AF 304 Semester 2 Auditing Assignment: Las Vegas Group Corporation

This report presents an analysis of audit reports for five subsidiary companies of the Las Vegas Group Corporation, a multinational corporation operating in various countries. The report begins with an introduction to audit reports and their importance in providing an independent opinion on financial statements. It then proceeds to analyze the audit reports of Carpet International Limited, Fashion Designers Limited, Computek Electronics Limited, Enron Electronics Limited, and General Machinery Company Limited. The analysis includes the application of analytical procedures such as ratio analysis (current ratio, acid test ratio, debt-to-equity ratio, and profitability ratios) to assess the financial performance and position of each subsidiary. Based on the findings from analytical procedures, the report evaluates the effectiveness of substantive procedures, including verification of documents and account balances. The report concludes by summarizing the key findings of the audit and emphasizing the limitations of an audit in providing absolute assurance. The report highlights the importance of considering the audit report and financial statements with this understanding.

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
Name of the Student:
Name of the University:
Authors Note:

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AUDITING THEORY AND PRACTICE
Contents
Introduction:....................................................................................................................................2
Auditor’s report for the group:........................................................................................................2
Section 1:.....................................................................................................................................2
Section 2:.....................................................................................................................................7
Section 3:...................................................................................................................................10
Section 4:...................................................................................................................................13
Section 5:...................................................................................................................................14
Conclusion:....................................................................................................................................15
References:....................................................................................................................................17

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AUDITING THEORY AND PRACTICE
Introduction:
Audit report of a company is prepared by an independent qualified auditor to express his
independent opinion on the financial statements of the company. The opinion is formed on the
quality of financial statements and whether these statements are correctly reflecting the true and
fair picture of the company. In order to express an appropriate opinion on the financial
statements an auditor must collect necessary evidence by using substantive and analytical
procedures as per the international standards on auditing. In this document brief audit reports of
five subsidiary companies of Las Vegas Group Corporation has been provided for the readers to
assess the state of affairs and performance of these five subsidiaries in recent years.
Auditor’s report for the group:
Las Vegas Group Corporation is the largest multi-national company in USA as per the
information provided in the case study. The company has five subsidiary companies with which
it operates in different parts of the globe including Australia, New Zealand, Hong Kong,
Singapore, Malaysia, China, Japan, and Fiji. The audit of these five subsidiaries companies have
been conducted here by adhering to the international auditing standards.
Section 1:
In order to conduct the audit of an entity firstly, it is important to have knowledge about the
entity and its environment. IAASB provides that before staring out an audit it is important to
have detailed knowledge about the entity and its operations.
In this case firstly, it is clear that Las Vegas Group Corporation has its export business stretched
to different parts of the world including countries such as Australia, New Zealand, Hong Kong,
Singapore, Malaysia, China, Japan, and Fiji. Thus, the operations are bound to be conducted in

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AUDITING THEORY AND PRACTICE
international currencies thus, specific attention must be given on translation of foreign exchange
transactions and the policy used by the company to state the transactions affected in foreign
currencies.
Listed in NYSE, Carpet International Limited manufactures and sells carpet in different parts of
the country and around the globe.
The performance and state of affairs of the company can be assessed by using the analytical
procedures effectively. Based on the findings of analytical procedures the auditor will conduct
substantial procedures. Thus, it would not wrong to state that the extent of substantive
procedures would depend on the findings of analytical procedures for the subsidiary of Las
Vegas Group Corporation. In fact the substantive procedures for each one of the five subsidiary
companies would depend on the findings of analytical procedures.
Analytical procedure:
Analytical procedures are methods used to assess the abnormal and normal fluctuations in the
financial position and performance of an organization. It helps in identifying areas within
financial statements that could be materially misstated. Ratio analysis, analysis of financial
statements are included in analytical procedures.
Calculation of profitability, liquidity and solvency ratios of Carpets International Limited:
Total Current Assets 8,26
1.00
6,04
8.00
Total Current Liabilities 8,14
3.00
10,58
3.00

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AUDITING THEORY AND PRACTICE
Current ratio 1.
01
0.
57
Acid test ratio
Current assets less inventories 4,637.
00
4,001.
00
Total Current Liabilities 8,14
3.00
10,58
3.00
Acid test ratio 0.
57
0.
38
Debt to equity ratio
Debt 22,000.
00
20,000.
00
Equity 8,334.
00
6,372.
00
Debt to equity ratio 2.
64
3.
14

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AUDITING THEORY AND PRACTICE
Capital gearing ratio
Fixed interest bearing securities 27,000.
00
27,500.
00
Equity 8,334.
00
6,372.
00
Capital gearing ratio 3.
24
4.
32
Profitability ratios
Gross profit 6,702.
00
4,515.
00
Revenue 20,007.
00
19,943.
00
Gross profit ratio 33.
50
22.
64
Net profit ratio
Net profit 1,962. 896.

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AUDITING THEORY AND PRACTICE
00 00
Revenue 20,007.
00
19,943.
00
Net profit ratio 9.
81
4.
49
Both current and acid test ratios of the company have improved in the current year as compared
to the preceding year. This indicates improvement in the ability of the company to pay off its
current liabilities using current and liquid assets in the current year. Debt to equity ratio in the
current year at 2.64 as compared to 3.14 of the preceding year suggest that the company has
taken additional long term loan to finance the operations of the company.
Both gross profit and net profit ratios of the company show significant increase in the ability of
the company to earn profit from its business operations. From 22.64% to 33.50% in gross profit
of the company in the current year along with net profit ratio of 9.81% from 4.49% clearly
indicating that the performance of the company has improved in this year significantly (Min
Choo et al., 2016).
Substantive procedures:
Verification of documents along with financial statements of the company is part of substantive
procedures. From the financial statements and other document verification there is no evidence
to suggest that the company has materially misstated the financial statements. Thus, financial

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AUDITING THEORY AND PRACTICE
statements of the company genuinely showing a better performance and financial position as far
as the liquidity position of the company is concerned for the current year (Song, 2018).
Section 2:
Fashion Designers Limited is another subsidiary of Las Vegas Group Corporation (LVGC) that
controls the use of accessory brand names in all across the globe. The company mainly operates
out of Australia with its expansion strategy is firmly set on Asia and Eastern Europe.
Analytical procedures:
Calculation of operating, liquidity and solvency ratios:
Current ratio 31-12-93 31-12-92
Total Current Assets 602,70
0.00
531,
200.00
Total Current Liabilities 757,74
0.00
620,
330.00
Current ratio 0
.80 0.86
Acid test ratio
Curent assets less inventories 412,998.
00
377,22
2.00
Total Current Liabilities 757,74 620,

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AUDITING THEORY AND PRACTICE
0.00 330.00
Acid test ratio 0
.55 0.61
Debt to equity ratio
Debt 472,680.
00
428,44
0.00
Equity 428,780.
00
398,47
0.00
Debt to equity ratio 1
.10 1.08
Capital gearing ratio
Fixed interest bearing securities 472,680.
00
428,44
0.00
Equity 428,780.
00
398,47
0.00
Capital gearing ratio 1
.10 1.08

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AUDITING THEORY AND PRACTICE
Income tax ratio
Income tax 25,970.
00
24,72
0.00
Operating profit before income tax 96,170.
00
86,97
4.00
Income tax ratio 27.
00 28.42
Unlike Carpets International Limited, both current and acid test ratios of Fashion Designer
Limited have deteriorated in the current years as compared to proceeding years as can be seen
from the above calculation. Increase in proportion of debt is also clear with the increase in debt
to equity ratio in latest year as compared to preceding year. Both suggest deterioration liquidity
and solvency position of the company (Lin and Fraser, 2018).
However, both operating profit before and after tax of the company have increase in the latest
year as compared to the preceding year. In addition the overall income tax paid on the profit has
also reduced in the latest year with 27% of profit before tax in latest year paid as income tax
whereas it was above 28% in the preceding year.
Substantive procedures:
There is no abnormal fluctuation in either profit or financial assets of the company hence, the
substantive procedures include vouching, verification of accounts balances, physical verification

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AUDITING THEORY AND PRACTICE
of fixed assets and cash in hand along with other substantive procedures show there is nothing to
suggest that there could be any error or fraud in the financial reporting of the company. Thus, the
financial statements of the company are showing true and fair picture of the company as on the
relevant dates and period (Kostova, 2017).
Section 3:
A wholly owned subsidiary company of LVGC, Computek Electronics Limited imports and
distributes modems and personal computers in different parts of the globe.
Analytical procedures:
Let us calculate necessary ratios from the available data to identify any possible area of
misstatements in the financial statements of the company.
The calculation profitability, liquidity and solvency ratios are provided in the table below:
10 months 12 months
Current ratio 31-10-98 31-12-97
Total Current Assets 18,229
.00
33,53
0.00
Total Current Liabilities 17,427
.00
28,84
9.00
Current ratio 1.
1.16

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AUDITING THEORY AND PRACTICE
05
Acid test ratio
Current assets less inventories 10,506.0
0
15,457.
00
Total Current Liabilities 17,427
.00
28,84
9.00
Acid test ratio 0.
60 0.54
Debt to equity ratio
Debt 14,517.0
0
14,817.
00
Equity (26,468.0
0)
(22,816.
00)
Debt to equity ratio (0.
55)
(0
.65)