Financial Auditing Analysis: CSL Limited Case Study Assignment

This assignment focuses on the auditing analysis of CSL Limited, a biotechnology company. It involves filling in a table with information extracted from CSL's annual report, including the balance date, audit report details (date, auditor, opinion type), and explanations for any modifications. The assignment also requires the calculation of audit and non-audit fees, a breakdown of the industry, and financial data such as operating revenue, profit, equity, assets, and liabilities. Furthermore, the discussion factor section delves into inherent risk, the nature of the client's business, results of previous audits, initial versus repeat audits, quantity of non-routine transactions, estimates and judgments required for accounts, and potential fraud risks. The analysis concludes with an assessment of the overall inherent risk level, considering factors such as foreign exchange risk, intricate business accounting, and global operations. The assignment highlights various aspects of the audit process and provides a comprehensive overview of CSL Limited's financial standing and risk profile, referencing relevant auditing standards and academic sources.

Task 2A
ONLY FILL IN THE Chosen Entity COLUMN
CSL LIMITED
RAMANDEEP KAUR
Lakeside
Company
(12ed)
Insert the url
(link) to the
entity annual
report
site/location:
http://annualreport.csl.com.au/docs/802/1/
CSL_AR17%20(secured).pdf
N/A
Fictional
Entity (case
study)
1. Balance
date (year-end)
30 JUNE 2017 31 December
2011
2. Date of the
audit report
15 August 2017 February 22,
2012 (based
on A&C
engagement
letter p.24)
3. Name of the
auditor (firm)
signing the
report
Ernst & Young,
Rodney Piltz
William King,
partner King
&Company
(for the Dec
2011 audit)
4. To whom
the audit report
is addressed
Shareholders Shareholders
(or
Stockholders)
of Lakeside
Company
5. Type of
audit opinion
expressed in the
audit
report (NOT the
wording)
UN-MODIFIED Modified -
Qualified
6.
Explanation(s)
for any
modification (wh
at was the reason
for any
modification)
N/A Disagreement
with
management
on asset
(Store)
valuation;
material but

not pervasive
7. Which ASA
does the audit
report comply
with?
Corporations Act of the year 2001 ASA 705
For EACH of
the remaining
items please
show the amounts
(indicating the
applicable
currency IF NOT
$A)
8. Assurance
(audit) fees
US$ 4,203,240 Based on
the engageme
nt letter(p.23)
for the 2012
audit estimate
(no separate
disclosure for
2011 audit
fee)
$US60,000
(estimate)
9. Non-
assurance (non-
audit) fees
NOTE: for 8
& 9, make the
effort to show
any breakdown
showing what
the fees were for
and who they
were paid to.
US$ 1,035,630 Not
Required (not
disclosed)
10. The
industry (or
industries) the
chosen entity
operates in
Biotechnology company Retail &
distribution
(wholesale) of
consumer
electronics

11. Operating
revenue
USD6,922.8 million as reported (p.81) $US10,754,00
0
(called “Net
Sales” p.27)
12. Operating
profit before tax
USD 1,6989.8 million $US408,000
(called
“Income
before Income
Taxes” p.27)
13. Operating
profit after tax
USD 1,337.4 million $US244,000
(called “Net
Income” p.27)
14. Equity USD3,163.8 million (p.82) $US924,000
(called “Total
Stockholders’
Equity” p.28)
15. Total
assets
9122.7 million $US3,628,000
(p.28)
16. Total
liabilities
5,958.9 million $US2,704,000
(p.28)

NAME of your
Entity >>>
Don't forget the name ... in auditing it is
normal practice to identify the client on
our workpapers
DISCUSSION
FACTOR
LOW
As per ASA200.13(n)(i) inherent risk
can be considered as a specific
dimension of the propensity of material
misstatement before taking into
account any kind of internal controls.
MODERATE HIGH
Nature of client’s
business
CSL is a publicly traded biotechnology
corporation that researches, produces,
manufactures as well as markets
products for treating and preventing
human medical conditions. There are
three different profiles of business
namely,
-CSL Behring
-Seqirus &
-Research and Development
(Annualreports.com 2018)
The financial statement of the
corporation takes in the financial
assertions for particularly consolidated
business entity comprising of CSL as
well as its subsidiaries.
x

Results of previous
audits
Prior audit report reveals that there are
internal as well as external auditors
reviewing the functionalities of the
business (Annualreports.com 2018). The
external auditor reviews as well as
monitors firm’s performance along with
independence of particularly external
auditors. External auditors attend the
annual general meeting and are also
available for answering all the questions
from particularly the shareholders
pertinent to the process of audit. The
internal assessors also monitors overall
performance of the firm. For the year
2015, PricewaterhouseCoopers was the
internal auditor of the firm. Analysis of
prior audit report reflects that the
financial statements of the firm along
with related notes conform to IFRS
Accounting Standards as is necessary for
the Corporation Act, particular corporate
regulations as well as CSL Group
Accounting Policies. Also, the
statements provide a true as well as fair
view of the company’s financial position
as on the pertinent balance date along
with performance of the firm CSL for the
relatable period as necessary by the
Corporations Act (Annualreports.com
2018). In addition to this, the financial
records of the firm are also maintained as
per the directives of the Corporation Act.
Furthermore, different non-audit services
of the company are also reviewed by
specifically the Audit as well as Risk
Management Committee to make certain
maintenance of impartiality along with
objectivity of the assessor as per 307C of
Corporation Act of the year 2001
(Annualreports.com 2018).
Key judgements also states that
impairment assessment procedure calls
for the need to make significant
judgements. Ascertaining whether
x

goodwill has also become impaired and
needs approximation of recoverable
amount of particularly cash generating
sections utilizing discounted flow of cash
methodology. The enumeration process
utilizes projections of cash flow founded
on operatingbudgets and strategic
business plan.
Any surplus of the fair value of
particularly purchase consideration of a
particular acquired business specifically
over the fair value of particular net assets
is registered as goodwill. Again,
intellectual property that is acquired
distinctly or in a combination is
preliminarily enumerated at cost that is
the fair value at the acquirement date.
Further, costs borne for development or
acquirement of software also contribute
towards future benefits and are
capitalised. Also, economic lives of
intangible assets are analysed to be either
finite or else indefinite.
Initial versus repeat
audits
x The auditor of the company has been
changed from PricewaterhouseCooper to
Ernst & Young (Annualreports.com
2018). The change of auditor calls for
higher degree of transparency in the
association between firm’s board as well
as their external assessors. As per
Corporation Act, there is need for the
companies to change their partiner in
audit in every five years that can be
extended to even 7 years. However, there
are stringent rules regarding altering

audit corporations. Auditor independence
can be maintained by the rotation of the
auditor. This can also considerably
improve overall integrity as well as
quality of auditing and corporate
governance. Acquaintance with audit
partner can lead to personal association
and higher likelihood of scams
(Annualreports.com 2018).
Quantity of non-
routine transactions
Non-routine transactions refer to
recurring actions that are carried out in
usual course of the specific business. For
instance, cash disbursements can a,so be
regarded as non-routine transaction that
take place periodically but are not part of
the scheduled flow of transactions. Cash
was registered to be USD 556 million
that again increased to approximately
USD 844 million (Annualreports.com
2018).
x
Quantity of
estimates and
judgement required
for accounts
Analysis of the annual report of the firm
CSL reveals that important judgements
as well as estimates are presented for
business combinations (page 88 note 1b),
tax (page 90 Note 3), people cost (page
93 note 5), inventories (page 92 note 4),
intangible assets (page 96 note 7) and
trade receivables as well as payables
(page 109 note 5). Reports reveal that no
business combination has taken place
during the financial year 2017. Income
tax expenditure of the firm is recorded to
be USD 352.4 million in 2017
(Annualreports.com 2018). Here current
tax assets/liabilities re the specific
amounts to be recovered from authorities
of tax (Arens et al. 2016). However,
deferred tax liabilities are identified for
x

particularly taxable temporary variances.
In this case, judgements as well as
assumptions that include matters namely
availability along with timing of
deductions of tax and application of
principles to associated transactions are
subject to both risks as well as
uncertainty. Inventories stand at USD
2578. 8 million in 2017 while at USD
2152 million in 2016. Raw materials,
work in progress as well as finished
products are taken into account. Key
judgement in this regard include
regulatory approvals as well as future
demand for the products of the group
that affect analysis of recoverability of
particularly carrying value.
Potential for
fraudulent financial
reporting &
misappropriation of
assets (fraud risk
factors, see ASA 240)
There subsists probability for fraud in
the enumeration of software
development costs (Arens et al. 2016).
This mainly external direct costs of
different materials, specific service as
well payroll and payroll associated costs
of time spent of the workforces on the
particular project. In particular, it is the
managers of the firm that make use of
judgement on the total amount to allot
for the time spent by the employees
towards development of software. Also
software cycle can alter fast and
therefore it is intangible asset that is
significant to asset position of the entire
group (Knechel and Salterio 2016).
x
List any other
factors (can you see any
illustrations in your
client’s annual report of
the examples in ASA
315, Appendix 2 and
ASA 570.A2?)
1. CSL faces the foreign exchange risk as
the entire group has international
operations. Essentially, these risks can be
related to upcoming business
transactions, firm’s assets/liabilities that
are necessarily denominated in different
currencies along with net investments in
different foreign functionalities (Leung
x

et al. 2014).
2. CSL carries out intricate business
accounting that includes calculations of
taxes for respective governments and
abiding by tax rules. Essentially, it can
be considered as a great risk as company
need to be adaptable to alterations in
local legislation exerting influence on the
entire business community.
3. Multiple locations of operations and
global expansion of operations can
enhance productivity on one hand and
increase intricacies of regulatory as well
as legal burden (Messier et al. 2015).
Locations in different multiple
worldwide locations can aid and firms to
refer to opportunities generated by
convergence of both worldwide audit as
well as accounting standards.
4. The company is listed under ASX and
has the need to follow all the listing rules
of ASX and abide by 8 principles of
ASX Corporate Governance issued by
the Corporate Governance Council.
Adherence to this principles can help in
enhancement of materiality of the firm
(William Jr et al. 2016).
Conclusion: Overall
inherent risk level
We considered the risk of auditing as
moderate.
The above mentioned study helps in
understanding nature of business of the
company. Prior audit reports of the
company are also reviewed in detail to
present comparative study and identify
changes in mechanisms of audit and
results of audit. Review on initial as
against repeated audit is also presented
and justification of auditor rotation for
averting material misstatements is also
presented. Non routine transaction that is
x

identified in the present case include the
cash transactions. Again capital
development cost is also anon-routine
transaction that has the need of
comprehending capitalised rate as well
as timing. Different quantity of estimate
is also mentioned in the current study at
hand for diverse accounts. Moving
further, the study presents potential risk
areas for the company and potential areas
of risk.
As the business transactions in the case
of CSL are complex, certain inherent
risks have higher likelihood of
occurrence.
Therefore, inherent risks are involved in
managing currency fluctuation and
interest rate risk, adherence to listing
rules, undertaking intricate business
accounting (that is to say, tax
calculation), difficulties in convergence
of audit as well as accounting standards
in global operations.

References
Annualreports.com. (2018). [online] Available at:
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_CSL_2016.pdf [Accessed 6
May 2018].
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance services.
Pearson.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.
Leung, P., Coram, P., Cooper, B.J. and Richardson, P., 2014. Modern Auditing and Assurance
Services 6e. Wiley.
Messier, W.F., Glover, S.M. and Prawitt, D.F., 2015. Auditing & Assurance Services: A Systematic
Approach. Qing hua da xue chu ban she.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.