HA3032 Auditing Report: Developing Audit Program for Carsales.com

This report provides an in-depth analysis of the auditing process for Carsales.com. It begins with an introduction to auditing and its significance in verifying financial statements, followed by a background and industry analysis of Carsales.com. The report then examines the company's financial statements, identifying potential risks, and analyzing key financial ratios like liquidity, efficiency, profitability, and leverage. A crucial aspect is the estimation of planning materiality, essential for determining the scope of the audit. The report further details audit assertions and planning, outlining specific audit work steps, and sampling methods for various account balances like trade receivables and inventory. The conclusion summarizes the key findings and the overall audit approach, making it a comprehensive guide to understanding the Carsales.com auditing process.

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

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Auditing
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Background and Industry Analysis........................................................................................4
Analysis of Financial Statement of the Business...................................................................5
Analytical Review of the Company.......................................................................................7
Estimation of Planning Materiality........................................................................................8
Audit Assertions and Planning.............................................................................................10
Conclusion................................................................................................................................14
Reference..................................................................................................................................15

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Auditing
Introduction
Audit is a process which is been carried upon the financial statement of the
company. Auditing is been carried out by the external person termed as auditor. Auditor carry
many process in the company so that it able to get the sufficient information about the
company financial statement and give it view that whether the company statement are sowing
true and fair view or not (Beck and Mauldin 2014). The auditor check whether the financial
statement are made in accordance of the auditing standard and different principle listed for
the preparation of the financial statement. The auditor also check the company account does
not have any material misstatement in the financial account and it is been showing all the
correct figure of all the account (Bell, Causholli and Knechel 2015). It also checks the
company internal control system to know whether the company is able to control the entire
internal problem and how they maintain their inventory system of the company.
The report is based upon the company name Carsales.com. The purpose of this report
is to analysis the business of the company which provide its service in many countries.
Carsales.com operate in online market place which deals with the product likes motorcycle,
automotive and marine business. The report show the analysis of the different risk which the
company is facing in day to day transaction. The analysis is been based upon the financial
ration of the company which show the real performance of the company. The auditor have
consider three years ratio for analysing the company risk. In addition of that it all contain the
details of the materiality which the company financial statement contains. The auditor have
also shown the accounts which are affected by the material misstatement of the company. It
also the plan of sampling the auditor have used in regards of the audit process of the
company.

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Auditing
Discussion
Background and Industry Analysis
The report is been based upon the Carsales.com which is a online based industry and
carry its business in regards of automobile . As per the financial statement of the company it
can be said that the company is doing good in the market and able to increase its customer on
a regular basis. As per the above statement it can be said the company is working in a
growing industry and as a result it able to get more amount of profit from the business. As per
the account of the company it can be seen that the company is having an increase in the net
profit of the company so this show that the company have a very good position in the market.
As there will be a risk to business so the risk which the company face while carrying their
business activities are discuss below:
o Liquidity Conditions: This is one of the primary risk which each company have to
face as it is necessary for the company to hold some amount of cash in the business as
it will help them to do the working cycle of the company and also company should
have some cash for paying any current obligation which can be occurred in the
company business so to overcome such situation the company need to have liquidity
in the financial statement of the company (Chen et al., 2015).
o Competitor in the Industry: The company have to face this risk also as each
industry have some amount of competitors and due to these the company is not able to
get the whole market of the industry (Chou 2015). It also happens that they not able to
get increase in sales as the competitors is able to get an edge over the market.
Company should able to make their marketing strategy taking the competitors into
consideration.
o Unfavourable Economic Conditions: The company have to face such risk and it not
able to avoided by the company as it may happen that the government change some

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Auditing
policy and due to the change it affect the financial position of the company
(Christensen et al., 2016). As it may happen the government have increase the interest
rate so that can lead to increase the interest cost of the company and it will also
decrease the overall profit of the company.
Analysis of Financial Statement of the Business
The analysis of the company is been done by considering the annual report of 2018
and it show the judgement which the company have made in the financial statement are
proper or not. As per the income statement of the company it is clear that the gross profit
have been decrease in percentage so it show the company is not to increase the sale in respect
of the increase in cost of the goods of the company (Shareholder.carsales.com.au 2019). The
income statement also show that there is an increase in both the revenue and the cost so it can
be consider as a risk as the company may have overstate to show a better financial position of
the company. As the result of the overstate the company financial statement will have a
material misstatement so it will affect the principle of true and fair view of the financial
statement. As there is one misstatement situation so the auditor should be very careful while
checking other accounts as it may happen that the company financial statement may have
more account misstated.
The risk that the company face while doing their business is been classified as control
and inherent risk. The company may have material misstatement in the financial statement as
it may happen due to some omission and error so this type of risk is been defined as inherent
risk. The company internal control may have some amount of weakness and due to these
which risk are occur are termed as control risk of the company. The auditor have to carry its
audit process in the company Carsales.com so that it able to identity both inherent and control
risk of the company. The management should apply the audit risk model so that it will able to
identify the risk in the business which are been classified in above lines of the report. The

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Auditing
audit risk model show the relation between the business risk and the audit risk of the
company. The audit risk model takes into consideration of all the three risks as detection risk,
control risk and inherent risk. The audit model is been shown below:
Audit Risk = DR * CR * IR
The short form of the formula as
o DR – Detection Risk
o IR – Inherent Risk
o CR – Control Risk
The formula show about the component of the risk model which is been used while
carrying the audit process in the company. As per the company Carsales.com is been
consider, the financial statement shows some account which should be consider by the
auditor in the risk model of the business. The account of the company which are been
consider as risk to the financial user are shown below in a table presentation:
Account
Name
Audit Risk Inherent
Risk
Control
Risk
Detection
Risk
Requirement of
Evidences
Revenue HIGH HIGH (90%) Moderate LOW HIGH
COGS HIGH HIGH (80%) HIGH
(80%)
LOW HIGH
Inventory MODERATE MODERTAE HIGH
(85%)
HIGH HIGH
Payables HIGH HIGH (70%) LOW
(40%)
HIGH HIGH
Table No -1

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Auditing
Source – Author
Analytical Review of the Company
This process is been carried by the auditor in the planning stage, the analysis is been
done with the help of 3 year financial ratio of the company. The analysis is been shown
below:
Liquidity Ratio
As per the above table it can be said that the company is having a good liquidity ratio as both
the current and quick ratio of the company have been increase so this signify that the
company is having good financial position and they can easily pay their short term liabilities.
Efficiency Ratio

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Auditing
It can be seen that these ratio have also been increase so it show that the company is bale to
fuller utilization of its asset and able to earn more amount of profit in the business.
Profitability Ratio
It can be seen that the company is not able to increase its profit as both gross profit and net
profit ids been decrease so they should not able to control the cost so they should change their
strategy than it will able to get more amount of business in the company.
Leverage Ratio
It is been seen that the company have increase their debt so it can be said that the company is
increasing its business of fulfil the requirement it is making increase of debt in the company.
Estimation of Planning Materiality
This is one of the process of the auditor to find the true and fair view of the company
as each company financial statement may have materiality (Donohoe and Robert Knechel

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Auditing
2014). The auditor each item of the company with the help of materiality concept and gives it
opinion that whether the account is been overvalued or undervalued by the company or not.
This help the auditor to know the estimation and the judgement of the company in regards of
the account and also show the nature and complexity associated with the account. The
analysis which is been done of the company Caresales.com it is been found out by the auditor
the material misstatement is been in the revenue, net profit , current asset and the cost of
goods of the company and also some items in regards of the nature of the business (Ettredge,
Fuerherm and Li 2014.).
The auditor has to calculate the amount of materiality in the financial statement of the
company. In order to calculate the same the auditor have make different audit program so that
it able to know the true materiality in the financial statement of the company. The planning
materiality is been consider while taking a base amount form the financial statement which
the auditor think is sufficient in regards of the calculation of planning materiality (Griffiths
2016). The estimate are usually fixed so the auditor just multiply the same which is been
selected by the auditor. As per the company Carsales.com is been used so the base amount is
been consider as sale of the company and the estimate is been consider as 4% so the
computation of the planning materiality is been listed below:
Planning Materiality = Revenue * 4%
= $444009 * 4%
= $17760.36
As per the above table of the calculation of planning materiality of the business so it
show an figure of $17760.36 so it is been consider in regards of the total revenue of the
company. It will help the auditor to know the materiality related the financial statement of the
company and help it to give proper opinion of the financial statement.

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Auditing
Audit Assertions and Planning
Account
Balance
Assertions Audit Work Steps Audit Sampling
Trade and
other
receivables
Completeness:
It should be checked that
the company have recorded
all transaction related to the
trade and other receivable
as no error has been made
by the company in regards
of the accounting of the
transactions (Groomer and
Murthy 2018)
It should vouch all the bills
related to trade receivables
and also it should do
external confirmation about
the value so that it able to
know the real value of the
company trade receivables
(Jha and Chen 2014).
It should do random
sampling as it will help
the auditor to vouch
more amount of bills
and the auditor will able
to get proper
information related to
the trade receivables
Inventory Valuation:
It should check the
company process of
valuation the account of
inventory as which made is
been used by the company
to value the inventory and
also is it is been allowed by
the company to use such
method of valuation (Krarti
2016)
It should verify the internal
control of the company as it
lies the main problem of the
company and also as it
inventory is been passed by
the management so if there
is any weakness in the
internal control than as a
result it will also affect the
valuation of inventory
(Kwon, Lim and Simnett
2014)
It should use attribute
sampling test as it help
the auditor to assess the
internal control of the
company. It will able to
get to know the
weakness and as result it
will able to know the
risk which is been
associated with
inventory
Available
for sale
Accuracy:
It should check whether the
It should verify all the
transaction related to the
It should use random
sampling as it well help

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Auditing
financial
assets
company have properly
calculated the value of the
asset as it may happen that
there is some calculation
mistake in the account and
as a result it affect the
financial statement of the
company (Lennox, Wu and
Zhang 2014)
asset and also should verify
the amount so it will be
clear that the company have
not done any material
misstatement in the account
(Pizzini, Lin and Ziegenfuss
2014).
it to do verification of
many transaction as the
transaction is very big
so increase number of
sample size will help to
get more accurate
information of the
company account.
Deferred
Tax Asset
Valuation:
It should the process form
which the company have
valued the asset as it may
happen the company is not
able to take proper
estimation in regards of the
asset and have done under
or overvaluation of the asset
It should check all the
provision which the
company have made in
regards of the asset and also
how the company is able to
do the accounting for the
same (Protopapa et al.,
2014).
It should use attribute
sampling test as it will
able to give the auditor
to know the process of
the management and it
will help to give proper
opinion upon the
statement of the
company.
Intangible
Asset
Classification:
It should check that the
company properly recorded
the asset as per the standard
of intangible asset and no
false asset is been transfer
to the same account.
It should verify the
intangible asset as by
checking the items which
are been included by the
company and also how they
have done the calculation of
all the items in the
intangible asset.
It should random
sampling method as it
will help the auditor to
properly select all the
items in the intangible
and able to evaluate the
same as per the need of
the account.
Borrowings Completeness: It should verify all the It should random

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Auditing
It should check the
company have recorded all
the items in the account or
not as it may happen it have
overlooked some
transaction and as result it is
been showing an overstated
balance in the financial
statement.
contract of the company in
regards of the loan taken
and also should check then
amount of the borrowing so
that it able to know any
material misstatement is
there or not in the financial
statement of the company.
sampling as it able to
get more number of
sample and able to
verify more transaction
so as a result of it, the
auditor will able to
know the real value of
the asset.
Current tax
liability
Valuation:
It should check the
valuation method which the
company have used in
regard of the asset and how
they have done the
calculation in regards of the
asset should also be
checked (Shore and Wright
2015)
The auditor should check
the ATO about the tax
liability of the company and
should match the same with
the company account so that
it able to know the true
value of the account and
also able to know whether
there is material
misstatement or not
(Tepalagul and Lin 2015)
It should use
verification method of
sampling as it have to
verify the company
details with ATO so that
it able to know the
material misstatement in
the account
Trade and
other
payables
Classification:
It should check that the
company have only
recorded the business item
in the accounting of the
trade payable and no
transaction is been recorded
It should verify the account
by taking the confirmation
from the third party and
should match the same with
the company account so that
it able to know whether the
account have any material
It should use random
sampling method as this
help the auditor to
increase the size of
sample of the account
transaction and it will
help the auditor to know

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Auditing
which is not in normal
course of business (Yoon,
Hoogduin and Zhang 2015).
misstatement or not. more about the account.
Deferred
Tax
liabilities
Valuation:
It should the process of the
valuation of the account as
how the company have
valued the account and as it
is as prescribed by the
standard of accounting or
not.
It should check the
transaction related the
account and also should
check the disclosure related
the account so it able to
know the estimation which
the company have made in
regards of the account.
It should use random
sampling method as it
should able to judge
more amount of the
transaction and as a
result it will able to
know the material
misstatement is there or
not.
Provisions Valuation:
It should check the estimate
which the company have
made in regards of the
provision and how they are
recording the same in the
financial statement of the
company
It should verify the previous
year and should compare it
with current year so that it
able know the increase and
should judge whether the
increase is normal or
material misstatement is
been there in the account.
It should follow
attribute sampling test
so it can able to judge
the estimation of the
company in regards of
the provision and should
know whether there is
material misstatement or
not.
Conclusion
The report show how the auditing is been carried out in the company. It show the
company Carsales.com and show the business risk which the company face, it even show

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Auditing
different types of the risk in the company and also have the analytical procedure of the
company. Lastly it shows the account of the balance sheet which contain some amount of
material misstatement in it.

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Auditing
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