CQUniversity Auditing and Ethics Report: Northern Star Ltd, 2019

This report analyzes an auditing and ethics report based on the annual report of Northern Star Ltd. It begins with an assessment of materiality and the scope of the audit, examining how materiality is determined and its impact on financial statements. The report then reviews draft notes and disclosures, focusing on significant items like dividends and business combinations. Section 2 performs an analytical review of the financial statements, calculating and interpreting profitability, liquidity, and efficiency ratios. Section 3 analyzes the cash flow statement, highlighting cash flows from operating, investing, and financing activities. The report concludes with a review of the auditor's report and the application of the going concern principle. This report is a comprehensive analysis of the audit process and financial statement analysis.

Running head: AUDITING AND ETHICS
AUDITING AND ETHICS
Name of the Student:
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Author’s Note:

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Table of Contents
Section 1....................................................................................................................................2
Materiality and Scope of Audit.............................................................................................2
Review of Draft Notes and Disclosures................................................................................4
Section 2....................................................................................................................................6
Analytical Review of the Financial statements.....................................................................6
Section 3....................................................................................................................................9
Analysis of the Cash flow statement.....................................................................................9
Review of the Auditor Report.............................................................................................11
Reference.................................................................................................................................11

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Section 1
Materiality and Scope of Audit
The assessment would be focusing on the materiality aspect of the business and the
different processes which is applied by the management of the company for the purpose of
reviewing the materiality of the business. The concept of materiality states that an item is
considered to be material if the same has important impact on the financial statements of the
business or is of complex nature or is of significant amount (Appelbaum, Kogan & Vasarhelyi,
2017). The auditor of a business decides whether an item of the financial statement is misstated
or not on the basis of the materiality of the items. Therefore, it can be said that the judgement of
the auditor relies on materiality aspect of an item. In this case the company which is considered
is Northern Star ltd which is listed in Australian Stock exchange (Nsrltd.com., 2019). The
company Northern Star ltd is listed in top 25 companies which are gold miners in the region.
The concept of materiality is a fundamental concept with in the scope of audit as the
auditor relies on the planning materiality of a business to determine whether a financial statement
is properly presented in the financial accounts of the business. In order to get an estimate of
materiality, the auditor needs to apply his judgement and consider a percentage on the basis of
which planning materiality of the business is computed. The auditor of the business needs to take
a base on which the percentage would be applied to compute planning materiality of the
business. The planning materiality of the business is computed considering either qualitative
factors or it can also be computed considering quantitative factors. The qualitative factors
include items which are significant for the financial statements while quantitative factors include
items which are of numerically of higher value (Müller-Burmeister & Velte, 2016). The
percentage which is to be charged for determining materiality are up to the judgements of the

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auditor depending on the size of the business and nature of its operations. The planning
materiality is then used for ascertaining the performance materiality of each item.
The annual reports for 2018 is considered for Northern Star Ltd for the purpose of
computing the materiality of the business. As per the annual report of the business, there has
been significant increase in the total asset of the business which is an indication that the business
is moving forward with an objective of maximising the wealth of the business. The figure of total
assets is shown to be $ 12,16,870,000 which is highest and it is even more than the sales which is
achieved by the business. The materiality computation is generally done considering the highest
value which is presented in the annual reports of the business (Pike, Curtis & Chui, 2013). An
estimate for computing planning materiality of the business is considered to be 5% of the base
amount which is the total asset figure of the business. The computation of planning materiality is
shown in the equation below:
Planning Materiality=Total Asset∗5 %
¿ $ 1,216,870,000∗5 %
¿ $ 60,843,500
On the basis of the estimate which is computed above, performance materiality of the business
would be taken into consideration.
Review of Draft Notes and Disclosures
The draft notes and disclosures are appropriately shown in the annual reports of Northern
Star Ltd for the year 2018 which has significance of its own as they relate to complex treatments

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of the business. The significant items which are shown in the notes to account section of the
annual reports are listed below:
Dividends:
The dividend payment which is undertaken by the management of the company is of
significant amount as per the notes to account section of the annual reports. The auditor needs to
check the balances of dividend so that there is no misrepresentation in the same.
The auditor needs to assess the balances of the final dividends which is paid by the business
and ensure whether the same have been actually given to the shareholders or not.
Business Combinations:
The annual reports of the business show business combinations which have taken place
during the years. The notes to account sections shows that the business has acquired licenses and
exploration and evaluation assets from the business combinations which needs to be valued
appropriately. The auditor of the business needs to check such balances in such a manner that

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there are no discrepancies in the amounts which are represented in the notes to account section of
the annual reports.
Total Assets:
The total assets of the business are disclosed in the balance sheet of the company and the
auditor of the business needs to check the viability of the items which are presented in the
balance sheet of the business. The auditor needs to ensure that the assets of the business are
properly valued considering the values which is shown in the balance sheet of the company.
Section 2
Analytical Review of the Financial statements
Analytical review is one of the techniques which is available to the auditor in which
significant ratios are computed from the financial statements which informs about various
aspects of the business. The ratios which are considered relate to different areas of performance
of the business. Some of the key ratios of the business are discussed below in details:
Profitability Ratios
Source: (Morningstar.com 2019)

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The above figure represents the profitability ratios of the business which includes
important ratios which are gross profit margin, net profit margin and operating margin. There has
been a slight increase in the sales of the business which in turn shows that the profitability of the
business has increased significantly during the period. The increase in the profitability of the
business suggest that the management of the company is trying to improve the profits which is
earned by the business. Another figure which is presented below shows the financial review of
the business with the help of trend analysis of key estimates which are important for the purpose
of taking major business decisions. The auditor in such a case would be applying vouching
practices in order to assess the expenses and income of the business so that the same are showing
appropriate values and they do not affect the net profit of the business.
Figure: Key financial Results
Source: ((Nsrltd.com., 2019))

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The financial review also shows that the net profit of the business has increased slightly
which shows that the management of the company is taking steps for enhancing the profits which
is generated by the business.
Liquidity Ratios
Source: (Morningstar.com 2019)
The liquidity ratios are considered to be an indicator of how well the management of the
company are handling the finances of the business. The liquidity ratio as per the above table
shows that there has been a slight increase in the same for 208 which indicates that the liquidity
position of the business has improved slightly. This also indicate that the business is trying to
have extra cash in hand in order to meet any immediate obligations of the business. However,
there is a slight decrease in the quick ratio of the business which must be considered by the
management of the company. The auditor needs to apply verification strategies for appropriately
valuing the assets of the business. The auditor can look in the assets and verify the values to
ensure that everything is showing true and fair view (Louwers et al., 2015).
Efficiency Ratios

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Source: (Morningstar.com 2019)
The efficiency ratio of the business effectively represents the ability of the business to use
the assets of the company in an appropriate manner. There has been a slight decrease in the
debtor turn over ratio which may be due to change in debtor’s policy of the business which
directly results in affecting the sales revenue of the business. The inventory turnover ratio also
shows a slight decrease which is mainly due to ineffective usage of inventory of the business.
The analysis of the above ratio shows that the management of the company needs to improve the
overall efficiency of the business in order to ensure that the business structure of the business is
not affected in nay manner. The auditor of the business needs to check some of the major
account balances which might have material misstatements such as inventory, debtors and
creditors balances. The auditor needs to apply vouching practices in order to ensure that the
financial information which is included in the annual reports are showing true and fair view.
Section 3
Analysis of the Cash flow statement
The cash flow statement is a basic presentation of the cash inflows and outflows of the
business and forms an important part of the annual reports of a business. The cash flow statement

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for Northern Star ltd for the year 2018 shows cash from operating activities, investing activities
and financing activities.
The cash flow from operating activities of the business includes core business activities
of the business and it is from such activities that the management of the company generates
maximum cash inflows and also incurs maximum cash outflows. The cash flow statement of the
business for the year 2018 shows that the management has genera (Bhandari & Iyer, 2013).ted
maximum cash flow from receipts from customers which is shown to be of $ 966,770,000 which
is of significant amount. The maximum cash outflow is also shown in the operational activities
of the business which is shown to be from cash paid to suppliers which is shown to be $
520,486,000. The cash generated from operations of the business is shown to be much higher in
comparison to previous year which shows that the business is growing.
The cash from financing activities of the business for the year 2018 is shown to be
significant low and it is even negative which is mainly due to the numerous purchases which is
made by the management of the company during the period. The purchases of the assets shows
that the management of the company is trying to expand the scale of operations and thereby
collecting more assets. The management of the company has also sold off some of the previous
assets of the business.
The cash flow from financing activities of the business is shown to be negative as the
business has undertaken dividend payments and lease payments during the period which is of
significant amount.
The principle of going concern is a fundamental principle of accounting and it is also
referred by the auditor of the business while conducting the audit of the business. The

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profitability ratio for the company is shown to be favourable and there is rise in the same as well
which suggest growth. The management of the company is purchasing assets with a view of
expanding the operations of the business which signifies that the business is trying to expand in
operations. The liquidity ratio of the business is shown to be appropriate which is also a
favourable sign for the business. The auditor of the company must not consider going concern
principle as there is no sign present which can suggest that the going concern of the business
might be affected.
Review of the Auditor Report
The report of the auditor provides the opinion regarding the accuracy of the financial
statement of the business. As per the opinion of the auditor the financial statements are prepared
following relevant accounting standards and followed provisions of Corporation Act 2001 and
therefore are also showing true and fair view. The key audit matters are there which the auditor
of the business must consider before providing an opinion on the financial statement of the
business.

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Reference
Appelbaum, D., Kogan, A., & Vasarhelyi, M. A. (2017). Big Data and analytics in the modern
audit engagement: Research needs. Auditing: A Journal of Practice & Theory, 36(4), 1-
27.
Bhandari, S. B., & Iyer, R. (2013). Predicting business failure using cash flow statement based
measures. Managerial Finance, 39(7), 667-676.
Investments, B., Portfolio, Y., FundsETFs, I., Funds, M., Tools, T., & Screener, B. et al.
(2019). NST Northern Star Resources Ltd Stock Analysis, Price & History |
Morningstar. Morningstar.com. Retrieved 13 May 2019, from
https://www.morningstar.com/stocks/XASX/NST/quote.html
Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C.
(2015). Auditing & assurance services. McGraw-Hill Education.
Müller-Burmeister, C., & Velte, P. (2016). Increased materiality judgments in financial
accounting and external audit: a critical comparison between German and international
standard setting. International Journal of Critical Accounting, 8(3-4), 227-245.
Nsrltd.com. (2019). Northern Star – Annual Reports . [online] Available at:
https://www.nsrltd.com/investor-media/reports/annual-reports/?
doing_wp_cron=1557754899.2553660869598388671875 [Accessed 13 May 2019].