La Trobe University Auditing Assignment: Mayne Pharma Group Limited

This report provides a comprehensive analysis of the auditing process, focusing on the application of ethical principles and the assessment of business and audit risks within Mayne Pharma Group Limited, an Australian pharmaceutical company. The report is divided into two parts, the first of which ex...Read More

Running head: AUDITING
Auditing
Name of the Student:
Name of the University:
Author’s Note

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Executive Summary
The main purpose of the assessment is to conduct a detailed analysis of the process of audit and
the ethical considerations an auditor is expected to adhere to while performing audit for a
business. The assessment considers the company of Mayne Pharma Group Limited which is
engaged in medical industry in Australia. The assessment identifies the businesses risks and audit
risks associated with the company. In addition to this, the assessment also shows the computation
of planning materiality for the business.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Part A...........................................................................................................................................3
Application of Ethics in Audit.....................................................................................................3
Ethical Considerations to be considered......................................................................................4
Part B...........................................................................................................................................4
Areas of Operations.....................................................................................................................4
Legal Statutes Affecting the Business.........................................................................................5
Business Risks affecting Mayne pharma group limited..............................................................6
Key Assertions.............................................................................................................................7
Corporate Governance.................................................................................................................9
Planning Materiality....................................................................................................................9
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

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Introduction
Auditing is regarded as a dynamic process which investigates the books of accounts in
order to establish whether the same are free from material misstatements or not. The assessment
consists of two parts which is part a and part b which is related to the audit process for a
business. The first part of the assessment deals with the roles of ethics in auditing process and the
ethical consideration which an auditor must consider before accepting an audit. The second part
deals with the business of Mayne Pharma Group Limited for which a detailed audit process is to
be conducted showing all business risks and the key accounts which are affected. The assessment
would also be showing computation of planning materiality of the business.
Discussion
Part A
Application of Ethics in Audit
Ethics in auditing process is considered to be important in today’s scenario as the same
promotes ethical practices in the process and requires the auditors to maintain the integrity o the
profession. The importance of ethics has enhanced further due to various corporate scandals
which has taken place due to unethical accounting practices. APES 110 has been introduced in
order to ensure that the auditors and other accounting professionals follow code of ethics which
are applicable to them. The auditor of a business is required to maintain integrity which means
that he should be straight forward and honest in all his professional dealings. The second
principle is objectivity which requires auditors to be impartial and his judgement should not be
clouded by conflict of interests or biasness (Bentley, Omer & Sharp, 2013). The auditor needs to
maintain a independent approach while dealing with his audit duties and should not come under

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the influence of anyone. The auditor needs to have professional competence and exercise due
care while conducting the audit process of a business. Finally, the auditor is required to maintain
confidentiality or non-disclosure provision for the businesses for which the audit is being
conducted. The above mentioned are five major principles which an auditor needs to adhere to
during the process of audit.
Ethical Considerations to be considered
An Auditor needs to consider certain ethical factors before accepting an audit in relation
to a company. The primary aspect the auditor must consider is whether the acceptance of the
engagement of audit for the business creates any threats to the fundamental principles of audit
and if the same is the case than the auditor should not accept the audit for the business
(Accaglobal.com, 2019). The auditor needs to be aware of any risks which might be there which
can affect the integrity or independence of the audit process. The auditor also needs to consider if
there is a conflict of interest and if the same is the case, then the auditor should reject the new
audit engagement.
Part B
Areas of Operations
The company which is considered for conducting the process of audit is Mayne Pharma
which is an entity enlisted in ASX, engages in pharmaceutical business. The company is famous
for its expertise in drug delivery and also for its branded and generic pharmaceutical products.
The company is considered to be one of the largest pharmaceutical business operating inn
Australia and the company also has its roots in Southern Australia. In addition to this, the
company also has expanded its operations globally thereby expanding the operations of the
business. Mayne Pharma has a good record and reputation of 30 years of being one of the most

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innovative businesses which is always engaged in production of new drugs and such
technological advancements can be noticed in drugs and medical products distributed by the
business. Some of the products which is offered by the business are Astrix, Doryx, Eryc/Erymax.
The company is known for it innovative approaches in development of new medical drugs and
therefore the business can be regarded as an important part of the healthcare industry operating
in Australia.
Legal Statutes Affecting the Business
The legal statutes which are applicable in respect of the business of Mayne Pharma are
explained below in details:
 Corruption and Bribery laws: The Australian government has recognized corruption
and bribery in a business organization to be a criminal offense and the same has been
covered under Division 70 of criminal code Act 1995. Even false accounting charges
have also been considered to be a criminal offense considering the scale in which false
accounting practices have been carried out by the business. The management of Mayne
pharma group limited follows the Global Anti-Bribery and Anti-Corruption Policy
effectively and the management has a zero-tolerance policy for such activities in the
business.
 Consumer Protection Regulations: The consumers regulations of Australia which are
applicable on business and also safety related the product which is to be used by the
consumers. The management of Mayne pharma group limited needs to ensure that the
products which is produced by the business is of appropriate quality and the same does
not have any negative impact on the lifestyles of the consumers of the business.

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 Privacy Laws: The privacy laws are very important and the same helps businesses to
maintain confidentiality regarding the operational process of the business. Australia has
national privacy legislation, which is looked after by the Australian Information
Commissioner’s Office which allows businesses for collection and storage of information
in an effective manner and ensure that the same are maintained in confidential manner.
The management of Mayne pharma group limited follows this policy as the business
produces drugs and therefore it is very important for the management to appropriately
manage the secret formula of creating thee drugs in the first place.
Business Risks affecting Mayne pharma group limited
The business risks of a company play a vital role in the judgement of the auditor when he
conducts the process of audit. The risks which have a direct impact on earnings of the business or
the goodwill of the business is known as business risks. The businesses risk for the business of
Mayne pharma group limited are listed below:
 Internal Product Development: The business is engaged in preparation of new drugs by
applying innovative processes however the same are not always successful and this
posses a significant risk (Guénin-Paracini, Malsch & Paillé, 2014). There is a risk of
failure in the process of developing ne product and the same might be an expensive
process and therefore a large amount of resources, time and money will be spent. This
has an impact on the profitability as the failure would have some costs and the same
would reduce the profits of the business.
 Customer Relationships: The business of Mayne pharma group limited operates mainly
through tie ups and needs to maintain a good customer relationship so that the products of
the business can be sold in the market. There is a significant risk relating to loss of

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customers in the operations of the business (Australian business and environment laws -
Austrade ., 2019). The competition level in the market is also high and the same can
affect the business as the management would not be able to enter into new contracts with
the customers and thereby the same would have an impact on the earning capacity of the
business.
 Regulatory Compliance: There is also an issue of regulatory compliance which the
senior managers must consider while conducting the operations of the business. The
business of Mayne pharma group limited needs to have a proper license to operate. There
is a risk that the regulations which are applicable on medical sectors might be changed
thereby affecting the operations of the business. Such a change can have a severe impact
on the operations of the entity and might also enhance the legal costs.
Key Assertions
The audit process is conducted on the business keeping the annual reports of 2018 in
mind as the basis. The three accounts which can be identified from the financial statement of the
business which are subjected to significant risks are listed below in details:
Sales of Goods
The annual report of the entity for 2018 reveals that the earnings of the business is
reduced from previous year. The auditor needs to ascertain the reason for the decrease in the
sales of the goods as the same has severe impact on profit element of the entity.
Key Assertions
 The key assertion which might be at risk is the assertion of accuracy which must be
analyzed by the auditor. Application of vouching practices needs to be applied so that it

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can be confirmed that the figure which is shown in the annual reports are showing a
correct presentation of numerical values (Kharisova & Kozlova, 2014). The auditor also
needs to go through all invoices, receipts and ledger accounts in order to establish the
accuracy of the figure.
Inventory
One of the most important and crucial items which is susceptible to manipulations is
inventory which is represented in balance sheet. In the case of Mayne pharma, the inventory of
the business is the major source for generation of revenue and any risk impacting the same would
impact the profitability of the company. The annual report shows that there has been a fall in the
value of inventory during the period, which needs to be considered by the auditor and for such an
item the auditor needs to apply verification techniques.
Assertion
 The key assertion which impacts the inventory figure is the completeness and valuations
of disclosures of the report. The auditor needs to examine if the inventory figure which is
shown in the reportt are showing complete view for which the auditor needs to apply
verification procedures and ensure that the figure is accurate (Knechel & Salterio, 2016).
In addition to this, the auditor also needs to examine the valuation method which is used
by the business and whether the same is consistent or not. If required the auditor can also
use physical verification process for estimating the correct value of inventory.
Property, Plant and Equipment
The financial statements of the company show that there has been a significant increase
in the property plant and equipment value which needs to be considered by the auditor as there

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might be a risks of material overstatement. The asset of the business is important and any
misstatement in the same impacts the long term status of the business.
Assertion
 The key assertion in this case would be existence of the asset. The auditor must verify if
the asset actually exists or the same is just fictitious in nature. The auditor needs to verify
different documents and registration for the asset and ensure that the same are fairly
repersented same considering the nature of the business.
Corporate Governance
The management of Mayne Pharma Group Limited appropriately follows the 8 principles
which are set out for ensuring that there are effective corporate governance practices in the
business. The directors of the business for maintaining the business process and including
internal controls to deal with significant business processes (Beck & Mauldin, 2014). The
management has set up an audit and risk committee consider the charter and has delegated the
authority and responsibility to the committee for the formation and maintenance of internal
control and ethical standards in the process of the business (Asx.com.au., 2019). Therefore, it can
be said that the business follows principle 4 of corporate governance principles and
recommendations.
Planning Materiality
The planning materiality is the estimate which the auditor computes considering an
appropriate base and a predetermined percentage for the purpose of audit (van Buuren et al.,
2014). Planning materiality is the basis for a business, that the auditor considers the performance
materiality of different items in order to provide judgements whether the same are misstated or

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not. The planning materiality is the most significant figure in the financial statements of the
company. In the case of Mayne Pharma Group, the value of total asset is considered as the same
is a significant figure as well as the same is numerically large (Eilifsen & Messier Jr, 2014). In
addition to this a percentage of 5% is considered for estimating the materiality of the business of
Mayne Pharma Group Limited.
Planning materiality=Total Assets∗5 %
¿ $ 1,830,508,000∗5 %
= $ 91,525,400
Therefore, the planning materiality for the business is shown to be $ 91,525.400.
Conclusion
The above discussion effectively shows the ethical consideration which the auditor of a
business needs to follow while conducting audit for a business. In addition to this, the role of
ethics in the audit process is also appropriately shown in the discussion. In addition to this, the
business of Mayne Pharma Group Limited is considered for the purpose of audit and the
discussion identifies significant business risks which might affect the operations of the business.
Furthermore, certain audit risks and its key assertions are also shown relating to different
accounts of the business. In addition to this, the discussion also reflects the business’s
compliance with principles of governance principles and recommendations. The planning
materiality for the business is also computed which assists in the process of audit.

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Reference
Asx.com.au. (2019). Retrieved 13 September 2019, from
https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-
recommendations-fourth-edn.pdf
Australian business and environment laws - Austrade . (2019). Austrade.gov.au. Retrieved 13
September (2019), from https://www.austrade.gov.au/International/Invest/Guide-to-
investing/Running-a-business/Understanding-Australian-business-regulation/Australian-
business-and-environment-laws
Beck, M. J., & Mauldin, E. G. (2014). Who's really in charge? Audit committee versus CFO
power and audit fees. The Accounting Review, 89(6), 2057-2085.
Bentley, K. A., Omer, T. C., & Sharp, N. Y. (2013). Business strategy, financial reporting
irregularities, and audit effort. Contemporary Accounting Research, 30(2), 780-817.
Eilifsen, A., & Messier Jr, W. F. (2014). Materiality guidance of the major public
accounting firms. Auditing: A Journal of Practice & Theory, 34(2), 3-26.
Guénin-Paracini, H., Malsch, B., & Paillé, A. M. (2014). Fear and risk in the audit
process. Accounting, Organizations and Society, 39(4), 264-288.
https://www.accaglobal.com, A. (2019). Acceptance decisions for audit and assurance
engagements | P7 Advanced Audit and Assurance | ACCA Qualification | Students |

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ACCA Global. Accaglobal.com. Retrieved 13 September 2019, from
https://www.accaglobal.com/ie/en/student/exam-support-resources/professional-exams-
study-resources/p7/technical-articles/acceptance-decisions.html
Kharisova, F. I., & Kozlova, N. N. (2014). Applying the category of «Assertions (or
preconditions)» In audit of financial statement. Mediterranean journal of social
sciences, 5(24), 180.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge.
van Buuren, J., Koch, C., van Nieuw Amerongen, N., & Wright, A. M. (2014). The use of
business risk audit perspectives by non-Big 4 audit firms. Auditing: A Journal of Practice
& Theory, 33(3), 105-128.