to carry
some procedure so that it can able to know the reason of the increase in the intangible
asset of the company10.
4. Provisions - Company annual reports show that they were no provision account in
previous year but the company have made in the current year so this is been consider
material misstatement in the company account so the auditor have to carry different
audit procedure as to know about the reason of the creation of provision in the annual
report of the company11.
5. Trade and other payable – Company annual report show that they is in increase in
the trade payable account so it is been consider as material misstatement as why there
9 Harris, James, et al. "Systems and methods for using end point auditing in connection with
traffic management." U.S. Patent No. 8,844,040. 23 Sep. 2014.
10 Hicks, Michael A. "Image overlaying and comparison for inventory display auditing." U.S.
Patent No. 8,917,902. 23 Dec. 2014.
11 Knechel, W. Robert, and Steven E. Salterio. Auditing: Assurance and risk. Routledge,
2016.

8
Auditing
is such increase in the trade payable account as it can be done by the company so that
it can able to make a good impression of the company in front of the stakeholder12.
Planning Materiality
Auditor have to know the materiality which is there in the company financial
statement so to do so it have to plan the materiality which is there so to do it calculate the
materiality which is there in the company accounts. As per ASA 300 it will plan it during the
audit process so that it can able to know about the company materiality and as per ASA 320 it
should able to check the materiality which is been there in the financial statement. As per the
auditor it able to find that company revenue will be the base for the calculation of the
planning materiality and the base percentage which will be charged upon it will be 0.5% so
the planning materiality of the company will be:
Table no – 1
Source – Author
Risk Assessment in Audit
Auditor has to carry many audit procedure so that it can able to know the risk in the
business of the company. Auditor should be aware of the risk so that it can able to do the
audit properly in the firm13. It help the auditor to judge whether the financial statement are
12 Konekt.com.au. Konekt.com.au. N.p., 2019. Web. 29 May 2019.
13 Kumar, Ravinder, and Virender Sharma. Auditing: Principles and practice. PHI Learning
Pvt. Ltd., 2015.

9
Auditing
been showing true and fair view or not. There are many things which the auditors have to
know than only it will be able to know the risk which is there in the company accounts. The
things which auditor needs to check are shown below:
 Primarily the auditor should be aware so the industry in which it have to carry the
audit procedure as this will help it to know more about the business practices which
can be carry by the management and it will help the auditor to judge the risk which
can be found in the financial statement of the company.
 It should know all the business practices which the company used to attract the
customers as this will help the auditor to know about the company internal control
more properly and as a result it able to know the risk and mistake which can be there
in the financial statement of the company14.
 Auditor have to know about the board of the company as it will help it to know how
the company is been managed internally and also show about level of knowledge
which the managers have in regards of the business which is been carry by the same.
 Proper questionnaire should take place by the auditor to the employee of the
comp0any so that it can able to know all then internal matters which are happening in
the company and also the amount of risk which is been there in the financial
statement of the company15.
14 Yu, Jia, Kui Ren, and Cong Wang. "Enabling cloud storage auditing with verifiable
outsourcing of key updates." IEEE transactions on information forensics and security 11.6
(2016): 1362-1375.
15 Zhang, Juan, Xiongsheng Yang, and Deniz Appelbaum. "Toward effective Big Data
analysis in continuous auditing." Accounting Horizons 29.2 (2015): 469-476.

10
Auditing
 Proper analysis of the financial statement should be done by the auditor as it should
check different trends which are been found in the company so that it can able to
know the different aspects of the company and as a result it will able to give proper
opinion upon the financial statement of the company.
Risk assessment in the company accounts
1. Other Asset – As per ASA 330 the auditor should carry audit procedure as it should
the document of the company to know whether there any error or omission of the
transaction in regards of the other asset 16. As it will also check about how the
company is able to carry the value of asset as proper value is only be used by the
company and no false misstatement is been done by the company in regards of the
same in the account.
2. Cash Account – As per ASA 330 the auditor have to check all the cash transaction
which are been done in the company and also it should analysis the cash flow of the
company so that it can know where the inflow and out flow of the cash is happening
and it will help the auditor to know more about the financial performance of the
company17.
3. Intangible Asset - As per ASA 330 it should carry the audit process upon the
company intangible asset as it should check all the items which are there in the
16 Neystadt, John, R. Eric Fitzgerald, and Leonid Verny. "Security virtual machine for
advanced auditing." U.S. Patent No. 8,955,108. 10 Feb. 2015.
17 Sandvig, Christian, et al. "Auditing algorithms: Research methods for detecting
discrimination on internet platforms." Data and discrimination: converting critical concerns
into productive inquiry 22 (2014).

11
Auditing
company intangible asset and should check whether the company have done valuation
as per the accounting standard of intangible asset or not18. It should check disclosure
which is been given by the company in regards of the intangible asset so that it can
able to know that proper process is been followed by the company or not.
4. Provisions – As per ASA 330 it should carry audit procedure as it should check the
reason about why the company have make provision in the current year as it have not
done before and also it should check the industry norms so that it can know whether
the amount which the company have made in provision is as per the industry norms or
not and how they have disclose the same in the financial statement of the company19.
5. Trade and other Payable – Auditor should carry audit procedure as per ASA330 as
it should do external confirmation from the third party so that it able to know the
reason about the amount which is actually due and should check the same with the
financial record so the company so that it can able to know the risk which is been
associated in the account also it should check the same in the financial statement
disclosure so that it can know how the company have disclosed the same in the
financial statement of the company20.
18 Sookhak, Mehdi, et al. "Remote data auditing in cloud computing environments: a survey,
taxonomy, and open issues." ACM Computing Surveys (CSUR) 47.4 (2015): 65.
19 Tian, Hui, et al. "Dynamic-hash-table based public auditing for secure cloud storage." IEEE
Transactions on Services Computing 10.5 (2015): 701-714.
20 Wang, Boyang, Baochun Li, and Hui Li. "Oruta: Privacy-preserving public auditing for
shared data in the cloud." IEEE transactions on cloud computing 2.1 (2014): 43-56.

12
Auditing
Conclusion
On a conclusive note, the above discussion say about the auditing as it show how the
financial statement are been audited by the auditor. As financial statement of the company is
been audited so that it can able to show the real value of the company in front of the public
and they can able to take their decision in regards of the financial statement of the company.
It also show about the weakness which is there in the company accounts and how it is been
audited by the auditor.
It also shows about Konekt Limited that is an Australian company and carry business
as service industry, the report show about the materiality concept as it show how there can be
materiality in the financial statement of the company an d how the auditor have to carry audit
procedure so that it can able to judge about the misstatement which is there in the financial
statement of the company. It even conclude about the planning materiality and how it is been
calculated by the auditor and in the end it show about the risk assessment process which is
been carry by the auditor to check about whether they are any material misstatement of the
account or not . So it show how the auditor will do the audit as per ASA 330 and how it able
to know how the company is able to get the error and omission in the financial statement.

13
Auditing
Reference
Brusca, Isabel, et al., eds. Public sector accounting and auditing in Europe: The challenge of
harmonization. Springer, 2016.
Cannon, Nathan H., and Jean C. Bedard. "Auditing challenging fair value measurements:
Evidence from the field." The Accounting Review 92.4 (2016): 81-114.
Chiu, Victoria, Qi Liu, and Miklos A. Vasarhelyi. "The Development and Intellectual
Structure of Continuous Auditing Research 1." Continuous Auditing: Theory and
Application. Emerald Publishing Limited, 2018. 53-85.
DeFond, Mark, and Jieying Zhang. "A review of archival auditing research." Journal of
Accounting and Economics58.2-3 (2014): 275-326.
Furnham, Adrian, and Barrie Gunter. Corporate Assessment (Routledge Revivals): Auditing a
Company's Personality. Routledge, 2015.
Griffiths, Phil. Risk-based auditing. Routledge, 2016.
Groomer, S. Michael, and Uday S. Murthy. "Continuous auditing of database applications:
An embedded audit module approach." Continuous Auditing: Theory and Application.
Emerald Publishing Limited, 2018. 105-124.
Hall, James A. Information technology auditing. Cengage Learning, 2015.
Harris, James, et al. "Systems and methods for using end point auditing in connection with
traffic management." U.S. Patent No. 8,844,040. 23 Sep. 2014.
Hicks, Michael A. "Image overlaying and comparison for inventory display auditing." U.S.
Patent No. 8,917,902. 23 Dec. 2014.
Knechel, W. Robert, and Steven E. Salterio. Auditing: Assurance and risk. Routledge, 2016.

14
Auditing
Konekt.com.au. Konekt.com.au. N.p., 2019. Web. 29 May 2019.
Kumar, Ravinder, and Virender Sharma. Auditing: Principles and practice. PHI Learning
Pvt. Ltd., 2015.
Neystadt, John, R. Eric Fitzgerald, and Leonid Verny. "Security virtual machine for advanced
auditing." U.S. Patent No. 8,955,108. 10 Feb. 2015.
Sandvig, Christian, et al. "Auditing algorithms: Research methods for detecting
discrimination on internet platforms." Data and discrimination: converting critical concerns
into productive inquiry 22 (2014).
Sookhak, Mehdi, et al. "Remote data auditing in cloud computing environments: a survey,
taxonomy, and open issues." ACM Computing Surveys (CSUR) 47.4 (2015): 65.
Tian, Hui, et al. "Dynamic-hash-table based public auditing for secure cloud storage." IEEE
Transactions on Services Computing 10.5 (2015): 701-714.
Wang, Boyang, Baochun Li, and Hui Li. "Oruta: Privacy-preserving public auditing for
shared data in the cloud." IEEE transactions on cloud computing 2.1 (2014): 43-56.
Yu, Jia, Kui Ren, and Cong Wang. "Enabling cloud storage auditing with verifiable
outsourcing of key updates." IEEE transactions on information forensics and security 11.6
(2016): 1362-1375.
Zhang, Juan, Xiongsheng Yang, and Deniz Appelbaum. "Toward effective Big Data analysis
in continuous auditing." Accounting Horizons 29.2 (2015): 469-476.