BAO5524 Professional Auditing: Financial Audit of Pro Medicus Ltd

This report provides an analysis of Pro Medicus Ltd's financial statements from an auditing perspective, focusing on identifying key accounts susceptible to material misstatement. It references ASA 210 regarding audit engagement terms and ASA 300 for audit planning, including risk assessment an...Read More

ASSIGNMENT
BAO5524 PROFESSIONAL AUDITING
REPORT
Penalty
- Exceeding the 3000 words limit: TWO (2) marks deduction.
- Exceeding the 30% similarity index limit: FOUR (4) marks deduction.
- Late submission: TWO (2) marks deduction per day including weekend.
Plagiarism
Plagiarism is defined as presenting someone else’s work, including the work of
other students, as one’s own. Any ideas or materials taken from another source
for either written or oral use must be fully acknowledged, unless the
information is common knowledge. All students are strongly advised to do the
following:
- goto http://wcf.vu.edu.au/GovernancePolicy/PDF/POA040915000.PDF

- enter School of Accounting and Finance
- enter Student Resources
- read the PLAGIARISM POLICY.
Semester TRI3_ 2019
1. Executive summary
The assessment would be analysing the financial statements of Pro Medicus Ltd
which is engaged in imaging and medical management. The assessment would be
considering auditing aspect for the business and therefore would be identifying key
accounts which are shown in the financial statement of the company. The auditor
would be assessing the audit engagement by referring to the “ASA 210 Agreeing the
Terms of Audit Engagements” before accepting the audit of the business. The auditor
would be planning the audit procedures step by step considering the past trends and
this is done referring to “ASA 300 Planning an Audit of a Financial Report”. The
auditor would be assessing the risks which are associated with the business and also
point out steps which the auditor would be taking for collecting appropriate audit
evidences. The aspect of materiality would be considered for the purpose assessing
the risks which is associated with the business and therefore the provisions of “ASA
320 Materiality in Planning and Performing an Audit” would be followed. In
addition to this, the analysis would also be showing computation of planning
materiality for the business on the basis of which risk assessment would be done by
the auditor of the business. The assumptions which is considered by the senior
management for computing the planning materiality is also shown in the discussion
below. Furthermore, the analysis would also be presenting the impacts of the risks
accounts which have been identified earlier in the financial position of the business.

2. Introduction
The main purpose of the assessment is to conduct an analysis on Pro Medicus
Company which is engaged in providing radiology information systems (RIS), Picture
Archiving and Communication Systems (PACS). The analysis would be conducted
from the perspective of audit and therefore the annual report of the company would be
considered for 2018 to check if everything is reported fairly and also identify accounts
which can be subjected to risks (Mio 2013). The different accounts which are
susceptible to risks of material misstatement would be identified. The audit
procedures which can be undertaken by the business would also be stated in details in
the assessment. The analysis would also be showing the level of risks which the
auditor would be facing while formulating an opinion on the financial presentation of
the company. In accordance with the provisions of “Para 9 of ASA 210 Agreeing the
Terms of Audit Engagements”, the auditor needs to agree to the terms and conditions
of the audit engagement with the management of the company. In the case of Pro
Medicus, the external auditor is in agreement with those charged with governance in
regards to the audit fee which is to be charged by the auditor and the same is set to be
$ 130,000. The terms of audit engagement has also been made clear in the audit
engagement letter which is provided by the auditor.
In order to effectively conduct audit for the business, proper planning and
strategy formulation is an important step which needs to be undertaken by the external
auditor. As per “Para 7 of ASA 300 Planning an Audit of a Financial Report”, an
effective strategy needs to be formulated or planned beforehand regarding the
procedures which is to be applied by the auditor and which accounts needs to be
analysed in details (Auasb.gov.au. 2020). The standard also states the timing, extent
and nature of audit evidences which needs to be collected for identifying material
misstatements. The audit evidences would give an idea regarding the overall risks
which is faced by the business and accordingly the auditor would provide his opinion
on thee presented annual report. The analysis would also be showing the estimation of
planning materiality for the business and how the same would assist in collection of
audit evidences. Further the assessment would be showing the impacts of the
identified risks accounts for the business.

3. Key information
a) Our understanding of the client
The business of Pro Medicus is considered for the purpose of analysis and the
same would be conducted from the perspective of audit of a business. The
company is known to provide IT solutions and radiology information system. The
company has experience in assisting the clients perform medical care for patients
and the business also streamlined healthcare management practices for the benefit
of its customers. The strength of the business is client visualization and providing
useful information which is considered to be best provided service by the
company (Promed.com.au. 2020). The company has recently listed in ASX for the
purpose of expanding its market value and thereby achieving more growth in its
operations. In order to understand the reporting framework which is followed by
the business, the annual report of the company would be considered for the year
2018. The different items which are recorded would be analysed so that any risk
which may be present can be identified. It is important to know regarding the
nature of operations of the client mainly because of ensuring that the entity has
followed all legal regulations which is applicable to the business as per the
requirements of “ASA 250 Consideration of Laws and Regulations in an Audit
of a Financial Report”. This is one of the criteria which are followed by the
auditor before he accepts the audit of the company.
As per the provisions which are stated in ASA 315, the auditor needs to
appropriately consider the business environment and the nature of operations
before commencing the audit for the company. This is considered to be important
as the same gives insights to the auditor regarding the important matters which are
material (Auasb.gov.au. 2020). The auditor needs to gain ample knowledge of the
workings of the business and also in the process identifies key accounts which are
most susceptible to risks of misstatement. Furthermore, an understanding of the
nature of the operations of business also assists the auditor in documentation
process as per “ASA 230 Audit Documentation” which is considered to be
important for future reference.
b) Our assessment of significant accounts
The financial statements of Pro Medicus are considered for the identification
of key accounts which can have material misstatement affecting the financial
position of the business as a whole. In order to identify key items from the
financial statements, the concept of materiality should be given importance
(Baldacchino, Tabone and Demanuele 2017). As per “Para 5 of ASA 320
Materiality in Planning and Performing an Audit”, the concept of materiality is
not only important in the planning stage but also in the stage of performing the
audit as the same guides the auditor regarding which items are material and where
more audit procedures would be applicable (Auasb.gov.au. 2020). In order to
assess the materiality for any items, the professional judgement of the auditor is
applicable on the basis of which performance materiality would be computed.
The key accounts which are considered for the purpose of risk assessment
considering the provisions of ASA 320 are provided below in table format:
Account Name Movements Type of Risk
Cost of Sales Declined in comparison
to previous year
The auditor needs to
assess the reason for the

decline in the cost of
sales. The figure for sales
has increased which
should have also
increased the costs of
sales proportionally
(Baldauf, Steckel and
Steller 2015). There is a
risk that the costs of sales
might be understated.
Net Foreign Currency
Gains/ Losses
The business has made
gains during the period
whereas the same was
represented as loss in
2017.
The auditor needs to
check the foreign
currency gains and make
sure whether the same
actually exists or not.
Trade and Other
Receivables
The trade and other
receivables for the
business is shown to have
increased significantly
during the period
The auditor needs to
check all the notes,
receipts and invoices for
the business. The auditor
would also be checking
the credit sales for the
business in order to
ensure that the figures are
properly portrayed.
Accrued Revenue The figure of accrued
revenue for the business
is shown to have
increased slightly during
the period.
The auditor needs to
check the figure and
firstly confirm whether
the same exists or not. In
case of any misstatement,
the entire financial
statement for the business
would be impacted.
Deferred Tax Assets The figure of deferred tax
assets which is shown in
the balance sheet reveals
significant increase
during the period.
The auditor needs to pay
special attention in this
case as the item is
extraordinary in nature
and misstatement in the
same is likely to happen.
Intangible Assets The figure of intangible
assets which is presented
for 2018 shows an
upward trend which
needs to be investigated.
The intangible assets
involves valuations,
impairments and
adherence to AASB 138
for effective recognition
(Choudhary, Merkley and
Schipper 2017). The
auditor needs to ensure
that all regulations are
properly met and the
company has properly
disclosed all information.

Account Payables The figure of account
payables which is shown
in the liability section
shows a decline.
The auditor needs to
investigate the figure as
there is a possibility of
material misstatement in
the information and
therefore the same would
impact the financial
position of the business.
Shares Reserves The reserves for the
business in 2018 are
shown to have increased
significantly. The figures
are appropriately
presented in the balance
sheet of the company.
The auditor of the
company needs to apply
appropriate audit
procedures for the
purpose of analysing the
information.
c) Our planning materiality
The materiality concept is known to cover both the qualitative and quantitative
aspects which is related to reporting framework of a business. Qualitative aspects
of reporting incorporate key items which can have a significant impact on the
reporting process of the entity. The quantitative aspects of a business include
items which are of material amount and misstatement of the same would affect the
reporting framework of the business. As per the provisions of “ASA 320
Materiality in Planning and Performing an Audit”, determination of materiality
involves exercise of professional judgement on the part of the auditor. The
computation of materiality is always done considering the criteria which are
appropriately stated in ASA 320. A percentage is often applied to a chosen
benchmark as a starting point in determining materiality for the financial report as
a whole (Christensen et . 2018). The percentage is used to compute the planning
materiality which would then be used by the auditor to compute performance
materiality for different items which are covered in the financial reports of the
business.
In the case of Pro Medicus Ltd, the annual report shows a lot of significant items
which are covered in the annual report. The income statement in the annual report
shows the figure of total revenue which would be considered for computing the
planning maternity. The total revenue for Pro Medicus Ltd is shown to be $
35,961,000 which would be considered to be the benchmark for computing the
planning materiality. The percentage which is considered or the purpose
computing the materiality would be 0.5%. The provisions of “Para 11 of ASA 320
Materiality in Planning and Performing an Audit”, states that the performance
materiality estimates for a business are important in assessing the risks of items
considering nature, timing and extent of the reporting of the business
(Auasb.gov.au. 2020). The computation of planning materiality for the business is
appropriately shown below:
Planning Materiality = Total Revenue for the Business * Predetermined
Percentage
= $ 35,961,000 * 0.5%

= $ 179,805
The planning materiality for the business is computed above and the same is
shown to be $ 179,805 for the period. This figure would be considered by the
auditor for assessing the performance materiality for the business (Christensen,
Glover and Wood 2013). Any amount which is lower than the figure of planning
materiality would not be considered to be material for the analysis of risks. In
accordance to “Para 5 of ASA 320 Materiality in Planning and Performing an
Audit”, the auditor needs to apply the concept of materiality in both planning and
performing the audit, and in evaluating the effect of identified misstatements on
the audit (Auasb.gov.au. 2020). Therefore, it can be said that the auditor of the
company is accurate in his approach to appropriately portray the computation of
Planning Materiality of the business.

d) Our assessment of what can go wrong
The risks which is associated with the risks of providing a wrong opinion on the
financial statement impacts the auditors and therefore such risks needs to be considered
by the auditor before forming an opinion on the financial statement of the business.
There are three components of audit risk which are as follows:
1. Inherent risk:
These types of risks take place when the auditor does not identify material
misstatement in the annual report or omits the same. This risk takes place where there
is high degree of complexity in the transaction.
2. Control risk:
This risk refers to the risk which arises due to the inefficiency of the internal control
system of the business and thereby the same can impact the reporting process of the
business.
3. Detection risk:
Risk of auditors failing to detect material misstatement is detection risk.
The impacts of the risks which is associated with the material misstatement in
the financial accounts needs to be considered by the auditor for the purpose of
formulating an appropriate opinion regarding the fairness of the financial
statement of the computing.
Account Name Types of Risks/ Degree
of Risks
Impact
Cost of Sales Types of risks: Inherent
Risks
Degree of Risks: High
The costs of sales are
considered to be an
important aspect when
financial report is prepared
as the same has direct
impact on the profits of
the business. As per the
provisions of “Para 6 of
ASA 330 The Auditor’s
Procedures in Response
to Assessed Risks” the
auditor in such a case
needs to apply appropriate
audit procedures for
ascertaining the nature,
timing and extent of risks
of the transaction and
ensure that the same are
presented in an
appropriate manner
(Eilifsen and Messier Jr

2015).
Net Foreign Currency
Gains/ Losses
Types of risks: Inherent
Risks
Degree of Risks:
Medium
The auditor needs to apply
vouching practices so that
it can be ascertained if the
amounts which is
presented in the income
statement is appropriate or
not. The auditor needs to
adhere to provisions of
“ASA 320 Materiality and
Audit Adjustments” in
order to ensure that the
amount which us
presented is material
enough to impact the
financial statement of the
business. Any
misstatement in the figure
would be impacting the
profitability of the
business and expenses
which is related to
extraordinary nature
greatly.
Trade and Other
Receivables
Types of risks: Control
Risks
Degree of Risks: High
The auditor needs to check
all the notes, receipts and
invoices for the business.
The trade receivables are
related to sales which have
significantly changed
during the period. The
amount which is shown in
the balance sheet is more
than the materiality
estimate as per the
provisions of “ASA 320
Materiality and Audit
Adjustments “and therefore
it can be estimated that the
same would be having
significant impact if the
same is misstated.
Accrued Revenue Types of risks:
Detection risks
Degree of Risks: Low
The auditor needs to check
the nature of the
transaction as this is not a
recurring transaction and
therefore, there is a high
chance that the item might
be misstated.
Deferred Tax Assets Types of risks: Inherent The auditor needs to pay

Risks
Degree of Risks: High
special attention in this
case as the item is
extraordinary in nature
and misstatement in the
same is likely to happen.
The provisions of ASA
220 Quality Control for
Audits of Historical
Financial Information,
can be referred in terms of
the business has any
values in the past for such
types of transactions.
Intangible Assets Types of risks: Control
Risks
Degree of Risks:
Medium
The intangible assets
involves valuations,
impairments and
adherence to AASB 138
for effective recognition.
The intangible assets fall
under the criteria of “ASA
320 Materiality and Audit
Adjustments” and
therefore it is material and
any misstatement in the
same would not show
appropriate picture of the
financial statement of the
business (Kristensen
2015).
Account Payables Types of risks: Control
Risks
Degree of Risks: Low
The account payables of
the business are shown to
have declined which
shows that the company
has paid of its creditors
which must be
investigated by the auditor
by external confirmation if
the same is required.
Shares Reserves Types of risks:
Detection risks
Degree of Risks:
Medium
The information relating
to share reserve are
prepared as per the wishes
of management and
therefore there is a high
chance that the same
might be misstated. The
auditor needs to follow the
“provisions of ASA 320
Audit Documentation”
and properly document
every shares related

information such as issue
price, call made.

Conclusion
The above discussion appropriately shows the process of auditing for the business of
Pro Medicus Ltd while considering the annual report of the business for the year 2018.
The analysis shows the eight account balances which are most subjected to risks and the
respective audit procedures which can be taken by the auditor for accumulating audit
evidences in such a circumstance. The analysis shows application of “ASA 320 Audit
Documentation” and “ASA 320 Materiality and Audit Adjustments” for the purpose of
determining which information is to be documented and what is to be considered from the
perspective of materiality. In addition to this, the planning materiality for Pro Medicus ltd
is also compute considering the provision stated in “ASA 320 Materiality and Audit
Adjustments”. The analysis further shows the computation of materiality estimates which
is done considering the total revenue which is generated by the business during 2018. The
percentage which is considered is 0.5% on the basis of which planning materiality for the
business is computed. The analysis also shows impacts of material misstatement which is
present in the financial reports on the overall financial position of the business. The
discussion also shows the audit procedure which the auditor can undertake following
relevant auditing standards for forming an opinion on the financial statement of the
business.

Appendix
Computation of Planning Materiality for the Company
Particulars Formula Amt $
Total Revenue A 35961000
Percentage B 0.5%
Planning Materiality A*B 179805
Planning Materiality = Total Revenue * Predetermined Percentage

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