HA3032 Auditing Assignment: Report on Legend Corporation Limited

This report provides a comprehensive auditing analysis of Legend Corporation Limited, focusing on key business risks, material misstatements, and the application of the audit risk model. The report identifies various risks, including those related to interest rates, liquidity, foreign exchange, and credit. It also addresses material misstatements, the audit risk model, and the analytical procedures used. Ratio analysis is performed to evaluate the company's financial position. The report outlines material accounts, assertions, and audit procedures, including sampling methods. The executive summary provides a concise overview of the audit, highlighting the methodologies and findings, while the introduction sets the scope and objectives. The conclusion summarizes the key findings and recommendations based on the audit. The report is designed to assist in understanding the financial health and risk profile of Legend Corporation Limited and to provide a framework for effective auditing practices.

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Auditing

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Executive summary
The report has been prepared for the legend corporation limited and in this, all of the elements
which are relevant to be considered for the auditing have been involved. There is the proper
knowledge which is gained in relation to the several risks involved and the misstatement related
activities. The model has been used and by that interconnection between the inherent, control and
detection risk is identified. The calculation of the ratios is made it showed that the company has
maintained an adequate position. There is the identification of the material accounts and the
procedure has been set for them in which sampling methods have also been taken into account.
The assertions which are involved in the auditing have been identified for all the material
accounts and by the help of them, there is a proper evaluation which is made.

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Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Key business risks............................................................................................................................4
Material misstatement......................................................................................................................6
Audit risk model..............................................................................................................................7
The analytical procedure..................................................................................................................7
Materiality........................................................................................................................................9
Material accounts, assertions, and audit procedures........................................................................9
Conclusion.....................................................................................................................................16
References......................................................................................................................................17

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Introduction
A company is required to prepare various accounts and reports and it is necessary that its
accuracy shall be tested. To undertake this there is the inclusion of the audit procedure in the
company by which all of the aspects involved in the business will be tested. This report is
prepared in that respect for the legend corporation limited and in this, all of the aspects by which
the risk is involved and can be controlled will be taken into account. There will be consideration
of the risks which are involved and the identification of them will be made for the company. The
accounts involve various misstatements and it is necessary that they shall be incorporated in the
auditing process so that elimination of them is made possible. The risk model will be used to
make the proper evaluation and there will be consideration of the risks and the relationship
which is present among them. The calculation will be made in respect of ratios and by that, there
will be ascertainment of the position which is maintained by the company. The materiality which
is involved in auditing will be taken into account and with the understanding of the same there
will be a determination of all the material accounts. The company will be involving various
assertions in relation to them which will be identified and the procedure for audit will be set. The
sampling methods which are available with the company to be undertaken will also be
ascertained.
Key business risks
In Australia there are many companies which are operating and Legend Corporation limited is
one among them which is involved in providing the engineering services. The company has been
established in 1962 and since then is carrying the operations in a very successful manner. There
are various services which are involved in the company and they cover the mining, information
technology, power, medical, rail, and semiconductors. The company is carrying the business in
various areas and they include Australia and New Zealand. There is the diversification which is
made and in that various products have been added and by that the business is able to expand the
scope. In Europe, the USA and china there are various export services which are provided by the
company (Legend Corporation Limited, 2019). The company is performing in an ethical manner
and there is compliance with all the requirements which are applicable to it.

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The company has large scale functioning and due to that, there are chances of high risk. In that
various types of the risks are involved this will be required to be taken into account. The
description of them is provided by which the company will be able to take suitable actions for
the same.
The company has various assets and liabilities with the help of which they are carrying the
operations. In relation to them, there are various risks which are involved. The interest will be
paid on that amount which is due and the risk in relation to them will have to be fulfilled. The
rate at which the interest is payable will be changing with the time and the company will have to
bear the impact of the same. It will be required that the impact shall be managed by undertaking
the relevant and the required actions. The earnings of the business will be affected as they will be
required to meet with the help of the income which is available with the company. The company
will try to take the fixed interest with which the risk will be reduced to a certain extent.
The liquidity risk is another risk which is faced and in relation to that, the company will have to
take the steps. The liquidity depends on the assets and liabilities which are maintained by the
company. There is the need to make the payments on the required time and with the help of that,
the risk will be reduced (Zamboni and Litschig, 2018). There will be consideration of the cash
flows which are maintained and by the help of that the reduction in the risk will be attained as
the payment will be made on time.
The company deals in the foreign exchange and due to that, there is the exchange rate risk which
is involved. There are various changes which are made in the currency and the company will be
required to deal with them which are an issue for it. There will be proper involvement of the risk
management to deal with this and the contracts which will be made will be in such manner that
all the risk is involved in them and company will not be required to face the difficulty.
In the business, there is the involvement of various other parties and if there will be any default
on their part then it will be the risk for the company. This type of risk is considered as the credit
risk and it shall be controlled (Stewart and Kinney Jr, 2012). The carrying amount of the asset
which is involved in the highest limit till which a company will be dealing with the risk.

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Material misstatement
The company records all of the transactions in its books and in that there is the risk that errors
will be made. There is the involvement of various situations in which the company will be
needed to consider then and deal with it. The company will have to establish the monitoring
system in which all of them will be identified and there will be undertaking of the corrective
steps by which the elimination of the risk will be made possible (Pandit et al., 2014). This is
required as if the accounts will be accurate the only the correct position of the business will be
reflected. This is needed for all as the accounts are used for the internal as well as external
purposes.
The external parties will be making their decisions on the basis of the accounts which are
available to them and business will also be taking the future actions on their basis only. For this
it is necessary that the proper consideration is given to them and management is established in
such a manner. The complete risk which is involved in the business is due to the inherent risk or
the control risk.
It is required that both the risks are taken into account in an effective manner and for that their
understanding is to be obtained. The risk which is because of the internal processes and control is
termed as the internal control risk. It is because of the weak internal control system and in that
the company will be required to establish the proper control system (Mock et al., 2012). The
inherent risk is the risk which is involved in the systems and is inherent and will be occurring. It
is very difficult to identify them and take the actions for their elimination.
The company will have to make the adequate procedure by which the control will be established
and if that will be strong then the inherent risk will also be identified and there will be a
reduction of both the risks. The proper system will be involved which will be helping in the
ascertainment of the errors and the risks which are involved so that adequate steps for the same
can be taken.
The risk of detection is the risk which will be depending on the others. It is the auditor's risk and
under this, they are required to take the actions by which all the identification and detection is
made in an effective manner (Blankley, Hurtt and MacGregor, 2012). All of the risks will be
depending on various factors such as the value of the transaction and if the value which is

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involved is high then the risk will also be more as that will be affecting the business in a great
manner. The nature of the business which is carried is also responsible for the same and it will
also be required to be taken into account to deal with the situation.
Audit risk model
The audit is carried for the identification of the risk and in that process, it will be covering all the
risks which are involved. It will be needed by the auditor to take them into consideration and
detect them on time. It will be their responsibility and in the procedure which will be followed by
them, it will be needed that such systems are involved by which this will be made possible. On
the basis of all the results, there will be a final decision which will be made and the company will
be affected by the same.
Audit risk model = control risk X inherent risk X detection risk
According to the audit model which is presented here is the relation which is involved among all
of the risks which needs to be understood in an appropriate manner. The risk which is involved
in the business is an inherent risk and that will be depending on the control system which is built
in the company (Prawitt, Sharp and Wood, 2012). There is the need for the strong control system
which will be reducing the inherent risk. The other risk will also be in consideration with them as
if there will be proper internal control then only the auditor will be able to detect the included
risks and that way the detection risk is also based on them.
The evaluation of the risk of the company has been made in which all of the involved risks have
been detected. In relation to them, the company has made an effective risk management policy
which will be followed (Legoria, Melendrez and Reynolds, 2013). With the help of the same, it
will be possible for the company to manage the risk and so it can be said that the risk level of the
company will be low and will remain controlled.
The analytical procedure
The financial position of the company is required to be evaluated in an adequate manner and for
that, it is required that there shall be a proper analysis which shall be performed. The company is
required to maintain the position and for that, it will be required to evaluate the same. If that will

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be done then the company will know what all steps are to be taken to manage the involved
issues. This will be done with the help of the ratio analysis and in that various calculations will
be made which are represented below.
Ratio Formula 2016 2017 2018
Current ratio Current assets/current
liabilities
2.36 2.44 1.99
Debt to equity Total debts/ Equity capital 0.76 0.65 0.92
Net profit ratio Income/Sales *100 4.34% 3.38% 5.20%
Total asset turnover
ratio
Revenue / Total assets 0.99 0.96 0.82
The calculations have been made by which the various aspects of the business will be evaluated
in the required manner. There will be consideration of the liquidity, profitability, efficiency and
capital structure which is involved. It can be noted that there is the proper liquidity which is
maintained by the company. There is some decline which is made in the same but then also the
position is maintained in an effective manner and it will be possible for the company to meet
with the liabilities in an effective manner (Legend Corporation Limited, 2018). The position of
the profit is also maintained and it is increased in the last year. This shows that the company is
managing its expenses in a proper manner and that will be in the benefit of the company. The
company will be having the funds which will be used to manage the operations in the coming
period. This will ensure that the situation of debt will not be arising and the company will be
managing the requirements in an adequate manner.
The turnover ratio has been ascertained by which it is identified whether the company is able to
use the assets in an effective and efficient manner or not. By this, the efficiency of the company
is evaluated and the decisions will be made on that basis. There is the decline in the same which
is made and which shows that the company is not having the proper management system and is
not able to generate the revenues with the help of the assets that are available with the company.
There will be a need for the company to take the steps by which the management will be
improved and higher amount of the revenues will be generated by the company from the
available resources.
The consideration has also been provided to the capital structure of the company and in that, the
ratio which is maintained among the equity and debt is taken into account. The company will be

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required to manage that ratio as if the debts will be more than it will be required to pay the
liabilities which will be arising with the same and that will be affecting the other aspects of the
business (Legend Corporation Limited, 2017). It has been determined that the amount of debt has
increased and it shows that the company has taken more debt. This will not be good for the
position of the company and will lead to the situation of the risk. It will have to be controlled by
taking proper actions by which the improvement in the capital structure is made.
Materiality
Auditing is an important concept and in that, all of the important aspects will have to be taken
into account. One such element is the materiality which is based on the standards that is set by
the standards board. According to that it will be required that the material accounts of the
company are considered and paid attention by the company (Bakker et al., 2014). There are
material accounts which are involved and they are those which will be affecting the whole
business. They are of more amounts and hold the importance in the company and if any change
will be taking place in them then it will be affecting the complete position of the company. The
material accounts are required to be identified and for that, there will be consideration of the
proper steps by which this will be made possible. Once they are determined it will be possible for
the company to take the required steps by which all the errors in them can be avoided.
For the evaluation of them, there is the consideration of the size of the transaction and also the
nature of its importance. They will be considered and with the help of them all will be taken into
account and further proceedings in relation to them will be performed.
Material accounts, assertions, and audit procedures
Account
Balance
Amount
(2018)
AUD
Assertions Audit
Procedures
Audit
Evidence
Sampling

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Inventories 32522 Valuation
The value will be
determined by the
help of standard
which is applicable.
Existence:
It will be existing
in the books
(Krishnan and
Wang, 2013).
 The
physical
verification
will be
made.
 There will
be a
valuation
method
which will
be
considered.
 The stock
account will
be verified.
Stock register
Inventory
sheet
Cycle
counting
method
Cash and
cash
equivalents
6706 valuation:
The total value
which is available
will be identified
by considering all
the balances.
Rights &
Obligations
 The bank
statement
will be
considered
and
matched
with the
cash book.
 All the
deviations
Bank
statement
Reconciliation
statement
Selective
sampling

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Company will be
having the right on
the available
balance.
with the
reasons will
be
identified.
Intangible
assets
61399 Rights &
Obligations
The company will
have the right to the
asset.
Valuation:
It will be made
with the accounting
standard used.
 The
valuation
method
which is
used will be
considered.
 The
consideratio
n will be
provided to
the
applicable
laws so that
the correct
amount is
entered.
Applied laws
Valuation
Calculations
Selective
sampling
Trade
receivables
29479 Valuation:
The total of the
receivables will be
valued in a proper
manner.
 The debtor's
account will
be checked.
 There will
be
verification
of all the
Receipts
account
Sales invoices
Cash and bank
statement
Judgemental
sampling

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Rights &
Obligations
The entire amount
which will be
received is under
the company’s
rights.
invoices
Plant and
equipment
6764 Completeness
The total of all the
plants will be
considered.
Rights:
Company will be
having the right on
the assets held.
 All of the
changes
which are
taking place
will be
identified.
 The
valuation
method
which is
used will be
evaluated.
 There will
be
consideratio
Plants and
equipment
accounts
Bills related to
sale and
purchase
Assets register
Selective
sampling