Inherent Risk Assessment of Myer Pty Ltd - Audit Report

This audit report provides an assessment of the inherent risk level for Myer Pty Ltd, a major Australian departmental store group. It considers factors such as the nature of the client's business, results of previous audits, and the distinction between initial and repeat audits. The report discusses the inhe...Read More

Running head: AUDIT
Audit
Name of the student
Name of the university
Student ID
Author note

1AUDIT
NAME of
your Entity
>>>
Myer Pty Ltd
DISCUSSION
FACTOR According to ASA200.13(n)(i) inherent risk (IR)
is a measure of the susceptibility of material
misstatement before considering any internal
controls.
LOW MODERA
TE HIGH
Nature of
client’s
business
Myer Pty Ltd is one of the largest departmental
store groups in Australia focussing on placing
the customers 1st in each decision they make and
every action taken by them. It operates and owns
chain of the departmental stores in Australia it
provides footwear, apparel, accessories for
children, misses, men, women, beauty products
comprising of skincare, make up, grooming
products for men, fragrance, home fragrance,
electrical and toys. The company does not
operate the business internationally. However, as
the competition in Australian retail sector is
quite high inherent risk is there the company will
try to manipulate its sales figure to show it more
profitable than actual to the investors and
potential investors (Investor.myer.com.au 2019)

Results of
previous
audits
For the year 2018 as well as 2017 the auditors
expressed unqualified opinion on the financial
reports of the company. As per the audit firm
PWC, the financial statement of the company
gives true and fair view of the entity’s financial
position dated on 28th July 2018 and the financial
performance for the period under concern.
Further, the financial statements are prepared in
compliance with the Corporation Regulations
2001 and Australian Accounting Standards. As
the auditors issued unqualified report for both
the years the inherent risk is low (Auasb.gov.au
2019).

Initial
versus
repeat
audits
For last 3 years that is 2016, 2017 and 2018 the
audit for the company Myer Ltd is conducted by
the same audit firm that is Pricewaterhouse
Coopers (PWC). Though the auditor will have
better knowledge regarding the business
operation of the company appointing the same
auditors or year after year will have impact on
the auditor’s independence and will give rise to
self interest threat which in turn will violate the
ethics under APES 110 – Code of ethics for
professionals. Hence, in case where the
independence of the auditors are impacted the


2AUDIT
inherent risk will be high (Apesb.org.au 2019)
Quantity
of non-
routine
transactions
Non-routing transactions are those which do not
take place on regular basis. Generally, it includes
disposal or acquisition of business unit,
cancellation or adoption of benefit plan, change
in the accounting principle, sale or opening or
closing of any plant, restructuring or
implementation of plant and any other
transaction considered to be unusual. It can be
identified from the annual report of the company
apart from acquisition brand names like sass &
bide and Marcs and David Lawrence businesses
no other non-routine tractions were found for the
entity (Investor.myer.com.au 2019). As the number
of non-routine transactions are less inherent risk
for the company is low

Quantity
of estimates
and
judgement
required for
accounts
If the level of estimates and the judgements are
high likelihood of inherent risk increases as the
management have the opportunities to
manipulate the accounts. From the company’s
annual report it is identified that it has made
various estimates and judgements while prepared
its financial statement. These are – (i) while
assessing the value of inventories those are
likely to be sole at lower than the cost value, it
used judgements and past experience in
assuming the rates of inventory (ii) for the
purpose of impairment the recoverable amount
of cash generating unit is estimated at the store
level (Investor.myer.com.au 2019). As the
estimates and judgements made by the entity
while prepared its financial statement the level
of inherent risk in low

Potential
for
fraudulent
financial
reporting &
misappropria
tion of
assets
(fraud risk
factors, see
ASA 240)
In accordance to ASA 240 fraud risk may take
form of errors or misstatement. Fraud is the error
made intentionally for gaining undue advantage
by the management or financial statement
preparers whereas the misstatement is
unintentional errors takes place due to
mathematical error or recording of the data
wrongly from books. Some accounts like
inventories, revenues, account receivable,
accounts payable and cash account and related
transactions are always exposed to high level of
inherent risk (Legislation.gov.au 2019).

List any
other
factors (can
you see any
illustration
Few matters those were mentioned by the
auditors as key audit matters are the matters
where the auditors considered that the the
treatment provided by the company is not
appropriate. The matter is – method applied by


3AUDIT
s in your
client’s
annual
report of
the examples
in ASA 315,
Appendix 2
and ASA
570.A2?)
the entity while assessing the impairment and
judgements applied while determining the
business’s CGU (Auasb.gov.au 2019). As there is
only one matter that was considered by the
auditor as key audit matter the level of inherent
risk is low.
Conclusion
: Overall
inherent
risk level
While analysing the information those may have
significant impact on level of inherent risk the
auditor shall plan inherent risk assessment
procedure based upon the level of inherent risk.
However, based on the above discussions it can
be concluded that some of the given factors are
associated with high inherent risk, some are
associated with moderate inherent risk and rests
are associated with low inherent risk. Based on
overall consideration the level of company’s
inherent risk will be moderate.
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4AUDIT
References
Apesb.org.au., 2019. [online] Available at:
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 11
Jan. 2019].
Auasb.gov.au., 2019. [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_A
SA_315.pdf [Accessed 9 Jan. 2019].
Auasb.gov.au., 2019. Auditor’s Responsibilities Statement [online] Available at:
https://www.auasb.gov.au/auditors_responsibilities/ar1.pdf [Accessed 9 Jan. 2019].
Investor.myer.com.au., 2019. [online] Available at:
http://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/
file/Myer_Annual_Report_2016.pdf [Accessed 11 Jan. 2019].
Legislation.gov.au., 2019. ASA 240 - The Auditor’s Responsibility to Consider Fraud in an
Audit of a Financial Report - April 2006 . [online] Available at:
https://www.legislation.gov.au/Details/F2006L01368 [Accessed 9 Jan. 2019].