Developing an Audit Program for VMoto Ltd: Risk and Material Accounts

This report presents a comprehensive audit program for VMoto Ltd, a leading electric vehicle manufacturing and distributing company. It begins with an overview of the company, its mission, and key business risks, including those related to cost and the rapidly evolving digital landscape. The report then analyzes four key financial ratios, including gross margin and return on equity, and efficiency ratios, providing interpretations of their significance. Material accounts, such as cash and cash equivalents, trade receivables, and inventory, are identified, along with their relevant assertions (accuracy, completeness, classification, occurrence, cut-off, valuation, rights & obligations, and existence). The report provides detailed audit work steps for each material account balance, including cash and cash equivalents, trade and other receivables, inventories, property, plant and equipment, intangible assets, trade and other payables, and loans and borrowings. Finally, the report outlines a sampling plan for each material account, considering factors such as transaction value and frequency. The report concludes with a summary of the findings and recommendations for future audit procedures.

Developing an
Audit Program

Table of Content
 Introduction
 Overview of company
 Key business risks
 Four key ratios and brief explanation
 Material Accounts
 Ten different material account balances
 Explanation of selected assertion relevant to material account balance
 Comprehensive set of audit work steps for each material account
balance.
 Assets
 Sampling plan for each material account
 Conclusion
 References

Introduction
In the present era, the concept of auditing is increasing as each and every firm
wants to detect the error and frauds at the right time lowering their impact
on the overall performance of business
This help an organisation to get more advance loan from bank because the
audited statement is more faithful and reliable. In order to conduct an audit
program there is need of proper and accurate plan which gives detailed
information regarding conducting an audit and it guide the auditor to
maintain an ethics within company. The audit program might be determined
as the plan of action of the auditor specifying the tasks to be performed, the
audit tests to be performed and the processes to be accompanied, the
persons responsible for performing the work as well as the time under which
the work to be performed. In this assignment Vmoto Ltd has been selected
that support to better understand the concept of audit program.

Overview of company.
The company Vmoto Ltd is one of the leading electric vehicle manufacturing
and distributing company all over the world. The company was established
in 29 October 2001 and have its operation in Australia, America and New
Zealand and the middle east. The company have a mission to become the
largest electric vehicle product distributor and also to deliver EV solution to
its user at international level. Vmoto Limited manufactures, markets and
distributes motorcycles, scooters and all-terrain vehicles. The company is
dealing in consumer discretionary sector within leisure product industry and
recreational vehicles sub industry.

Key business risks
In the present there can be number of business risk that can be faced by the
electric vehicle manufacture company such as the introduction of rapidly
developing digital technologies, increased regulatory stress and worldwide
financial instability are important considerations. It is observed that the key
business risk to Vmoto Ltd is related with cost because battery innovation is
costly and the use of batteries in electric vehicles must be sufficient to
enable them to carry the vehicles practical for most driver, they must be
constructed using costly equipment, most of which are difficult to procure.
Audit risk
The likelihood of an auditor expressing an inaccurate view on financial
statements is called as audit risk. Audit risk is a risk of auditor providing on
financial statements an inaccurate or insufficient opinion. Following are
cases of erroneous audit opinions, as follows:

Four key ratios and brief
explanation
Profitability Ratios 2016 2017 2018
Gross Margin % 17.6 10.3 13.1
Return on Equity % -50.1 -48.46 -6.51
Interpretation: The profitability ratios are the financial measure that are
used to figure out the actual earning ability of company and also
ascertain the financial position and strength by comparing the revenue
with several expenses and make sure the optimum utilisation of
different resources.

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Efficiency ratio 2016 2017 2018
Asset Turnover Ratio 1.05 0.62 0.94
Interpretation: Efficiency ratios are being used by evaluating how well a
company uses its funds to produce income to evaluate business
efficiency. These proportions work with the business's functional
element like how many moments the firm transforms its receivable
amount into money, the capacity of the business to produce profit
through the use of resources, and how well the business manages
inventory size. From the above table it has been observed that assets
turnover ratio which was 1.05 in year 2016 which shows that company
is able to generate enough sales from their assets.
Liquidity/Financial Health 2016 2017 2018
Current Ratio 1.96 1.79 1.85

Material Accounts
In the accounting world, the material accounts are considering to be important as
in case if the information are missing to these material and it have a greater
impact on the decision making of the user of financial statements. All those
items are considered to be material in case if they have a major influence
upon the described profit of company. For example, raw materials, parts,
sub-components and equipment of manufacturing. In principle, everything
absorbed can be categorized as material during the manufacturing phase.
In the preparing and submission of a financial document, financial accounting
methodologies often address the conception of materiality. While financial
reporting structures can address materiality in distinct ways. According to ISA
320 materiality in performing and planning an audit programme it helps to
Addresses the problem of the strategy to determining materiality by
explaining that materiality relies on the magnitude and type of an object or on
a mixture of both regarded in the context of the specific conditions in which it
occurs.

Ten different material account
balances
In accounting term, material account balance is defined as the size of recorded
account balance in the financial statement of the company during a financial
year. From the balance sheet of Vmoto Ltd for the consecutive three years
some of the material accounts in the assets and liabilities are as follows:
Assets: These are the resources that are controlled and owned by the
companies with the intention that it helps to generate required cash flow in
nearby future. There are the possibilities of misstatement in these account
which may impact the entire financial performance of Vmoto Ltd.
Particular 2016 ($) 2017 ($) 2018 ($)
Cash and cash equivalents 43,61,855 31,72,792 41,93,790
Trade and other receivables 28,77,295 13,85,118 20,98,447
Inventories 69,87,827 27,80,782 56,38,169
Property, plant and equipment 76,26,947 78,14,943 85,56,335
Intangible Assets 40,92,773 5,95,533 4,46,650

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Liabilities: It is defined as the legal obligation or any financial debts that
occurs during the entire functioning of different business operation.
Particular 2016 ($) 2017 ($) 2018 ($)
Trade and other payables 56,87,070 38,67,726 61,49,449
Loans and borrowings 21,07,943 19,66,878 12,35,890
Current tax liabilities 11,529 0 0
Deferred tax liabilities 4,89,860 0 0
Other liabilities 10,00,000 0 0

Explanation of selected
assertion
In accounting, the financial statement assertions are defined as the claims
which are created by the management of company and are related with
annual reports. These assertions develop a theoretical ground which
support the external auditors to form an accurate audit procedure. In
general, management makes implicit or specific allegations in the
preparation of financial statements concerning the identification, evaluation
and submission of investments, liabilities, earnings, equity, expenditures
and disclosures in accordance with the relevant financial reporting structure.
From the annual report of Vmoto number of material accounts balance have
been determined that might impact the financial report. There relevant
assertion are as follows:

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Items Relevant Assertion Explanation
Cash and cash equivalents Accuracy Transactions were correctly registered at their corresponding
quantities and there were no issues with their closing balances.
Trade and other receivables Completeness This latterly means that each trade transaction which are needed to
be recorded have been completely recognised with the financial
statement of Vmoto Ltd.
Inventories Classification Transactions were categorized and reasonably submitted in the
financial accounts. As each and every stock that was part of raw
material, goods in transit and finished goods was reported correctly.
Property, plant and equipment Occurrence This defines that each transaction recognised in the annual report
have happen and is already a part of Vmoto Ltd.
Intangible Assets Cut-off All the transaction related to the intangible assets has been
recognised