Auditing and Assurance Report: DecaSport Financial Statement Analysis

This report provides a detailed analysis of the auditing and assurance processes applied to DecaSport, a listed company producing luxury sport shoes. The report begins with an overview of the company and addresses threats to auditor independence as per APES110, along with potential safeguards. It then delves into risk assessment, differentiating between inherent and control risks and their potential impact on the financial statements. The report also includes an examination of DecaSport's internal controls and the identification of control weaknesses. Finally, it covers the calculation of planning materiality, using total assets as the base, and concludes with a summary of the audit process and its implications for financial decision-making by stakeholders. The report highlights the importance of independent audits in ensuring the accuracy and reliability of financial statements.

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

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Auditing and Assurance
Executive Summary
The report includes details of the auditing process in the company. It show how the audit
help the company to analysis the financial statement of the company and give opinion in
regards with the true and fair view of the company. Lastly the report contain details of the
company internal control and inherent risk of the company and how the company can
overcome those risk it also contain the planning materiality of the company and also have the
calculation taking the total asset as the base for the calculation of the planning materiality.

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Auditing and Assurance
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Overview of the Company.....................................................................................................3
Threats to auditor Independence as per APES110.................................................................3
Safeguard which can be taken to remove the threats.............................................................4
Risk Assessment – Inherent risk............................................................................................4
Risk Assessment – Control risk.............................................................................................6
Planning Materiality...............................................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

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Auditing and Assurance
Introduction
Audit is the process in which the individual check the financial statement of the
company and then gives its opinion regarding whether the financial statements are showing
true and fair view or not (Abu Naser, Al Shobaki & Ammar 2017) . It is done so that the
financial user can know whether the financial statement which is been made by the company
is free from any material misstatement and the user can easily invest in the same . As the
public company involves huge amount of public cash so to overcome the loss of the public
money this procedure have been introduced as this show the real position of the company and
also help the investors and other financial users to take their economic decision in regards
with the finance position of the company (Agyei-Mensah 2016). The process of the audit is
been carried out by the individual termed as auditor and it is the one who carry the audit
process in the company and give its independent view upon the financial statement of the
company that whether the financial statement are showing true and fair view or not.
Discussion
Overview of the Company
The assignment is based upon the company named DecaSport. It is a listed company
in Australia. The products in which the company deals is sport shoes, it deals with all kind of
luxury and high-tech sport shoes. It current purchase its product from the suppliers of china
and sale it products in Australia and it do its business by having a low margin of profit.
Threats to auditor Independence as per APES110
Self-Interest threat – This threat signify the financial interest which the auditor have
with the company as it able to get a good amount of the money from the client so this can
affect the auditor independence as the auditor may found out that the by giving them correct
opinion can affect their financial relationship with the company and to stop that the auditor

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Auditing and Assurance
may give decision as per the company so that it can get the financial interest from the
company (Chen et al., 2014). In the given case it can be seen that the auditor also provides
many non-audit services to the company so they have a financial interest in the company so if
they did not give the report as per the client wish than they may lose the financial interest so
it can affect the auditor opinion in regards with the financial reporting of the company. So as
the auditor have the earning from the company by the non-audit service so this will directly
affect the auditor opinion and also it can happen that the auditor gives decision as per the
management which can affect the interest of the financial user who takes decision in regards
with the audited financial statements (De Simone, Ege & Stomberg 2014).
Safeguard which can be taken to remove the threats
 The auditor can keep the work as per the professional requirement as it should
stay in the education training given by the profession and should develop it
requirement without changing its opinion as it should keep aside its financial
interest while doing the audit of the company as while doing the audit it should
stay as per the corporate governance and also with the professional standard so
that it can give a better view upon the financial statements (DeFond & Zhang
2014)
 It should keep a distance from the management while providing the auditing
services and also should act in professional behaviour while doing the auditing
process so that it can manage the audit process more effectively and also should
stick to the work and should interact for some other services with the
management so this will help auditor to give an proper and correct opinion on the
financial statements (Donelson, Ege & McInnis 2016).

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Auditing and Assurance
Risk Assessment – Inherent risk
Inherent risk are the risk which is found in the financial statements which is done by
the error of transaction which is out of the control of the management. This risk occurs in the
transaction which is very hard and require high level of professional judgement. This risk is
found higher when the company does not have a proper internal department regarding the
auditing of the internal control (Furnham & Gunter 2015). It also happen when there is
complex transaction so this make the value of inherent risk very high and it can affect in the
financial statements of the company and also misled the financial user who take decision in
regards of the financial statement of the company (Griffiths 2016). .
Potential risk –
Description
Account Assertions Level of Inherent
risk
Technical problem
which arise in the
product and due to these
many people are
returning back the
product so this can be
termed as inherent risk
as the company is
unable to control the
technical risk even if
they have a better
accounting and internal
control system so it can
affect the financial
It will affect the
turnover of the
company as if there
will be high return of
the goods so it will
decrease the turnover
of the company and
can also decrease the
overall profit of the
company.
The assertions
taken by the
auditor in regard
with the technical
problem is that it
should check the
technical process
more accurately
and also should
check the process
of that it can make
accurate problem
in the technical
It is very high as
it will decrease
the overall
revenue of the
company and also
it will decrease
the profit of the
company so it
will directly
affect the
financial position
of the company
and can also
affect the

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Auditing and Assurance
position of the company
(Xu & Tang 2015).
process goodwill of the
company
The second is the low
quality product which
was given by the china
suppliers and it will
directly affect the
goodwill and the sale of
the company as it will
make the product from
the raw material so the
material is of poor
quality so it will affect
the overall performance
of the company
It will affect the trade
payables of the
company as the
company is paying
price in us dollar and
as the rate are
fluctuating so it can
directly affect the
money cost as when
the return the product
to the suppliers they
get the return in that
date rate so the
difference in both day
can be loss to the
company
The assertions is
that the company
should check the
quality of the
product before the
payment is made to
the suppliers so
this can stop the
loss of the
exchange which
they face in the
exchange
transaction
Medium level of
risk as the
company can
minimize this by
taking the
required step and
able to reduce
this risk by
keeping in mind
about the overall
payment made to
the creditor.
Risk Assessment – Control risk
It is the risk which states that there is some material misstatements in the financial
statements which is happen due to the fault of the management internal control (Hall 2015). If
there is high amount of control risk than there can be huge loses in the business as the
business is having loss but the financial statement will show a profit in the company.
Control weakness Potential misstatements Assertions Transaction level

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Auditing and Assurance
internal control
Return policy of
the company as it
exchange its goods
with 12 months and
give a new product
but they not keep a
proper record so it
is very hard to
know the real loss
of the company
The misstatements in
this is as there all new
staff so no proper
recording of the
transaction take place
and it directly affect the
company inventory
level of the company
(Newton et al., 2015)
The assertions which
can be made is that
the company should
have a proper record
of the items so that it
can directly record
the amount and help
the company to know
the loss in related to
the item
There is a high
level of internal
control company
is unable to match
its exchange
policy in regards
with it recording
transaction.
The company does
not have proper
record of the
opening and
closing of the
inventory
The material
misstatement is that it
does not record the
opening an closing of
inventory so it can
made a big effect in the
financial statement
It should record the
opening and closing
of the inventory so
that proper record can
be maintained by the
company
There is a
medium level of
the internal
control weakness
and the company
should record the
transaction
Planning Materiality
The base which is been selected for the calculations of the planning materiality is the
total assets the reason for which this base is selected as it contain the asset of the company so
it will have high amount of the materiality and the second reason is that asset contain the
most part of the finance of the company so that is the reason it is selected as the base of the
materiality (Knechel & Salterio 2016).

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Auditing and Assurance
Calculation of the planning materiality
Table No – 1
Source – Author
Conclusion
The report concludes about the audit process and how it is carried in the financial
statement of the company. The report contains details of Decasport and it include contains of
the audit report and how it can affect the financial decision of the financial user. Lastly the
report concludes about the company internal control weakness and inherent risk, it also
contain a details of planning materiality and the calculation in regards the same.

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Auditing and Assurance
References
Abu Naser, S. S., Al Shobaki, M. J., & Ammar, T. M. (2017). Impact of Communication and
Information on the Internal Control Environment in Palestinian
Universities. Available at SSRN 3085429.
Agyei-Mensah, B. K. (2016). Internal control information disclosure and corporate
governance: evidence from an emerging market. Corporate Governance: The
international journal of business in society, 16(1), 79-95.
Chen, Y., Smith, A. L., Cao, J., & Xia, W. (2014). Information technology capability, internal
control effectiveness, and audit fees and delays. Journal of Information
Systems, 28(2), 149-180.
De Simone, L., Ege, M. S., & Stomberg, B. (2014). Internal control quality: The role of
auditor-provided tax services. The Accounting Review, 90(4), 1469-1496.
DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of
Accounting and Economics, 58(2-3), 275-326.
Donelson, D. C., Ege, M. S., & McInnis, J. M. (2016). Internal control weaknesses and
financial reporting fraud. Auditing: A Journal of Practice & Theory, 36(3), 45-69.
Furnham, A., & Gunter, B. (2015). Corporate Assessment (Routledge Revivals): Auditing a
Company's Personality. Routledge.
Griffiths, P. (2016). Risk-based auditing. Routledge.
Hall, J. A. (2015). Information technology auditing. Cengage Learning.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge.

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Newton, N. J., Persellin, J. S., Wang, D., & Wilkins, M. S. (2015). Internal control opinion
shopping and audit market competition. The Accounting Review, 91(2), 603-623.
Xu, L., & Tang, A. P. (2015). Internal control material weakness, analysts accuracy and bias,
and brokerage reputation. Handbook of Financial Econometrics and Statistics, 1719-
1751.