Auditing and Assurance Report: Seven West Media Ltd Analysis

This report provides an in-depth auditing and assurance analysis of Seven West Media Ltd. It begins with a summary of the company's background and an assessment of its business risks, including strategic, compliance, operational, and financial risks at both industrial and economic levels. The report then details the use of experts in the auditing process, including the nature, timing, and scope of audit procedures. Preliminary analytical procedures are presented, including liquidity and profitability ratios, along with a trend analysis of key financial metrics. An interpretation of the financial analysis is provided, highlighting the trends in liquidity, profitability, and solvency ratios. Finally, the report assesses inherent risks, including fraud, going concern, and related party risks, along with the accounts and assertions affected by these risks. The report uses financial data from 2015 and 2016 to support its findings.

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Auditing And Assurance
Name:
Course
Professor’s name
University name
City, State
Date of submission

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1.0Business Risk Assessment
1.1 Summary of client background
Seven west Media Ltd is a listed company in the ASX and is one of the largest diversified media
business in Australia. The company was formed after West Australian Newspapers acquired
Seven Media Gruop. The company has dominance in the media industry, having a leading
presence in radio, television broad cast, online and magazine publishing as well as newspaper
publishing (Advanced audit and assurance, 2013). The company has grown to be the largest
commercial television network in Australia and is still making moves to create value to its
shareholders by merging and acquiring various companies to boost its bottom line. The company
announced that it intends to merge with West Australian Newspaper Holding Ltd (WAN) in a
bid to increase its market share(Audit and assurance services (UK), 2007).
1.2 Business Risks
Companies face all kinds of risks, some are likely to cause serious losses or even bankruptcy.
Seven media Ltd has put up departments that deal with risk management. The following are the
risks that Seven West Media Ltd faces in the environment that it is operating under.
Strategic Risk

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In a world where changes are occurring everyday that may affect the business, it is important for
a business to have proper and well laid plans that may counter technological changes, new media
companies entering the market, shifts in customer demand and changes in price of raw materials.
This is why Seven West Media Ltd has been merging and acquiring other companies to
minimize this risk(BPP LEARNING MEDIA., 2017).
Compliance Risk
Laws change all the time and there is always a risk that a company will be required to comply
with additional laws and regulations in future. The company should ensure that it complies with
all the necessary laws of the land because it may risk closure. Being a company that is listed in
the Australian Stock Exchange, the company faces numerous laws for its shares to be traded in
the bourse. Australia has put in place many laws to regulate the media industry and others laws
are still being made, thus the company faces the risk of not complying with new laws of the land.
The company still faces compliance risk by expanding the product line(Audit and assurance
(United Kingdom), 2012).
Operational Risk
This is an internal risk that stems out of the company’s day to day operations. The failures of the
company, for example, server outage, machine break down, technical failure, people and
processes are all forms of operational risks. For a media company, such failures can result to
huge losses in terms of profits and market share. In some instances, operational risks may stem

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out from events that are out of control by the company such as power cut, natural disaster or
even a problem with the company’s website host. This is why the company needs to put in place
measures that may mitigate against this type of risk(Bagshaw, n.d.).
Financial Risk
This is type of risk refers to the money flowing out and into the company and the possibility of
loss of finances (Graham, 2008). For example if a substantial part of the company’s profit
coming from one stream and debts from the financiers.
1.3 Business risk industrial level
Business risks can be included within the strategic risks of an organization. Strategic risks are
risks that arise from the strategic position that the organization takes in the environment in which
it develops its activity, therefore they have a double source: on the one hand the own strategic
decisions that the organization takes and on the other the environment in that these decisions
materialize. In that sense, we can distinguish business risk fro economic risk(Mesa Graziano and
Holtzman, 2005).
1.4 Business risk economy level
Business Risks: Risks of strategic decisions about products and services or about the
organization itself.
Non-business risks: External risks arising from the organization's environment, for example
from competitors, regulators, public authorities, society,

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Compliance risks- in the media industry, compliance with the rules and regulations of the
industry is required. The relevant regulatory authority must ensure that the laws are followed for
compliance purposes. Failure to comply will lead to punitive measures and actions against the
media house.
Financial risk- this is the risk that the company faces due to its failure to comply to its financial
needs. Financial risk leads to crippling of the company in terms of its financial requirements and
operational inefficiencies.
Operational risk is also another risk that seven can face in the business and the industry due to
inability of the company to efficiently do its business. The operations of the business will lead to
risks that are either inherent or outside the scope of the company(Mesa Graziano and Holtzman,
2005).
Reputational risk- can be brought by the company having a bad name and it takes time for it to
recover the good name that it previously had
When the auditor supports his or her work with the use of the work of an expert does not mean
that when expressing an audit opinion diminishes the responsibility of the auditor, however, the
auditor may conclude that the expert's work is adequate for his purposes and accept the findings
or conclusions in the field of expertise of the expert as a valid argument in the audit for support
as evidence(Carey and Stulz, 2006).
1.3 Use of an expert
When management has made use of the work of an expert for the preparation of financial

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statements, the auditor may, as previously stated, determine whether it requires the use of the
work of an expert or not, but this does not negate that there may be some kind of influence on the
procedures performed by the management expert, their scope, objectives, capabilities,
competencies and so on with respect to the auditor, thus enabling the auditor to make sound
decisions in accordance with the referents previously consulted.
Nature, timing and scope of audit processes: When using the work of an expert, it is possible that
the risk of detecting significant risks may increase, as there may be limitations of knowledge in
certain particular fields other than accounting or audit that the management or the auditor cannot
unravel in a simple way. Although the auditor who is not an expert in a relevant field other than
accounting and / or auditing may obtain sufficient training, which may be the result of
experience in other auditing entities that have required expertise in a particular field in the
process of the financial statements, or in the same way the auditor can obtain it with education,
courses or other moments that have allowed him to have an understanding in a particular field, so
that the auditor can perform the audit without the use of an expert.
2.0 Preliminary Analytical Procedures
Liquidiy
Ratio
Specific
ratio
Formulae 2016(in
millions)
2015(in
millions)

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Current
Ratio
Current assets/ Current
Liabilities
631/460=1.37 574/412=1.39
Quick
Asset
Current assets-inventory/
Current Liabilities
631-
22/460=1.32
574-
22/412=1.34
Cash flow
ratio
Cash flow from
operations/current liabilities
202/460=0.44 283/412=0.69
2.1 preliminary Analytical procedures
Ratio Specific ratio Formula Year 2015 Year
2016
Profitability
Ratio
Net profit ratio Profit Margin = Net Income
/ Net Sales (revenue)
(386)/2780
=(0.139)
197/2828
=0.07
Return on total assets
ratio
ROTA= EBIT/Total Net
Assets
Where EBIT= Net Income
+ Interest expense Tax
(768)/5361
=0.143
208/5231
=0.039

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Return on
shareholders’ equity
ratio
RSE= Net profit/
Shareholders Equity
(386)/2797
=(0.138)
197/2655
=0.07
Solvency
Ratio
Times interest earned
ratio
TIE= EBIT/ Interest
expense
( 768)/103
=( 7.45)
208/94
= 2.212
Debt to equity ratio Debt to equity ratio= Total
Liability/ Total Equity
460/1195
=0.385
412/1253
=0.329
TREND ANALYSIS
2016(in
millions)
2015(in
millions)
Increase/decrease %change
Revenue 1721 1770 -49 49/1770=2.7%
Income 184 (1881) 2065 109.8%
Net cashflow
from operating
activities
202 283 -81 28%

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Expenses 561 579 -18 3.1%
Cost of sales 675 694 -19 2.7%
2.3 Interpretation of financial Analysis
Liquidity ratios
The ratios in liquidity seem to be decreasing from 2015 to 2016. The current ratio drops from
1.39 to 1.37 in 2015 and 2016 respectively. In this case the company is doing well although
marginally.
Profitability ratio
The company has started to be profitable in 216. In the previous year 2015 it was running at a
loss where all the profitability ratios were a negative ratio. In 2016, the company is doing well.
Solvency ratio
Times interest earned ratio increases in 2016 but the debt to equity ratio decreases in 2016. This
means that the company earned well in 2015 but reduced its interest earning in 2016.
3.0 Inherent risk assessment
3.1. Fraud risk
Fraud in a company is almost prone to happen if a company has weak internal control systems to

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militate against fraudulent activities. A company may face the following fraud risk ;
Financial fraud- this is the most common type of fraud faced by companies in the media business
and industry. It is orchestrated by rogue employees or external forces that are willing to gain
financially from the company. Seven has strong internal financial controls that help in
safeguarding and securing their finances. Other fraud may include insurance fraud, fraudulent
statements or misstatements of financial reporting and bankruptcy. In this cases of fraud,
International audit standard 620 basically defines the auditor's responsibilities when he is
auditing the financial statements and finds certain areas in which he does not have the capacity to
dictate, due to the limitations in specific knowledge detected, for which he links the work of a
person or specialist organization in a field other than accounting and auditing, ie the work of an
expert who is characterized by sufficient skill, knowledge and experience in that field and that in
some way this procedure seeks to assist the auditor to obtain sufficient appropriate audit
evidence (Atkinson, n.d.).
3.2. Going concern risk
Going concern is the assumption that a company will continue to be operational in the
foreseeable future.It is important to note that there are many risk factors for the going concern
assumption and that the company may risk its operational ability(Berk and DeMarzo, 2017). The
risk factors of seven in going concern include the following; financial fraud that may affect
normal business operations of seven rendering it nonfunctional and almost defunct. Regulatory
and compliance risk where the regulator which is usually the government in many cases comes

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up with strigent measures that affect the media leading to closure of business. Other risks include
business risk where the environment becomes non conducive leading to the company being a
gone concern(Krainer, 2003).
3.3. Related party risk
Competition is a risk factor that emanates from related parties. This is because seven will face a
lot of competition from the industry peers and therefore being a risk factor.
3.4. Inherent Risk Assessment
Inherent
Risk
Accounts and Assertions
Affected
Reason
Audit risk Cash and bank account- and the
assertions are that a lot of
financial resources will be put into
the audit risk to see the risk
involved.
The reason why the account is affected is
because these risks involves financial
resources consumption of the company
where the accounts are usually bank and
cash accounts operated.
Operational Profit and loss account- and the The reason why the account is affected is

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risk assertions are that a lot of
financial resources will be put into
the audit risk to see the risk
involved
because these risks involves financial
resources consumption of the company
where the accounts are usually bank and
cash accounts operated.
Financial
risk
Cash and bank account- and the
assertions are that a lot of
financial resources will be put into
the audit risk to see the risk
involved
The reason why the account is affected is
because these risks involves financial
resources consumption of the company
where the accounts are usually bank and
cash accounts operated.
Business risk Cash and bank account- and the
assertions are that a lot of
financial resources will be put into
the business risk to see the risk
involved
The reason why the account is affected is
because these risks involves financial
resources consumption of the company
where the accounts are usually bank and
cash accounts operated.
Compliance
risk
Cash and bank account- and the
assertions are that a lot of
financial resources will be put into
the audit risk to see the risk
involved
The reason why the account is affected is
because these risks involves financial
resources consumption of the company
where the accounts are usually bank and
cash accounts operated by Seven company.
Reputational
risk
Good will account of the
company- and the assertions are
The reason why the account is affected is
because these risks involves financial