MAA705 Corporate Auditing Report: Risk and Financial Analysis

This report provides a comprehensive analysis of auditing principles and practices, focusing on the responsibilities of auditors as per ASA/ISA 240 and exploring potential misconceptions in the auditor's role. It delves into the risks associated with revenue recognition and highlights cases of material misstatement, including the Satyam Scandal and the Enron case. The report also examines business and inherent risks within the context of Woodside Energy Limited, providing financial analysis and insights into the company's operations. The report covers the importance of auditing, its impact on financial statements, and how auditors ensure compliance with regulations to provide reliable financial information. It also explores the challenges and complexities of auditing, offering insights into the practical application of auditing procedures and standards, ultimately providing valuable insights into corporate auditing and financial reporting.

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

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Table of Contents
Introduction................................................................................................................................3
Responsibility as per ASA/ISA 240...........................................................................................3
Misconception in Role of Auditor..............................................................................................5
Potential Risk in Revenue Recognition......................................................................................6
Cases Having Material Misstatement.........................................................................................8
Conclusion..................................................................................................................................9
Part 2..........................................................................................................................................9
Introduction............................................................................................................................9
Overview of the company....................................................................................................10
Business Risk in the Company.............................................................................................11
Financial Analysis of the company......................................................................................12
Inherent Risk in the Business...............................................................................................13
Conclusion................................................................................................................................17
Reference..................................................................................................................................18
Appendix..................................................................................................................................21

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Introduction
Auditing is the process from the auditor is able to inspect and examine the financial
statement so that it can know that the company is able to meet all the rules and regulation in
the company business activities1. Each company should follow all the accounting standard
while preparing the financial statement so that the user can able to get proper information
about the company activities. It show about the different aspects of the auditor and how the
auditor have to meet up with its responsibility of auditing process.
Responsibility as per ASA/ISA 240
ASA/ISA 240 state about the auditor responsibility and how the company is able to
meet the responsibility of to check all the financial statement so that it can know about the
financial problem easily in the business2. The responsibility of different authority in regards
of fraud is shown below
Responsibility of Management as it should able to communicate the information to
the auditor so that the auditor is able to take proper assertion of company financial statement.
The management should able to give proper amount of management assessment in regards of
the fraud and material misstatement inn the financial statement. Management should disclose
all the process of identification and responding in regards of the fraud and material
1 Baños-Caballero, Sonia, Pedro J. García-Teruel, and Pedro Martínez-Solano. "Working
capital management, corporate performance, and financial constraints." Journal of Business
Research 67.3 (2014): 332-338.
2Auasb.gov.au, Auasb.Gov.Au (Webpage,2019)
https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_A
SA_220.pdf

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misstatement, it should also ascertain the specific risk which is been associated with company
financial statement. It should also able to communicate all the necessary information with the
company management so that the auditor is able to ascertain the risk which is there in the
financial statement.
Those charge with Governance is also have some kind of responsibility with the risk
and fraud in the company financial statement3. It should able to communicate all the process
which they have taken in regards of the risk associated with the financial statement. Auditor
should able to enquire all the related information with those charge with governance and
should able to get proper solution from all the problem in the business. It should identify the
fraud in the company financial statement so that the auditor can get proper opinion about the
company financial statement.
Auditor responsibility is also there as it have to carry different procedure to obtain
evidence about the risk which is associated with the company financial statement, it should
able to make all the process to know about the materiality and misstatement in the company
financial statement4. It should also make proper assumption in the company financial
statement so that the auditor is able to have proper opinion about the company financial
statement. It should also able to analysis of internal control so that the company is not having
any kind of business issue in the company activity so that the company is able to have proper
3 Bromiley, Philip, et al. "Enterprise risk management: Review, critique, and research
directions." Long range planning 48.4 (2015): 265-276.
4 Burtonshaw-Gunn, Simon A. Risk and financial management in construction. Routledge,
2017.

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management in the business as well as it help the auditor to ascertain the amount of risk
which is associated with the company financial statement.
Misconception in Role of Auditor
Each company financial statement is been audited by an auditor as this help the user
to get proper information about the company financial statement. Financial user take in for
granted as the auditor is responsible to company fraud as the company should able to have
proper justification in the business5. Auditor responsibility is to ascertain that the company is
able to manage the business operation with all the ethics and regulation. Company
responsibility is to take proper amount of precaution in regards of fraud in the company
business activities. Auditor is able to have a duty to know that the company is having all the
rules and regulation and able to make proper financial statement in the company business.
Auditor have to carry many procedures which help it to ascertain the financial
performance of the company and also help the user to get proper information about the
company performance6. Auditor always give reasonable assurance about the company
financial statement as this state that in its knowledge the company is not having any kind of
material misstatement in the business, but it may happen that the company is having some
kind of material misstatement in the business.
Auditor should also follow all the auditing standard while carrying different audit
procedure so it can able to get more evidence about the company financial statement, as well
5 Chen, Yunhao, et al. "Information technology capability, internal control effectiveness, and
audit fees and delays." Journal of Information Systems 28.2 (2014): 149-180.
6 Cohen, Lee J., et al. "Bank earnings management and tail risk during the financial
crisis." Journal of Money, Credit and Banking 46.1 (2014): 171-197.

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as it help them to manage its business operation7. Financial user should only take an idea
from the auditor report and should not charge anything more, it should decide upon the
investment only when they are full confidence upon the company financial activities in the
business.
The above points signify that the auditor is only able to check and gives its opinion
upon the financial statement and not able to have any responsibility upon the fraud which is
taking place in the company financial statement. As they should able to carry different
procedure so that the it can know whether the company is having any kind of fraud or no. it
should only give reasonable assurance to the user and not guaranty about the company free
from any kind of fraud or material misstatement.
Potential Risk in Revenue Recognition
Each company have some kind of revenue in the business, as each company should
able to recognise the revenue in different ways so it is the duty of the auditor to ascertain the
company business and able to check out any fraud or material misstatement is there in the
company or not8. Auditor always take into consideration there will some fraud in revenue
recognition and the reason are shown below:
1. Company usually show more amount of revenue recognition as this will help the
company to gain more amount of business in the company9. As the company is having
more amount of revenue so this will show that it is earning more amount of revenue
7 De Simone, Lisa, Matthew S. Ege, and Bridget Stomberg. "Internal control quality: The role
of auditor-provided tax services." The Accounting Review 90.4 (2014): 1469-1496.
8 DeFond, Mark L., and Clive S. Lennox. "Do PCAOB inspections improve the quality of
internal control audits?." Journal of Accounting Research 55.3 (2017): 591-627.

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so this help them to gain more amount of confidence of the user in the business. This
is the reason why the auditor is able to take risk of fraud in revenue recognition so this
show that the company is able to have an increase in revenue so that it can show
better position of the company in the business.
2. Company should able to reduce the revenue of the business so that it can able to save
the tax upon the business and also able to pay less amount of profit to the
shareholders10. The company should able to show less amount of revenue so it can
able to reduce the tax liability and also able to pay less amount of tax in the business.
3. Company should able to have some materiality in the case of creditor so due to this
company is able to record different amount or wrong amount so this will create a
material misstatement in the business11. The company should able to have a proper
policy as well as it should able to gain more amount of revenue recognition in the
business, so this is also consider an auditor responsibility to ascertain the risk
associated in the revenue recognition in the company business.
9 DeFond, Mark, and Jieying Zhang. "A review of archival auditing research." Journal of
Accounting and Economics58.2-3 (2014): 275-326.
10 Furnham, Adrian, and Barrie Gunter. Corporate Assessment (Routledge Revivals):
Auditing a Company's Personality. Routledge, 2015.
11 Giannakis, Mihalis, and Thanos Papadopoulos. "Supply chain sustainability: A risk
management approach." International Journal of Production Economics 171 (2016): 455-
470.

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Cases Having Material Misstatement
The two cases which is having material misstatement in regards of revenue recognition is
shown below:
1. Satyam Scandal – It is one of the biggest fraud which happen due to material
misstatement in the company financial statement as the company is been based in
India and carry its business operation in all over the world12. The company took
money from the public in name of certain projects in international market and able to
carry those project as per the case it was found out that the company has not invested
any amount anywhere but transfer all the amount to its personal account and as a
result the company is become insolvent. The manipulation is been done of more that
14162 crore in Indian currency and which the company is not able to give back to the
ordinary public.
2. Enron Case – It is also one of the largest fraud which had taken place in US as the
company Enron Corporation as the company took money from different user in the
business and able to manipulate the accounts so that it can raise more amounts of
money in the business. this led to increase in the price of company share price but
latter on when the company share market price goes down than it came to picture that
the company has misstated their financial statement to get more amount of investment
from the financial user13.
12 Griffiths, Phil. Risk-based auditing. Routledge, 2016.
13 Groomer, S. Michael, and Uday S. Murthy. "Continuous auditing of database applications:
An embedded audit module approach." Continuous Auditing: Theory and Application.
Emerald Publishing Limited, 2018. 105-124.

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Conclusion
The above discussion concludes about the auditing process in the business as the
auditor have to carry different process so that it can know the materiality and other aspects in
company business. the report shows about ASA/IAS 240 which deals about the auditor
responsibility in case of fraud and material misstatement and also how the company and other
authority are responsible for the fraud which took place in the business. Auditor have to
ascertain that there is no material misstatement in the company business. It also concludes
about the different opinion which the company and financial users has about the auditor
responsibility. Lastly it shows about the example of material misstatement in company
revenue recognition which is also supported by two case which are Satyam Scandal and
Enron case.
Part 2
Introduction
Risk is always there in company financial statement as this should be managed by the
company more easily and effectively. Company should able to carry all the business activities
properly in the business which help them to gain an advantage over the competitors as well ss
help them to carry the business operation more easily and effectively14. Each company have
to carry different procedure so that it can gain its goals and objective easily and effectively.
Auditor have to ascertain the risk which is associated in the company financial statement and
should give proper opinion upon the company financial statement in the business. This report
show about the company financial stability and also the risk which is been associated in the
company business activities. It also show the company financial aspects which will help the
14 Hall, James A. Information technology auditing. Cengage Learning, 2015

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user to know about the company performance and also show about the inherent risk which is
associated in the company financial statement15.
Overview of the company
This assignment is based upon the company Woodside Energy Limited which is been
based in Australia and carry its business process in petroleum. It is one of the largest operator
in case of oil and gas in the company16. The company is been found in 26 July 1954 and its
headquarter in Perth, Western Australia. It is been listed in Australian Securities Exchange
and carry its business operation easily and effectively.
Business Risk in the Company
Business Risk are the risk which are directly associated with the company business,
the more complex business the company carries, the more risk it is associated with in the
company financial statement17. The business risk which is associated in the company is
shown below:
1. The first risk which is associated in the company as it the risk of Unsuccessful
exploration and renewal of upstream resources which directly affect the company
15 Kaizuka, Takeshi, et al. "An autophagic flux probe that releases an internal
control." Molecular cell 64.4 (2016): 835-849.
16 /Woodside-Petroleum-Limited, /Woodside-Petroleum-Limited (Webpage, 2019)
http://www.annualreports.com/Company/Woodside-Petroleum-Limited
17 Khlif, Hichem, and Khaled Samaha. "Internal Control Quality, E gyptian Standards on
Auditing and External Audit Delays: Evidence from the E gyptian Stock
Exchange." International Journal of Auditing 18.2 (2014): 139-154.

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strategy to carry its business operation, as the company deal in energy so any
exploration can directly affect the company ability to perform the business strategies
effectively in the business.
2. The second business risk as per the company annual report is that if there is a failure
in the commercialise of hydrocarbons while selecting a sub-optimal development
option so this is also an business risk if something like these happen than it can
directly affect the company operation and also affect the over business of the
company18.
3. The third risk which is associated with the company business is that it should able to
have some unplanned interruption in the production unit which may impact the
licence of company in regards of financial and operational performance. As if there is
some events which is un conditional to the company so it can also effect the company
business ethically in the company operation.
4. The fourth and last risk in the business as the company not able to have proper
amount of information as the business as it should reliable upon the data which is
there in the company may subject to lack of information which can affect the overall
performance of the company.
This are the business risk which are associated in the company business activity, as this risk
should be careful by the management and should able to carry its business operation in the
management. Company should able to make proper strategies while considering the facts of
business risk in the company.
18 Knechel, W. Robert, and Steven E. Salterio. Auditing: Assurance and risk. Routledge,
2016.

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Financial Analysis of the company
This analysis about the financial part of the company as in this the company have to
take consider the financial statement so that it can know how the company is able to perform
it business activity properly and effectively in the business. The analysis show about the
company activity and how the company is able to carry its business objective in the industry.
The analysis is shown with the help of horizontal analysis as it show the changes which have
take place in the company and how the company able to manage those changes. The analysis
is been shown in the appendix of the report.
As per the company the total current asset has fallen which show that the company is
not able to meet the requirement properly and effectively in the business, it also show that the
liquidity position of the company is also not good so this should be consider by the company
and able to make different amount of strategies in the business enterprises.
Company total Non-current asset has increase so this show that the company is able to
have proper utilization of different resource and also it able to make proper utilization of
business activities. This show the company is able to gain more amount of revenue in the
business as a result company can gain more amount of non-current asset in the company
business activities.
The total asset of the company has increased which is a good sign as it show that the
company is able to match all the criteria properly and effectively in the business enterprises,
it should also show that the company is having proper amount of revenue in the business
enterprises.
The total current liabilities have been decreased so this signify that the company is
able to reduce the overall liability and also it can able to correct the liquidity position of the
company so this will help the company to gain proper advantage in the business.