Auditing and Assurance: AGL Limited Risk Assessment Report

This report presents a risk assessment of AGL Limited, a new client, focusing on developing a thorough risk assessment procedure and suggesting necessary control elements. The report examines inherent risks, impacted ledger accounts, and the audit process, including unbilled revenue, unbilled distribution costs, and deferred tax assets. Financial ratio analysis, including current ratio, return on equity, and debt-to-equity ratio, are evaluated to identify areas of concern. The analysis highlights the importance of the audit committee, its responsibilities, and the nomination of an effective external auditor. The report concludes by emphasizing the significance of professional judgment in auditing and the role of the audit committee in ensuring fair financial reporting, providing valuable insights for shareholders. The report also discusses the control elements and the role of the audit report, audit documentation, and professional skepticism in the audit process.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1AUDITING AND ASSURANCE
Executive Summary:
The current report aims to deal with carrying out the risk assessment of a new client.
In this case, AGL Limited has been selected as the new client and the intention is to develop
a thorough risk assessment procedure of the firm along with suggesting the necessary control
elements. The audit committee has lesser responsibilities along with the nomination of an
effective external auditor that will anticipate the company’s opinion regarding fairness and
materiality associated with Audit report. In such manner, the shareholders might consider
annual report’s fairness of the organization along with accepting the same as a factsheet.

2AUDITING AND ASSURANCE
Table of Contents
1. Introduction:...........................................................................................................................3
2. Inherent risks, impacted ledger accounts, assertions and audit process or task:....................3
3. Financial ratio analysis:..........................................................................................................6
4. Identified area of concern:.....................................................................................................7
5. Control elements:.................................................................................................................11
6. Conclusion:..........................................................................................................................13
References and Bibliographies:................................................................................................14

3AUDITING AND ASSURANCE
1. Introduction:
The current report aims to deal with carrying out the risk assessment of a new client.
In this case, AGL Limited has been selected as the new client and the intention is to develop
a thorough risk assessment procedure of the firm along with suggesting the necessary control
elements.
2. Inherent risks, impacted ledger accounts, assertions and audit process or task:
Inherent Risk Explanation
Impacted Ledger
account and
Assertion
Audit Process/Task
Unbilled
revenue
It explains that recorded
revenue which is not
billed yet over a
contract. An unbilled
revenue of $1032
million mentioned
within the Note 11
indicates that gas and
electricity value offered
to consumers among
the last meter reading
and reporting date in
which bill has not been
offered by AGL to its
Assertions:
-Precision
-Cut-off
-Segmentation
- Event
-Extensiveness
Impacted ledger
account:
- Revenue
- Cash on
Certain processes
encompass attaining a
common view of major
controls regarding
management for
determining the
anticipation of unbilled
revenue.

4AUDITING AND ASSURANCE
consumers at the
reporting period end
(AGL Energy Ltd,
2016).
hand
- Retained
Earnings
- Accounts
receivable
Unbilled
distribution cost
Detailed financial
reporting using
electricity and gas
consumption analysis of
AGL’s consumers
along with important
segmentation tariff rates
are employed in
deciding certain
anticipatedunbilled
distribution accrual of
$453 million as
mentioned within Note
21 (Arens et al., 2016).
Assertions:
Accuracy
-Cut-off
-Classification
- occurrence
-Completeness
Ledger account
impacted:
-Accounts payable
-Purchase register
-Sales Register
-Tariff Tables
The organization
attained major controls
management for
explaining analysis of
accrualbased on
distribution cost.

5AUDITING AND ASSURANCE
Deferred tax
assets associated
with tax losses
As mentioned within
Note 9, at 3o June 2016
the organization has
mentioned a deferred
tax asset of $861
million related with tax
losses maintained by
AGL Loy Yang
subsidiary (Basu,
(2016).
Affirmations:
-Precision
-Cut-off
-Segmentation
- Occurrence
-Entirety
Impacted ledger
account:
-Account of
deferred tax
asset
-Current tax
liability
-Income
statement
-Statement of
business
activity
It has been anticipated
that along with
confronted judgement
of management in
associated to
forecasting in upcoming
taxable profit along
with analysing the
supposition
acceptability associated
with the forecast
composition.

6AUDITING AND ASSURANCE
3. Financial ratio analysis:
Financial Ratios Formula 2017 2016 Difference High or
low risk
Short-term Liquidity Ratios
Current Ratio Current
Assets/Current
Liabilities
1.41 1.34 0.06 Low
Quick Asset (Current Assets –
Inventories)/ Current
Liabilities
1.39 1.33 0.06
Profitability Ratios
Return on
shareholders’ equity
Net
Income/Shareholder's
Equity
(0.05) 0.02 (0.08) High
Solvency Ratios
Debt to equity ratio Total Liabilities /
Shareholders Equity
0.84 0.80 0.05 High
Current ratio:

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In the year 2017, the current ratio became better due to certain inventory increase. It
indicates capability of the organization in addressing its short term and long term obligations.
An increased current ratio signifies that the organization has increased ability to pay all its
debts. Such ratio has increased in the year 2017 from 1.34 to 1.41 in 2017 and the ideal ratio
is deemed to be 1:1.
Return on Equity:
This ratio provides an understanding regarding returned net income as shareholder’s
equity percentage (Chandler, 2014). The return on equity decreased for AGL in the year 2017
for the reason that the organization experienced loss in this year. This ratio has lessened in
the year 2017 from 0.02 to (0.05).
Debt to equity ratio
The debt to equity ratio explains financial leverage of companythat is employed by it
in order to finance its business conducts. This ratio elucidates the equity and debt proportion
employed by the organization in order to acquire finance for its assets. The debt to equity
ratio increased from being 0.80 for 2016 to 0.84 in 2017 signifying that the organization is
employing higher debts for financing business conducts.
4. Identified area of concern:
Analytical
Evaluation –
Identified Area of
Concern
Answer Justification Impacted Assertion and
Ledger Account(s)
Audit Process/Task

8AUDITING AND ASSURANCE
Current ratio In the year 2016 the
current ratio got better
majorly due to
inventory increase in
AGL. Moreover, the
ratio was increased. The
organization has
attained increased
assets in order to
address its liabilities
and the suitable ratio is
deemed to be 1:1.
Ledger Accounts
1. Cash and cash
equivalents
2. Accounts
Receivable
3. Inventory
4. Prepaid expenses
5. Short-term
investments
(marketable
securities).
6. Accounts payable
7. Payroll taxes
payable,
8. Income taxes
payable,
9. Interest payable
and
10. Some accrued
expenses
Affirmations
1. Presence
2. Fullness
3. Privileges and
1. It is observed that
inventory mentioned
within the balance
sheets are there at the
end of the period.
2. Every inventory
unitmust be aligned
with the aspects
indicated and recorded
within the financial
statement of the
organization. It should
always have considered
to encompass the
inventory and the assets
attained by third party
on behalf of the audit
entity within inventory
balance.

9AUDITING AND ASSURANCE
obligations
4. Assessment
Return on equity This serves as signal
regarding the better
way in which a
company is employing
its assets in attaining
profit over the period.
This ratio for AGL was
decreased from 0.02 to
negative 0.05 having a
difference of 0.07.
In the year 2016, the
organization
experienced a drastic
loss. Moreover, the
companyexperienced
consecutive losses for
the two years (2014 and
2015). These ratios are
observed to be poorer in
these years as it
decreased from minus
Ledger Accounts
1. Sales
2. Expenses
3. Assets (total)
Affirmations
1. Existence
2. Extensiveness
3. Precision
4. Cut Off
5. Segmentation
1. Income section must be
evaluated in making
sure that the overall
amount of revenue is
equal to addition of
income lines.
2. Dates must be checked
on the expenses in
ensuring that they are
applicable over the time
that is being referred
andphysically make
sure the calculations to
entertain that the
recorded aggregates
remain correct.

10AUDITING AND ASSURANCE
0.01 to minus 0.26 in
2014 and 2015
considerably.
Debt to Equity
Ratio
From the balance sheet
of AGL, in the year
2016 this ratio is
observed to be 0.84.
There is a liability
increase by 0.05%. For
each dollar 0.84 cents
are owed by the
creditors. This ratio has
decreased gradually and
this caused because of a
decrease I liability and
increase in equity.
Ledger Accounts
1. Payables
2. Provisions
3. Unearned
4. Revenue
5. Interest bearing
liabilities
Affirmations
1. Actuality
2. Privileges and
Obligations
3. Extensiveness
4. Assessment and
Allocation
1. An auditor must
consider reviewing and
making sure that there
is an existence of assets
and liabilities.
Substantial resources
must also be analysed
and printed material
must be attained which
indicatesthat the
company centred on
certain commitments.
The auditor must
evaluate to make sure
that the liabilities and
assets are for the
company.
2. The assets including
land and buildings must

11AUDITING AND ASSURANCE
be registered in the
name of the business.
5. Control elements:
a) Deloitte issued the audit report for AGL which is an unmodified report published on 10th
August 2016. This also encompass the major audit matters communication for the
management. Major audit concerns include the aspects within professional judgement of
auditors that was most considerable and was observed within financial report at the end of
the year for 30 June 2016.
b) The auditors published a viewpoint report that is unmodified that indicates the report is
clarified. It is for the reason that the auditor made it clear that AGL company’s financial
statements were reported fairly and offered true and fair view regarding the company’s
business in alignment with the suitable framework of financial reporting. The report was
in adherence to AASB 101, IFRS, Corporations Act 2001, Australian Auditing standards
(ASA), indicated fair representation, and did not have any material misstatement within
the annual report.
It is agreed that AGL Company follows corporate governance and this can be
observed within its annual report for the year 2017. Along with the company’s corporate
governance, there are 19 pages separately mentioned document that can be found in its
website, which is approved by the board of the firm in 26 August 2017. This contains certain
practices and policies that are in adherence with 3rd edition of ASX-CGC recommendations.
This encompasses overall 8 principles that includes principle number 1 offer the management
foundation that increases till principle number 8 compensates responsibly and fairly with all
the principles containing effective recommendations. The company observed it to be vital to