MAA705 Corporate Audit Report: Fraud Detection and Risk Analysis

This report provides a detailed analysis of corporate audit responsibilities, focusing on the roles of managers and auditors in detecting and preventing fraud, referencing ISA/ASA 240. It explores the differences in their obligations, emphasizing the importance of ethical practices, professional skepticism, and the identification of material misstatements. The report includes a case study of HIH Insurance and Alan Bond, illustrating the consequences of corporate governance failures and audit shortcomings. Part 2 of the report presents an audit planning memorandum for Woodside Petroleum Limited, identifying economic, operational, taxation, and reputational risks, as well as inherent risks such as strategy, exchange rate, liability, and market risks. The report highlights the significance of these risks in the context of the company's financial statements and operations. The report concludes with a discussion of the importance of audit planning and risk assessment in ensuring the accuracy and reliability of financial reporting.

Running head: CORPORATE AUDIT
Corporate Audit
Name of Student
Name of University
Author’s Note

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Table of Contents
Part 1................................................................................................................................................2
Answer to Question 1......................................................................................................................2
Part 2................................................................................................................................................6
Reference.......................................................................................................................................11

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Part 1
Answer to Question 1
To Audit Manager
Mrs. Williams
Sub: Responsibilities of the manager and the auditor for the detection of the fraud and
their difference
Respected Madam,
I want to convey about the reasons of the material misstatement and the fraud which are
present in the financial statement of company which are analysed by the mangers and the
auditors. ISA/ASA 240 states about the detection and prevention of the fraud which are made by
the mangers and the auditor of the company during the checking of the financial statement of the
company.
Managers:
The managers of the company who hails from the executive position of the company are
responsible for the detection of the fraud and also implementing the corporate governance in a
way to prevent the fraudulency which occurs during the process of creation of the financial
statement of the company. The management of the company has the full power to penalize the
responsible individual for the alteration in the financial statement of the company. It is also
responsible for managers to create the culture of following ethical practice in the daily work of
the company. The management must dedicate a specific department for identifying the
fraudulency act which may occur in the company. These members must possess skills which will

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help the company to detect the unethical practice especially when the financial statement is being
formed for the auditing purpose and also for the forecasting purpose. This procedure will also
help to increase the performance and profitability of the company.
Auditor:
The auditor must perform auditing while following the rules and regulations which are
present in the Australian Auditing Standard. The auditors are responsible to identify whether the
financial statement of the company are having the material misstatement or not. In some cases it
can be seen that the company might have some of the risk though the auditor has conducted with
full might. As per Australian Auditing Standard the auditor has the liability to omit such risk
which is specifically unavoidable. As stated in ASA 200, the risk for not detecting the fraud from
the financial statement of the company is much higher than risk for not detecting the risk due to
error. This fraud is mainly done by the management of the company as they have full authority
over the working pattern of the company. It is often observed that management of the company
deliberately involve in the alteration in the financial statement of the company. The auditor must
possess the ability and skills to detect the fraud which are related with the financial statement of
the company. The auditor really needs to be skilled to search for the alteration which is present in
the financial statement of the company. As per the trend goes, it is observed that maximum
misstatement which occurs in the financial statement of the company are being done by
management of the company is more than the alteration made by the employees of the company.
The alteration in the financial statement of the company made by the management of the
company is done in a very efficient manner which is hard to scrutinize. This is done because the
management of the company has the total control over the company’s day to day operation and
hence it is easy for them to manipulate. To deal with such situation the auditor must keep the

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attitude of professional skepticism (Unerman and Zappettini 2014). As per the Australian
Auditing Standard the auditor must identify the alteration which is present in the financial
statement of the company and auditor must declare the annual report under the material
misstatement.
In the corporate world there exist different types of misconceptions regarding the
inefficiency of the auditor to detect the fraud and prevent the fraud from the annual report of the
company. The auditor has the rights to search for any kind of material misstatement which are
present in the annual report of the company. As per stated in the Australian Auditing Standard it
can be observed that the auditor must responsible for detecting the every kind of the fraud except
the alteration which are made by the management of the company. This kind of alteration is very
tough to detect even for most skilled auditor. The management of the company can easily
displace the information or recreating the information in the annual report of the company
especially in the financial statement of the company. When the mangers displace the information
the management also creates a solid evidence to back the misplacement of the information from
the financial statement of the company. It is nearly impossible for the auditor to detect the issue
in the annual report of the company. Thus, it can be observed that the auditor is not always
responsible for not detecting the fraud in the annual report of the company.
The auditor must always carry the attitude of providing the material misstatement from
the annual report of the company. This helps to recognize the fraud which is present in the
financial statement of the company. As mentioned in ASA 200, it is the responsibility of the
auditor to maintain the professional skepticism while performing the auditing of the annual
report of the company. This is advisable to keep the attitude because the fraud and the risk which
are associated with the company’s financial misstatement of the company that involves the

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critical audit evidence of the company. This also helps the auditor of the company to track of the
alteration which is present in the annual report of the company. This also helps the auditor to
identify the fraud which is done deliberately by the managers. This attitude of the auditor helps
the auditor to identify the involvement of the management of the company in creating the
financial report of the company. In some cases it is observed that the management of the
company are responsible for the fraud by utilizing the governing power of the company. In this
way the auditor are being kept aside from the problem to save the management of the company.
As per the auditing history is concerned there are several cases of material misstatement
which are stated by the auditor in the auditor report of the financial statement of the company.
Australia’s one of the biggest general insurer during the beginning of 21st century was HIH
Insurance (Baatwah, Salleh and Ahmad 2015). As per the analysis of the financial structure of the
company it can be seen that the company has $939 million in the year of 2000. Just after nine
months the company was under the provisional liquidation (Hay, Stewart and Botica 2017). All
along the provisional liquidation the estimated debt of the company stated between $3.6 billion
and $5.3 billion. As stated in the auditor’s report of the annual report of the company corporate
governance is one of the major factors which lead to the demise of the company (Baatwah,
Salleh and Ahmad 2015). The other factor which is also held responsible was auditing,
regulation and poor management decision. The failure of both business and accounting are stated
the reasons for the demise of the company. The auditor while auditing has used some of the
practice which develops the failure (Barac and Van Staden 2014). Another case which are
associated with the relation of the material misstatement of the company is Alan Bond (Chan,
Watson and Woodliff 2014). Alan Bond is one of the companies who suffered a largest corporate
loss. The reasons for which it is condemned are the company paid himself a large fee which is

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the part of the financial misstatement, the management of the company took huge profits from
the public and sold assets in a very inflated price.
Thanking You
Part 2
Audit Planning Memorandum
Project Number……….
Project Name………….
Prepared By……. Date……
Received By…… Date……
As per stated in the annual report of 2016 of Woodside petroleum Limited it can be
identified there are four types of business risks which can be identified. The risks which are
associated with the company has economic risk, operational risks, taxation risk and reputational
risks. In case of the economic risks it can be identified that the company has some bad start at the
start of the year. The reason for such risks is that the prices of oil fell dramatically. As per the
analysis and market research it can be seen that the price has went down by 20% than previous
which resulted in the economic risks at the beginning of the year. This has huge impact on the
financial statement of the company as the company has to compensate from the profit which they
have collected from the previous year. This resulted in the economic risk. As per the analysis it
can also be found that the company’s major capital, exploration and acquisition expenditure has
not increased marginally which raise the question of the reputational risk as the operation of the
company can be stated as faulty. The company may also face taxation risk in future as the

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treasurer of Australian Government decided to review the tax in the petroleum industry. This
considerable risk as the company need will face taxation risk due to which the investment of the
company will be hampered in some way. The targeted rate of return has been reached after ten
long years which proves to be the part of the operations and hence it can be stated as the
operational risk. This, this risk may affect the going concern of the company.
Inherent risks are the type of risk which is present in the financial state of the company
which is posed by an error other than the failure of control. When the transactions are complex in
respect to the other transactions there is a chance to see an inherent risks. In this case the annual
report of 2016 of Woodside Petroleum Limited is concerned it can be stated that there are four
inherent risks which are found in the annual report of the company. One of the crucial risks
which can be identified is the strategy risk which is also stated as the inherent risk of the
company. There are presence of the unsuccessful exploration and renewal of upstream resources
which cause an ambiguous position in the strategy of the company. This occurred in the
company due to the efforts which are made on commercialize the hydrocarbons by opting for
sub-optimal development option which leads to execute the project plan under the desired cost.
The quality of the product are also being compromised which leads to the development of the
risking factor of the company. The exchange risk which are associated with the company are also
one of the factor which also determines the inherent risk of the company. Under the exchange
risk the company saw a fluctuation in the currency risk where the exchange rates are varying in
accordance with global market. These have great impact on Woodside Petroleum Limited’s
financial statement in the negative manner. There is also presence of the inherent risk in the
liability scenario where the risk is associated with present value of the company which is based
on the tax discount rate of the company. This risk is also known as the operational risk and hence

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it brings up the issues regarding the operation of the company. The last inherent risk which can
be stated after analyzing the annual report of 2016 of the company is the risk associated with the
market. The price of the petroleum has fallen to a greater extent which damages the company’s
financial statement of the company.
As per the trend analysis is concerned it can be observed that the company’s total assets
has increased by 4% which states that the company will see a better high in the company’s
position. It is also observed that total current liabilities have also decreased by 26%. This means
the company is waving of their debt and bringing down the liabilities of the company. The net
assets of the company have also increased by 4% which resulted in increasing of the assets of the
company. The company also has seen increase in the total equity of the company which increases
by 4%. The revenue of the company may have decreased by 19%. The net profit of the company
has increased drastically which shows that the company has achieved to a beneficial position of
the company. The net profit has increased by 215%. As per the ratio analysis is concerned there
are four types of ratio has been analyzed. They are profitability ratio, efficiency ratio, liquidity
ratio and solvency ratio. The profitability ratio determines the efficiency with which the
company was able to turn around the business into profitable one. Under the purview of the
profitability ratio is concerned there are two ratios are discussed in this statement they are net
profit margin and gross profit margin. As per the analysis the profitability ratio is 24% and the
gross profit margin is stated as 45% which are more than 2015. The liquidity ratio are also
analysed which includes current ratio and quick ratio. The current ration of the company states
whether the company’s current assets will be sufficient for the company’s liabilities. Both the
liquidity ratio are upto the mark and hence the company is in good position. In case of the
efficiency ratio concerned there are two analyses are taken which are inventory turnover ratio

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and Debtors turnover ratio. The efficiency ratio analyzes how the company analyzes the assets
and the liabilities of the company. As per the analysis it can be stated that the efficiency ratio of
the company are also in better position.
It is the duty of the auditor to perform the risk assessment procedures which are sufficient
to provide a reasonable basis which are needed to identify and assess the risk for the purpose of
material misstatement which may occur due to error or fraud. The four inherent risks which can
be identified are taxation risks, operational risk, strategy risks and exchange risk. In case of the
strategy risk it can be stated that management opportunities. The management of the company
were able to use the technologies for diverting the risk. The management of the company and
external framework were able to manage the risk by increasing the production of the company,
drilling and compliances, maintenance procedures and also the performing the standards. The
help of the cyber security of the company are also one of the vital reasons for the development of
the risks. In case of the exchange risk the company where the maximum amount changed US
dollars which increase the cash flow which reduces the exposure to the currency fluctuations and
also the company is able to increase the financial performance of the company. The company has
also seen a disruption in the operations of the company when the tax discount rate has also
changed. In the beginning of the year the company has saw a decrease in the price of the
petroleum which leads to the decrease in the financial statement of the company in the first
quarter of the company. In this respect the company did not compromise with the quality rather
decreases the production of the petroleum which in turn increases the demand of the petroleum
in the market and hence the price rise up again.
The company has projected for the materiality of 15% growth in the next year. The total
assets as per the annual statement of the company are $24,753 million. The above materiality can

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be observed that the materiality is pretty high than the forecasting which states that the company
is on right tract and the company is able to reach the desired location.

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Reference
Baatwah, S.R., Salleh, Z. and Ahmad, N., 2015. Corporate governance mechanisms and audit report
timeliness: Empirical evidence from Oman. International Journal of Accounting, Auditing and Performance
Evaluation, 11(3-4), pp.312-337.
Barac, K. and Van Staden, M., 2014. Internal auditing as a corporate governance mechanism: A
comparison between public sector and private sector functions.
Chan, M.C., Watson, J. and Woodliff, D., 2014. Corporate governance quality and CSR
disclosures. Journal of Business Ethics, 125(1), pp.59-73.
Hay, D., Stewart, J. and Botica Redmayne, N., 2017. The role of auditing in corporate governance in
Australia and New Zealand: a research synthesis. Australian Accounting Review, 27(4), pp.457-479.
Mirshekary, S., Yaftian, A.M. and Cross, D., 2005. Australian corporate collapse: The case of
HIH Insurance. Journal of Financial Services Marketing, 9(3), pp.249-258.