Finance Audit: Inherent Risk Assessment of Boral Limited, Australia

This report provides an assessment of the inherent risks associated with the audit of Boral Limited, a building and construction materials company operating in Australia, Asia, and the United States. The assessment considers factors such as the nature of the client's business, results of previous audits, the presence of non-routine transactions, the quantity of estimates and judgements required in financial reporting, and the potential for fraudulent financial reporting. The auditor's unqualified reports for 2017 and 2018, conducted by KPMG, indicate compliance with Australian Standards and Corporation Regulations. The report identifies key audit matters, including the carrying value of North America goodwill and the allocation of purchase price accounting, as areas exposed to inherent risks. Overall, the inherent risk for Boral Limited is determined to be moderate, based on a review of the company's annual reports and consideration of relevant auditing standards. Desklib offers a range of solved assignments and past papers for students seeking further assistance with their studies.

Running head: AUDIT
Audit
Name of the student
Name of the university
Student ID
Author note

1AUDIT
NAME of your
Entity >>>
DISCUSSION
FACTOR According to ASA200.13(n)(i) inherent
risk (IR) is a measure of the
susceptibility of material misstatement
before considering any internal
controls.
LOW MODER
ATE HIGH
Nature of
client’s business
Building and construction materials. It
supplies and manufactures the building
and the construction materials in
Australia, Asia and United States. It
delivers blocks, asphalt, bricks, concrete,
retaining walls, quarry materials,
plasterboards, and stones. Apart from tat
it is engaged in landfill, transport and the
property activities. The company is
susceptible to inherent risk to some
extent as it operates its business
internationally and through various
offices (Boral.com 2019).

Results of
previous audits
As per the opinion of the company’s
auditor KPMG the financial statement of
2017 as well as 2018 both are prepared
in accordance with the Corporations Act
2001 and gives true and fair view of
company’s financial position as on 30th
June 2017 as well as 30th June 2018 and
the reports are complied with Australian
Standards and Corporation Regulations
2001. Hence for both the years the
auditors issued unqualified audit report
(Boral.com 2019).

Initial versus
repeat audits
From the annual report of the company
for the year 2016, 2017 and 2018 it is
identified that audit is conducted by the
same audit firm that is KPMG. Auditors
generally gains experience and
knowledge regarding the likelihood of
misstatement if they are auditing for
several years. Hence, the inherent risk is
lower at the subsequent years (Boral.com
2019).

Quantity of
non-routine
transactions
Transactions of non-routine nature are
more exposed to inherent risk due to
improper treatment as compared to the
routine transactions. Non-routine
transaction found from the income
statement of the company is profit from


2AUDIT
sale of assets amounting to $ 58.1
million. As there are no other non
routine transactions inherent risk is low
(Auasb.gov.au 2018).
Quantity of
estimates and
judgement
required for
accounts
Various accounts like provision for the
doubtful debts, depreciation for non-
current assets and obsolete inventory
require great extent of management’s
judgements and estimates. Hence,
recording the accounts those require
judgements and estimates requires skills
and knowledge about the substance of
item and associated accounting
standards. Boral Limited made
judgements while allowing for the
doubtful debts regarding the
unrecoverable amount of trade
receivable. Further, the useful lives of
the tangible as well as intangible assets
have been estimated based on the
historical experience. Apart from that
the indication of impairment on carrying
amount of the non-financial assets has
been made on the basis of estimates and
judgements (Boral.com 2019).. Estimates
and judgements further made while
determining the amount of current tax
and deferred tax, future realisation of
deferred tax, acquisition of business to
determine fair value and share based
payments. As the judgements and
estimates are made for large number of
items the inherent risk is high.

Potential for
fraudulent
financial
reporting &
misappropriation
of assets (fraud
risk factors, see
ASA 240)
Various fraud risks as per ASA 240 are
misstatement and errors. Misstatement
may arise due to error or fraud. Error is
unintentional whereas fraud is
intentional. Error may take place due to
mistake in processing or gathering the
data based on which the financial report
is prepared or incorrect accounting
estimates arising from misinterpretation
or oversight of facts. On the contrary,
fraud is intentional act done by someone
from management or charged with
governance for obtaining illegal or
undue advantage. Some of the accounts
like cash and bank, revenues, account
receivables; inventories are always
susceptible to falsification, alteration or


3AUDIT
manipulation for personal advantages.
Inherent risks associated with the
treatment and recording of these items
are always high (Legislation.gov.au 2019.
List any other
factors (can you
see any
illustrations in
your client’s
annual report of
the examples in
ASA 315, Appendix
2 and ASA
570.A2?)
Some of the items reported as key audit
matters by the auditor of the entity are
considered to be exposed to inherent
risks as the treatment was not
appropriate by the entity. These matters
are – carrying value of the North
America goodwill, allocation of
purchase price accounting associated
with acquisition of headwaters,
recoverability and availability of US tax
loss assets and carrying value of
investment in USG Boral JV and
Meridian brick JV. However, as the
auditor issued unqualified report the risk
is considered to be lower (Auasb.gov.au
2019).

Conclusion:
Overall inherent
risk level
Auditor shall evaluate information those
have the impacts on inherent risks and
shall decide upon applicable inherent
risk factors for each of the account,
cycle, and audit objectives. Further,
while assessing the inherent risk the
auditor shall start with gaining
knowledge regarding the business and
industry of the client and conducting
meeting with the managements.
However, based on the above discussion
the overall inherent risk of the entity is
considered to be moderate.

4AUDIT
References
Auasb.gov.au., 2018. Auditor’s Responsibilities Statement [online] Available at:
https://www.auasb.gov.au/auditors_responsibilities/ar1.pdf [Accessed 9 Jan. 2019].
Auasb.gov.au., 2019. [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_A
SA_315.pdf [Accessed 9 Jan. 2019].
Boral.com., 2019. [online] Available at:
https://www.boral.com/sites/corporate/files/media/field_document/Boral-Annual-Report-
2018.pdf [Accessed 9 Jan. 2019].
Legislation.gov.au., 2019. ASA 240 - The Auditor’s Responsibility to Consider Fraud in an
Audit of a Financial Report - April 2006 . [online] Available at:
https://www.legislation.gov.au/Details/F2006L01368 [Accessed 9 Jan. 2019].