Developing an Audit Program for Legend Corporation Limited Report

This report provides a comprehensive audit program for Legend Corporation Limited, an ASX-listed engineering solutions provider. It begins by identifying key business risks and factors impacting inherent and control risks, followed by analytical procedures of the statement of financial position and ...Read More

DEVELOPING AN AUDIT PROGRAM
FOR A SELECTED PUBLICALLY
LISTED COMPANY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
1. Selecting listed company....................................................................................................3
2. Nature and industry along with identifying key business risks and factors impacting inherent
and control risk.......................................................................................................................3
3. Performing analytical procedures of statement of financial position and financial
performance over last three years with ratios.........................................................................4
4. Discussing that account balances which are considered as material..................................7
5. Selecting different material account balances with five assets and liabilities....................7
6. Listing relevant financial report assertions of material account with reason.....................8
7. Designing comprehensive set of audit work steps for every material account balances..10
8. Including sampling plan with use of every material account balance..............................12
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14
Books and journal.................................................................................................................14

INTRODUCTION
Auditing is referred as detailed examination of financial reports of company and is used
for offering confidence for every stakeholders about accurate accounting reports of organizations.
In simple words, it is known as accumulation and evaluation of evidence to identify and report on
degree of correspondence among reflected information and established criteria. The present report
is analysing ASX listed company Legend corporation Limited with its nature and identify and this
will determine key business risks. There will be consideration of factors which impacts inherent
and control risks along with application of Audit Risk model. It will perform analytical
procedures of statement of financial position and performance over last three years and material
balances will be considered. This report will discuss different material account balances with five
assets and liabilities and designing comprehensive set of audit works for every material account
and addressing assertions for every account. Lastly, this will include sampling plan for every
material account balance to be tested.
1. Selecting listed company
Legend Corporation Limited
2. Nature and industry along with identifying key business risks and factors impacting inherent
and control risk
Legend Corporation Limited is an Australian engineering solutions providers which
operates in information technology, electrical, power utility and semi conductor industries
(Annual report of Legend Corporation Ltd, 2018). It is listed on Australian Securities exchange
since March 2004 as this operates through three segments as Gas and Plumbing Supplies,
Electrical, Power and Infrastructure and Innovative Electrical Solutions.
Key business risk High medium Low
Interest rate risk Medium
Foreign currency risk Low
Liquidity risk Low
Credit risk analysis Low
Interest rate risk: The exposure of this risk increase with financial assets and liabilities
recognised at reporting date where alteration in interest rate impact future cash flows of fair value
of fixed rate financial instruments (Wen, Xiao and Wang, 2018). Its policy is to minimise or

reduce interest rate cash flow risk exposure on funding for long term perspective with use of blend
of floating and fixed interest rate debt which is at medium level.
Foreign currency risk: It is low because organization is having its overseas operations as of sales
and purchases which are denominated in US dollars. The nature of USD is relatively very small
and frequent and formally designate forward contracts as hedging instruments instead of
considering contracts to be part of arrangements of economic hedge.
Liquidity risk: It is very low as debts has been settled along with obligation on basis of
financial liabilities (Kogan, Sudit and Vasarhelyi, 2018). This group has managed risk by
maintaining reputable credit profile and to invest in surplus cash with major financial institutions.
3. Performing analytical procedures of statement of financial position and financial performance
over last three years with ratios
Liquidity ratio 2016 2017 2018
Current assets 59816 56792 69562
Current liabilities 25117 23109 34870
Current Ratio 2.38 2.46 1.99
The above graph and table is stating liquidity of Legends Corporation Ltd over past three
years as it is capable for repaying its current liabilities. However, negative signal could be

observed as it is decreasing in 2018 so it should imply the implications for improving or
maintaining it.
Leverage ratio 2016 2017 2018
Debt 51757 45339 67146
Total assets 120270 114874 139843
Debt ratio 0.43 0.39 0.48
The above table and graph helps in measuring portion of capital of company which is
offered through borrowing (Annual report of Legend Corporation Ltd, 2017). The debt ratio is
less than 1 which replicates about positive worth but from 2017 to 2018, it is increasing which is
bad indicator.
Efficiency ratio 2016 2017 2018
Inventory 32608 27949 32522
Average inventory 31694.5 30278.5 30235.5
Cost of goods sold 70584 55346 65515
Inventory holding
period 163.90 199.68 168.45

The above presentation is measuring efficiency to mange the company's production,
warehousing and contribution of product with consideration of sales volume. It is clearly viewed
that in year 2017, it was having high inventory for approx 200 days but in 2018, it improved its
financial position by reducing days of inventory as 168 days.
Profitability ratio 2016 2017 2018
Gross profit 48455 44858 49386
Net sales 119039 100204 114901
Gross profit ratio 40.71% 44.77% 42.98%

In the above scenario, it is measuring margin on sales the company is attaining as in 2017,
it was attaining the highest gross profit as 45% and it gradually decreased by approx 2% as 43%
in year 2018.
4. Discussing that account balances which are considered as material
Planning materiallity is referred as misstatement amount set through auditors at stage of
planning of an audit on basis of materiality to financial statements. Generally, this is used through
auditor for assessing that misstatement as aggregate or individual materially misstated at financial
statements which could be misleading the users with application of financial information for
undertaking incorrect decision (Substantive Tests Prior to the Balance Sheet, 2019). The main
reason behind planning materiality is amount of financial performance and statements materiality
is possible statements which are expected to be directly
Particulars Criteria 2018 Material amount
Sales revenue 1.50% 114901 1723.515
Total assets 1.00% 139843 1398.43
Gross profit 1.00% 49386 493.86
Shareholder's equity 2.00% 69535 1390.7
Net profit 5.00% 5978 298.9
There is application of benchmarks which are considered as sales revenue, total assets,
gross profit, total equity and net profit. On basis of policies and procedure of firm, auditors have a

good instinct which are going to impact decisions made through the users of financial statements.
It has been confirmed that materiality must be relate to financial statements being prepared for
particular financial reporting period. On basis of conservative approach and lower percentage of
material misstatements is tended to be implied with context to enterprises that are directly through
high risk industries and faces high risk of fraud which have high accounting risk which have staff
turnover very high and this operates in different locations. The net profit prior to volatile along
with different benchmarks like sales might be very appropriate to imply with 1.5%. With the
operating outcome of organizations are very worse that solvency or liquidity are of real concern
on basis of overall materiality on financial position (Brenninkmeijer and et.al, 2018). The
thresholds directly tend to applied on reported years with cumulative effect misstatements over
years and impact on trends of earnings is also very significant.
5. Selecting different material account balances with five assets and liabilities
Assets
Particulars 1.00% Material balance
Inventories 32522 325.22
Prepayments 855 8.55
Cash and cash equivalents 6706 67.06
Trade receivables 29479 294.79
Property, plant and equipment 6764 67.64
Inventory is considered as material balance as it is considered as largest asset after
property, plan and equipment. Generally, it is majority of sales made for cash and debtors is
unlikely to be huge balance. This is also replicated as qualitative material due to business model is
in need of expertise in inventory management for purpose of dealing with competition and
obsolescence issues.
Liabilities
Particulars 2.00% Material balance
Trade and other payable 23102 462.04
Derivative financial instruments 19 0.38
Borrowings 5412 108.24

Current tax liability 1027 20.54
Short term provisions 5310 106.2
6. Listing relevant financial report assertions of material account with reason
The transactions comprise inventories, prepayments, cash and cash equivalent, trade
receivables, property, plant and equipment as of account balances. Simulatensoulsy, in form of
liability as trade payable, derivative financial instrument, borrowings, current tac liability along
with short term provisions considered in statement of financial position at ending. There is
presence of association among them because test has been performed by auditor with occurrence
of sales as it will also offer some assurance related to existence of receivables. The auditor might
perform different other tests laid emphasis on assurance related to existence. The listed assertions
are stated as below:
The assertions related to classes of events and transactions on basis of disclosure for
duration under audit is about:
 Occurrence: The events and transactions that must be traced and all disclosures which
must be considered in financial statements.
 Accuracy: The amount and other data on basis of traced transactions and events should be
traced properly and related disclosures should be described and measured appropriately. In
simple terms, amounts of assets, liabilities along with valued equity interests, disclosed
and traced is very proper (Alles and et.al., 2018). The allocation is replicated to different
matters like inclusion of overhead amount for valuing inventory. It could be checked
through vouching cost of assets for buying invoices and checking rate and calculation of
depreciation.
 Existence: It signifies that assets and liabilities exists on actual basis and with absence of
overstatement as for instance it comprises trade receivable and inventory in Legend
Corporations and is closely linked to occurrence transactions. It is all about physical
verification of its non current assets such as property, plant and equipment and circulation
of receivables and payables.
 Rights and obligations: It signifies that entity has presence of legal title along with control
right to particular asset with presence of obligation for repaying liability. It is related to

property as title or deeds could be reviewed as current assets are agreed to buy invoices
which is initially used for confirming cost. The long term liabilities like borrowing could
be agreed for particular agreement of debt.
 Completeness: there is absence of omissions along with assets and liabilities which must
be traced and disclosed. In simple words, there is absence of understatement of liabilities
or assets. Further, review of expenditure and review account could help in determining
items which have been capitalised and eliminated through non-current assets. Moreover,
reconciliation of payables ledger balances to statement of supplier is designed at beginning
for confirming completeness and it also provides assurance related to existence.
 Classification: It signifies that liabilities, assets and equity interests are traced in
appropriate accounts (Tracking materiality, 2018). The relevant test is with context of
transactions of checking postings of purchase invoice with proper accounts in general
ledger would be relevant.
 Presentation: it signifies that disclosure and descriptions of liabilities and assets are
relevant and easy for understanding perspective. The above points are related to
disaggregation and aggregation of transaction with application of assets, liabilities and
equity interests. However, auditors often imply disclosures checklists for ensuring that
financial statement presentation compiles with specific legislation and accounting
standards. Usually, it will recoup above items as transactions, assets, liabilities and equity
interests and would comprise foe confirming about disclosure on basis of non current
assets as property, plant and equipments.
7. Designing comprehensive set of audit work steps for every material account balances
The substantive analytical procedure is on basis of expectations that relationship within
data exist and continues without known conditions on contrary. The presence of relationships
offers evidence of audit as accuracy, completeness and occurrence of numerous transactions. The
main reason behind the nature, substantive analytical procedure could give evidence of numerous
assertions, determining issues related to audit and might be not apparent for detailed work and
direct the attentions of auditor to areas in need of more investigation. Moreover, auditor might
determine risks along with deficiencies in internal control which were not identified in past and
even might cause auditor for re evaluating the planned audit approach. The auditor is in need for
obtaining high assurance through other substantive testing as compared to planned originally.

On basis of deriving the most advantage through substantive analytical procedure so in
this context, there is requirement of adopting substantive analytical procedures and often affected
the extent and nature of testing in detail aspect. However, substantive analytical procedure may
direct attention to areas of raised risk along with assurance gained through effective substantive
analytical procedure would decrease amount of assurance required through other tests. In this
context, there are majorly four elements which consist of different steps which are inherent in
procedure to imply substantive analytical procedures for every material account balances such as:
 Developing independent expectation
 Defining significant difference or threshold
 Computing difference
 Investigating significant differences and drawing conclusions
Developing independent expectation: The development of a properly precise, objective
expectations is very significant step in effective application of substantive analytical procedure.
The expectation is a forecast of recorded amount or particular ratio. The forecast could be specific
number, percentage a direction or approximate and depends on desired precision. The auditor
must have presence of independent expectation of application of substantive analytical procedure
and expectations must be developed through determining plausible relationships which are
reasonable expected to exist on basis of knowledge of business, trends of industry along with
other accounts.
Defining significant difference or threshold: On basis of performing and designing
substantive analytical procedures the auditor must consider amount of variation through
expectation that could be directly accepted with absence of further investigation. The maximum
acceptable variation is commonly referred as threshold. It might be elaborated as numerical values
or percentages of items is being tested (Byrnes and et.al., 2018). Moreover, establishment of
proper threshold is particularly censorious to effective application of substantive analytical
procedures. The prevention of bias in judgement, auditor must identifies threshold for planning
substantive analytical procedure prior to step 3, in which variation among expectation and traced
amount are directly computed.
The threshold is referred as amount of potential misstatement and must not exceed
planning materiality and could be sufficiently small and capable the auditor to determine

misstatements which could be material either individually. The aggregated misstaments in other
disaggregated portions of account balance or in other account balances.
Computing difference: This is the third step is comparison of the expected value with the
traced amounts and determination of significant variations. It must be simply replicated as
mechanical calculation. This is very significant for noting computation of variation must be done
after consideration of threshold and expectation. With application of substantive analytical
procedures it is not appropriate for extracting differences through prior period balances and let
outcome impacts expected difference and threshold accepted.
Investigating significant differences and drawing conclusions: Similarly, fourth step is
related to investigation of variations and forming conclusions. The variations indicate a raised
likelihood of misstatements, high degree of precision, greater the likelihood that difference is a
misstatement. Furthermore, explanation shall be sought of full amount of variation not just
exceeding part of threshold part. There is probability that unexplained variations must reflect risk
of material misstatement. The auditor must enable for considering that differences caused through
past factors overlooked for developing expectation in 1st phase like unexpected alterations in
business and alterations in accounting treatments.
In case differences is caused through previously overlooked factors, it is very significant
for verifying the new data to reflect impact would have on original expectations as data had been
considered at beginning place. The understanding of auditing or accounting ramifications of the
innovative data.
8. Including sampling plan with use of every material account balance
Audit sampling is referred as application of procedure of audit to less than 100% of items
within account balance of class of transactions with objective to evaluate some features of
balancing or class. The auditor must be aware about account balances and transactions that might
be likely which consist of misstatements. There is consideration of planning procedures which
comprises audit sampling, The auditor will have absence of special knowledge in planning
procedures which comprises audit sampling. However, auditor will have absence of special
knowledge related to account balances and transaction in judgement would be testes with
objective of fulfilling audit objectives. In the present scenario, there are different methods which
are considered for audit sampling for material misstatements are stated below:
 random selection

 systematic selection
 monetary unit sampling
 haphazard selection
 block selection
Random selection: The method of sampling directly ensure about items within population
with equal probability of selection with application of random number tables along with random
number generators. This sampling unit could be implied for physical items like sales invoices or
monetary units.
Systematic selection: The method gives division about number of units of sampling within
population into size of sample for generating a interval of sampling (Audit sampling, 2019). The
beginning point for sample could be generated on random basis but with recognition is more
likely with truly random if the application of random number generators or used random tables.
Monetary unit sampling: The sampling method is replicated as value weighted selection
with size of sample, evaluation and selection would outcome in conclusion in monetary amounts.
The aim of monetary unit sampling is to identify accuracy of financial accounts and its steps are
stated below:
 Identifying sample size
 Selecting the sample
 Performing procedure of audit
 evaluating outcome and arriving at a conclusion related to population
MUS is on basis of attribute sampling techniques and is often implied in specific test of
control and proper with every sample could be placed into single or both classifications as
exception or no exception.
Haphazard sampling: When the auditor implied as method of sampling with absence of
following a structured technique. There is recognition of this method of sampling not proper with
application of statistical sampling. The care must be undertaken through auditor with adoption of
haphazard sampling to avoid any conscious bias or forecast (Manacero, Lobato and Cavenaghi,
2019). The aim of audit sampling is to ensure that every items which make the population stand
an equal probability of selection. The objective could not be attained if auditor deliberately avoids
items which are difficult for locating or avoiding certain items.

Block selection: The sampling method with involvement of block which contiguous items
within a population. This is rarely implied in modern audit due to valid references could not be
made beyond period of examined block. In situations, auditors must imply block selection as
technique of sampling, different blocks could be chosen for minimising risk of sampling.
CONCLUSION
From the above report it could be concluded that auditing is very important for business
organization and especially in listed company like Legends Corportaion Ltd. It has shown for
purpose of developing audit program by determining key business risk such as credit risks,
foreign exchange and many more risk with its metrics. In the similar aspect, it has reflected
analytical procedure with use of analysing ratios over past three years as each measure is
appropriate but declining from year 2017 to 2018.