HA3032 Auditing Report: Risk Assessment of Sultan Resources Limited

This report provides a comprehensive auditing analysis of Sultan Resources Limited, covering key aspects such as risk assessment, the audit risk model, and analytical procedures. It identifies various business risks, including market, credit, and liquidity risks. The report delves into the risk of material misstatement, differentiating between inherent, control, and detection risks. It employs the audit risk model to evaluate the interrelations among these risks. The analytical procedures section includes ratio analysis to assess the company's financial position. The report identifies material accounts, related assertions, and appropriate audit procedures, concluding with a sampling plan. Overall, the report offers a detailed overview of the audit process and its application to Sultan Resources Limited.

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Auditing

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Executive summary
The report has covered all the aspects in relation to the audit and its risk. There is the
determination of the various risks in the sultan resources limited. It has been identified that there
is a low level of risk which is involved and the analytical process is then followed. In that the
ratios have been calculated and by that the profitability and position of the business have been
evaluated. The audit risk model has been considered for the identification of the interrelations
which exists among all of the risks. The key material accounts have been identified the roper
assessment is made in relation to them. There is the identification of the assertions which are
related to them and in that the evidence and procedure which will be involved are identified. The
method of sampling which will be applicable has also be identified with the size of the sample
that will be used.

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Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Overview of the company and Key business risks..........................................................................5
Risk of material misstatement.........................................................................................................5
Audit risk model..............................................................................................................................7
The analytical procedure of financial statements............................................................................8
Materiality........................................................................................................................................9
Material accounts, assertions, and audit procedures......................................................................10
Sampling plan................................................................................................................................13
Conclusion.....................................................................................................................................15
References......................................................................................................................................16

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Introduction
In the business, there are various aspects which need to be evaluated and in that risk is the most
important. For the identification of the same there will be undertaking of the audit which will be
performed in the company in an effective manner. The report will be covering all of the aspects
in this respect with reference to the Sultan resources limited. All of the business risks which are
included will be identified and there will be proper description which will be provided. The risk
assessment will be made and in that there will be consideration which will be provided to the
inherent risk and control risk. The financial aspects of the business will also be required to be
evaluated and for that there will be undertaking of the ratio analysis. By the help of that the
profitability and financial position of the business will be analyzed. In the books there are
various material accounts and it is required that they all shall be taken into account in appropriate
manner. Ten accounts will be selected in the given case and then there will be determination of
the assertions which are related to them will be made. There will be specification of the audit
procedure which will be followed in respect of them. The sampling plane will also be provided
for them in which the manner in which samples will be selected is described.

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Overview of the company and Key business risks
The project is made in relation to the Sultan resources limited and this is the company which is
dealing in the mineral exploration activities. It is situated in Western Australia and covers the
projects which are related to the copper, cobalt, nickel, and gold. The listing of the company has
been made on 15 August 2018 in the Australian securities exchange (Sultan resource Limited,
2019). There are several projects which are undertaken by the company and on the license are
available and proper exploration is carried.
The company performs various tasks and in that, they are exposed to the risk which includes the
following:
Market risk: This is the risk which is to be borne by the company due to various market
circumstances. There are several changes which take place in the market such as the foreign
exchange risk which is due to the fluctuations in the market that are taking place in the exchange
rate. In addition to them, there is the interest rate risk which is involved. The value of the
financial instruments fluctuates with the change in the interest rate and it acts as the risk for the
business.
Credit risk: There are several financial assets in the company and the credit risk is involved in
relation to them. In the assets, there is the inclusion of the trade receivables, cash balance, and
many other assets. If there is any default which is made by the counterparty then the risk arises in
the company (Born and Pfeifer, 2014). The maximum amount of the risk involved in this will be
up to the carrying amount of the asset.
Liquidity risk: There are several liabilities which are required to be met by the company and in
case they are failed to be repaid then that will be considered as the risk of the company. Due to
this, it is required that the liquidity shall be maintained in the company by which it will be
possible to meet all the obligations on time. Cash reserves are maintained by the company and by
that it is able to avoid the liquidity risk which is involved.
Risk of material misstatement
A misstatement is an issue which is faced by the companies and in that there is the wrong entry

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which is made in relation to the several account balances. This is the key risk and it is required
that they shall be identified and then the appropriate actions will be taken for the elimination of
them. It will be required to be ensured that the financial statements present the true picture of the
company. In this there are two categories which are involved and they are the inherent risk and
control risk.
Internal control is established in the company and in that there are various practices which are
followed. In some of the cases, it is weak and is not able to identify the mistakes which are made
in the reporting (Acharya and Naqvi, 2012). This is considered as the control risk and shall be
controlled. This is affected by the size of the transaction and also the internal conditions of the
business.
In the process of the reporting, there are several errors which are inherent and are not able to be
identified. They are due to the nature of the transaction and will be identified to be the inherent
risk. This will be existing in the business as it is inbuilt in the processes which are undertaken.
With reference to the above-identified two risks, there is another risk which is involved and that
is the detection risk. It is also the part of the audit risk which covered the chances that the other
risks will not be detected in the company. This will be changing with the change in the control
risk and so both are affected.
The business covers various such factors which affect the risk in the business and it is required
that proper consideration shall be paid to them. The inherent risk is inbuilt in the company and
that will be affected by the transactions which are taken and the liquidity which is involved in the
company. There are certain complex activities and processes which are performed and the
business will be affected by them and they will be increasing the risk which is involved (Chugh,
2016). They are required to be controlled as with them the business is affected in an adverse
manner. There is the chance of the increase in the errors which will be made and to avoid them
the risk will have to be controlled. In a similar manner, the control risk is also affected by various
aspects such as the environment in which the operations are carried by the business. The
monitoring process of the company shall be strong by which all of the errors which arise in the
business can be identified in effective manner. To control the risk all of the systems are to be
updated and by that the reporting will be made in the best manner and there will be reflection of

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the true position of business.
Audit risk model
Audit risk is the risk which is involved in the business and the auditor will be required to provide
with the opinion by considering them in the account. The complete audit risk comprises the three
elements which include the detection risk, inherent risk, and control risk. All of them will be
covered in this process and in that there will be identification of the relation which exists among
them. There is the audit risk model which is used and it can be described as:
Audit risk model = control risk X detection risk X inherent risk
In the initial stage, there are only two types of risks which are involved and they are the control
risk and inherent risk (Petraşcu and Tieanu, 2014). The material misstatement is made and that is
responsible for the inherent risk and if the control is not made in the same then it will result in
the control risk also. For that the control system of the company will be evaluated and there will
be establishment of the strong control. The auditor is the person who will be responsible for the
risk which is identified and therefore all of them together are determined to be the audit risk. The
auditor will be required to formulate such plan by which all of them will be taken into
consideration and they will be dealt in the most appropriate manner. There are certain situations
in which the risk which is involved is at higher level. In such cases it will be the duty of the
auditor to undertake the additional measures by which the risk can be controlled and the results
of the business can be improved. The evaluation of the complete situation will be made for the
identification of the involved risk together with the reasons which are responsible for the same.
The company involves the inherent risk and that will have to be controlled. If this is not made
then the control risk will be increasing. It will be required that there shall be proper detection of
the risk which is involved. The detection will be made and if the company is unable to identify
the risk then it will give rise to the detection risk. Due to this all of them are interrelated and will
be affecting each other. If the proper identification is made then the detection risk will be low
otherwise high.
Sultan resources have recently started its operations and due to that it has been identified that
there are fewer risks which are involved and the auditor has provided the unqualified report

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stating that there is the fair and true position which has been reflected (Huang et al., 2017). There
is a low level of the inherent risk which is involved and this shows that company has proper
control system which reduces the control risk as the internal control of the company is strong.
The detection risk will also be low as all of the risk will be identified by the internal control and
that will lower the risk of detection.
The analytical procedure of financial statements
Financial statement involves the financial information and it is required that the same shall be
presented in the appropriate manner. There is the need to carry the analysis of the information by
which the position of the business will be evaluated. There is the consideration of various aspects
in the same by which the performance and position will be measured. This can be done with the
help of the available techniques which there in this respect and one of them is ratio analysis
(Jans, Alles, and Vasarhelyi, 2014). This is the tool in which all of the information will be
considered and then the two aspects will be compared to ascertain the relation that exists among
them. The calculation in this respect has been provided below for the Sultan resources limited.
Ratio Formula 2018
Debt ratio Total liabilities/total assets 0.44
Net profit ratio Income/Sales *100 -88105.00%
Total asset turnover
ratio
Revenue / Total assets 0.0006
Current ratio Current assets/current
liabilities
1.650120335
Debt to equity Total debts/ Equity capital 0.77
The calculations have been made and by that, the proper evaluation will be made possible. The
position of the business has been analyzed and in that capital structure has been taken into
account (Imoniana et al., 2012). The proportion of the structure which is held by the equity and
the debt has been identified and it is calculated that the debt to equity ratio is 0.77. This shows
that company is debts which are less than the equity and they will be able to maintain them at the
same. There is the requirement of the funds and they will be available from both the sources
which will help in carrying the operations in an effective manner. The total debts in comparison
to the total assets are 0.44 and this shows that company has more of the assets and it will be
possible to deal with the liabilities.

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The profitability of the company is required to be analyzed and for that various available
profitability ratios are calculated. In this, the ratio of the profits earned is calculated with respect
to the sales which are made in the company. In the current year company has made losses and
they are at high rate. The ratio is for -88105% which is a heavy loss that company will be
required to recover. The main reason for the loss is fewer amounts of the incomes which are
made by the company. Due to the fewer revenues and high costs, the loss has been incurred.
In the business, there are various obligations which are required to be met as and when they
arise. They are the ones which will be arising in the coming year and company will have to pay
them. For this the liquidity of the company will be analyzed in which the assets which are
maintained by the company will be evaluated. It will be identified that whether the company is
maintaining the required amount of the assets which are required to cover the liabilities. In this
there is the consideration of the current assets and current liabilities. For this purpose there is the
calculation of the current ratio and the same in the given case is derived to be 1.65 (Sultan
resource Limited, 2018). This is good and it shows that company has the required current assets
and will not be facing the issue in the making of the payment of the current liabilities. There will
be no overdue expenses which will be remaining in the company and it can be said that company
enjoys a strong liquidity position. The turnover ratio has been calculated in relation to the total
assets and it has been calculated to be 0.0006 which shows that there is not the proper turnover
which has been derived by the company. There is very less amount of the turnover which has
been earned with the help of the available assets. It can be seen that there is the amount which
has been invested by the company in the total assets but the company has made the proper
utilization of the same. If that would have been used then the revenues of the company would
have been high. Due to this it can be said that company is required to make the improvements in
the same.
Materiality
In the business, there are various accounts which are involved and out of them some are material
which will be affecting the decision making. They will be the ones in which error and
misstatement will be made and the position of the company will be affected. By the help of them
all of the information which is entered incorrectly will be taken into account so that the

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elimination of the same is made possible. The materiality can be decided with the help of
auditing standard ASA 320 that is set in this respect and the auditor will be required to take that
into consideration (ASA 320, 2009). By the help of this material accounts will be identified and
there are certain factors which are incorporated to make the proper determination. In this process
there will be consideration of the value of the transaction which is taking place. There are certain
events in which huge amount is invested and they are identified to be the material accounts as
they will be affecting the overall position of the business. There is a change to misstate them so
that the financial position of the company can be shown as better (Han et al., 2015). The nature
in respect of the account will be taken into account and by that the materiality will be
ascertained. There will be proper process which will be used in this as it will be difficult to
identify all of the accounts which are material. After this the errors will be identified and the
corrective measures will be taken to make the corrections in them.
Material accounts, assertions, and audit procedures
Account
Balance
Amount
(2018)
AUD
Assertions Audit Procedures Audit
Evidence
Cash and
cash
equivalents
106083 Existence:
The balance of the cash at
the end of the year will be
present with the company
and due to that this assertion
is applied.
 The receipts and
payments book
will be matched
with the bank
statement.
 All of the
differences
which are
Reconciliation
statement
Bank statement

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Rights & Obligations
The cash balance will be the
right of the company and it
can take that in use in any
manner.
identified in
them will be
checked and the
reason for the
same will be
identified.
Cash register
Account
receivables
148288 Completeness:
They will be incorporating
the balances which are due
from all the receivables and
due to that this assertion will
be made applicable (Titera,
2013).
Existence:
All of them will be present
on the reporting date and
will exist in the financial
statements of the company.
 The receivable
register will be
checked to
identify all the
receipts which
are made and
which are due.
 The accounts of
the debtors will
be checked to
cross verify the
account balance.
Bank statement
Receivables
records
Sales invoices
(Yoon et al.,
2015)
Exploration
and
99776 Completeness  All the
explorations
Exploration
agreements

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evaluation They are the non-current
assets which will be reported
in the financial statements.
Valuation
They will be valued as per
the specified methods and
policies.
which have been
done will be
evaluated.
 The documents
which are
available will be
analyzed.
 All the laws and
their
applicability will
be cross-
checked.
Payments
which are made
in this respect
Liability accounts
Trade and
other
payables
153240 Completeness:
There will be various
creditors and the balance of
all will be included
Existence:
They are the obligation of
the company which exists at
the year and end and will be
required to be borne in the
coming year.
 The purchase
invoices will be
checked with the
register to ensure
correct entries
are made.
 The bank
statement will be
evaluated to
identify the
payments which
have been made.
Purchase
invoices
Bank statement
creditor sheets