BAO5524: Professional Auditing Report on Konekt Limited (2018)

This report presents a professional auditing analysis of Konekt Limited's 2018 financial statements. It examines key aspects, including an executive summary, key information, and the nature of the client's business. The report details the audit program, identifies potentially misstated account balances (sales, expenses, cash, intangible assets, and borrowings), and computes planning materiality. It also assesses audit risks associated with these accounts and applies the audit risk model to determine different types of risks. The analysis adheres to relevant auditing standards like ASA 300, ASA 315, ASA 320, and ASA 230, offering a comprehensive overview of the audit process and its application to Konekt Limited. The report aims to evaluate the fairness of the financial statements and provide insights into the audit procedures undertaken.

Running head: PROFESSIONAL AUDITING
Professional 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 analyse the financial statement of Konekt Limited for
the year 2018 for analysing if there are any material misstatement in the financial statement of
the business. The assessment would also be ascertaining the risks which is related to the five
account balances as identified in the annual report of the business. The assessment would also be
checking the materiality of the items which are shown in the annual report of the business. The
assessment would also be computing the planning materiality of the business for assessing
whether the items which are shown in the annual report are free from material misstatement or
not. The assessment would also be applying audit risk model for assessing the three types of
risks of the business.

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Table of Contents
Introduction......................................................................................................................................3
Key Information...............................................................................................................................3
Nature of the Clients Business.....................................................................................................4
Audit Program.............................................................................................................................4
Identification of Materially Misstated Account Balances...........................................................5
Planning Materiality....................................................................................................................7
Audit Risks of the Selected Account Balances............................................................................9
Conclusion.....................................................................................................................................14
Reference.......................................................................................................................................15

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Introduction
The main purpose of the assessment is to analyse the business of Konekt ltd which is
engaged in providing health and risk management services in Australia. The analysis would be
conducted from the perspective of audit in order to asses if the financial statement is showing
true and fair view of the annual report of the business (Konekt.com.au. 2019). The report would
be forming an appropriate audit plan which would focus on collecting evidences on the basis of
which an audit opinion would be formed. The initial steps which are undertaken by the auditor
would be considered for collecting evidences and also proper application of relevant auditing
standards would also be shown in the report. In addition to this, five material accounts which are
shown in the annual report would be assessed in order to ensure that the balances which are
shown are free from material misstatement or not. The report would also be considering the audit
risks which are associated with the five balances which is shown in the annual report of the
business. The assessment would also be showing application of audit risk model to determine the
different risks which are applicable to the five accounts which are considered in the assessment.
Key Information
The first step which is really important if an auditor is conducting audit for a business is
planning the activities of audit process. Appropriate planning results in smooth conducting of the
process of auditing and the auditor is also able to collect important audit evidences relating to the
business. One of the key steps which the auditor of the company needs to undertake is
computation of planning materiality which would help the auditor determine if the financial
statements are showing accurate view of the results. The auditor needs to adhere to relevant
auditing standards during the course of audit and simultaneously apply audit procedure for the

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purpose of collection important evidences for the business (Eilifsen and Messier Jr 2014). Some
other steps which are undertaken by the auditor of the business are analytical review, compliance
test of internal control, external confirmation, substantive tests but the same is dependent on the
audit program which is formulated by the auditor as the same determine timing and extent to
which the audit procedure is to be applied.
Nature of the Clients Business
The business which is considered for the purpose audit is Konekt Limited which is
private listed company operating in Australia and the company provides appropriate services to
the clients in relation to health and risk management services. The company is a developing
business as the same operates as a health and risk management business (Edgley 2014). The
focus of the management of the company is to create a workplace which would be safe and
secure. The management of the company operates with an objective to make the workplace a
safer place.
Audit Program
The audit program is formulated by the auditor at the initial stages of audit and includes
detailed steps and procedures which are to be undertaken by the auditor for the purpose of
ensuring that the audit process is smoothly undertaken. The audit program is also developed in
order to ensure that the annual reports of the business are prepared following all relevant
guidelines and regulations which are operating in the country. As per the provisions stated in
Para 7 of ASA 300 Planning an Audit of the Financial Report, the auditor needs to formulate
an appropriate plan at the initial stages of audit so that the auditing strategy appropriately sets out
scope, timing and direction of the audit (Auasb.gov.au. 2019). The audit program also states the
steps which are to be undertaken by the auditor for estimating the planning materiality of the

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business (Christensen et al. 2016). The financial report for 2018 is considered for the purpose of
assessing whether the same are showing true and fair view of the financial position or not. The
audit program also requires the auditor to adhere to provisions of ASA 230 Documentation,
which states that proper records need to be maintained by the business so that the auditor can
effectively incorporate in the working papers the figures, estimates and management
representation (Auasb.gov.au. 2019). It is also to be noted that the working papers also forms
part of the audit evidences as the same sets out the procedures and tests which are to be
conducted by the auditor for collecting appropriate audit evidences of the business.
Identification of Materially Misstated Account Balances
The misstatements which affects the financial reports must be identified by the auditor of
the business as the same forms one of the main responsibilities of the auditor. The provisions of
para 5 of ASA 315 Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment, states that it is the responsibility of the auditor
to apply risk assessment procedures for the purpose of identification of items which are most
susceptible to audit risks (Auasb.gov.au. 2019). In addition to this, the standard requires the
auditor to properly understand the nature of the business and thereby assess the major risks
which are faced by the auditor (Ruhnke and Schmidt 2014). The auditor of the business also
needs to be apply proper tests for evaluating the internal control system which is established in
the business. The auditor of the business needs to ensure that the financial statements are
showing true and fair view of the financial position of the business. The annual report of Konekt
Limited for the year 2018 is assessed and the key items which are identified as items which can
be misstated are explained below in details:

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 Sales: The profit and loss statement of the business shows the revenue which is generated
by the business from sales and the annual report for 2018 demonstrate that the sales of the
business have increased tremendously in 2018 in comparison to previous year figure. The
concern for the auditor in such a case is that the sales revenue which is presented in the
annual report might be overstated. This also signifies that the auditor needs to apply
proper substantive procedures for confirming or denying for presence of material
misstatement in the figure.
 Total Expenses: The profit and loss statement which is prepared by the business also
represent the total expenses of the business which ultimately determines the profits which
is generated by the business. Some of the expenses such as depreciation, finance costs,
salaries and wages and other expenses significant rise which should be checked by the
auditor of the business for the purpose of assessing whether the financial statements are
showing true and fair view of the financial statements of the business. The auditor of the
business needs to consider the values of expenses which are shown in the financial
statements and judge whether the same are showing appropriate value or not.
 Cash and Cash Equivalent: The cash balance which is presented in the annual report of
the business appropriately shows significant increase from the estimate which is shown
for the business in previous year. The auditor needs to check the value which is shown by
applying appropriate procedures (Tepalagul and Lin 2015). There is a chance that cash
balance might be misstated which would affect the financial position of the entire annual
report of the business. The auditor need to apply appropriate auditing procedure so as to
ensure that the financial statement is showing a true and fair view. In such a case, the

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auditor also needs to check the internal control system in order to ensure that proper cash
management policies are implemented in the business of Konekt Limited.
 Intangible Assets: The intangible assets of the business are also showing similar increase
in the value and therefore there is a chance the same might not be valued properly
following the provisions of AASB 138 Intangible assets. The financial statement would
be affected if improper value is shown in the balance sheet of the business (Gaynor et al.
2016). The auditor of the business needs to apply appropriate practice such as verification
of the asset in order to assess if the financial statement ate showing true and fair view or
not. The auditor of the business also needs to assess if there are any impairment charges
shown in the annual report of the business.
 Borrowings: The annual report of 2018 shows that the business has indulged in
borrowings during the year for meeting the current obligations of the business. The
increase in the borrowings is done to add more leverage to the capital structure which is
used by the business. The auditor needs to check if the management has actually taken
the loan or not and if the same has been taken at the value which is represented in the
financial statements of the business. The interest expenses which is related to the
borrowings need to be checked by the auditor of the business.
Planning Materiality
The purpose of assessing the materiality of the items which are shown in the financial
statement is to identify misstatement which can affect the financial statement of the business. In
order to determine materiality of an item shown in the financial statement, the auditor needs to
consider the nature of item and complexity of the item which is shown in the annual report. The
auditor of the business needs to consider the materiality of each item which is shown in the

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financial statement for the purpose of estimating whether the same are showing appropriate view
or not. The auditor needs to appropriately consider the provisions of ASA 320 Materiality for
the purpose of ascertaining the material items which are considered from the annual report of the
business (Auasb.gov.au. 2019). The auditor of the business also needs to apply the principle of
professional skepticism on all items which are shown in the financial statements of the business
so that the auditor can confirm or deny the presence of material misstatement in the annual report
of the business (Lee. et al. 2016).
The planning materiality of the items are computed in order to asses the performance
materiality of the account balances which are shown in the annual reports of the business. In
order to compute the planning materiality estimate for the business of Konekt Limited, the figure
of total revenue is considered which has shown tremendous increase over the last year. The
auditor considers 0.5% as the percentage on the basis of which the planning materiality amount
would be computed. The annual report of Konekt Limited for the year 2018 shows that the
management of the company has been able to enhance their revenue from previous year and the
same is shown to be $ 87,914,000. The equation which is shown below marks the process which
is used for the purpose of computing the planning materiality of the business.
Planning Materiality=Total Revenue∗0.5 %
¿ $ 87,914 , , 000∗0.5 %
¿ $ 439,570
The planning materiality of the business thus computed is shown to be $ 439,570 and this
estimate would be considered for computing the performance materiality of different items
which are shown in the annual reports of the business (Vaicekauskas and Mackevičius 2014).

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The planning materiality estimate effectively allows the auditor of the business to assess material
items and thereby form an opinion on the basis of the same.
Audit Risks of the Selected Account Balances
The auditor faces risks while conducting the audit of a business and the same is due to
misrepresentation of the items which are shown in the annual report of the business. The auditor
of the business needs to appropriately manage the risks which is associated by the business
(Tritschler 2013). The auditor would be applying audit risk model for the purpose of analyzing
the risks which is faced by the business. The equation which is followed as per the audit risk
model is shown below in details:
AR=DR × CR× IR
AR – Audit Risks
DR – Detection Risks
CR – Control Risks
IR- Inherent Risks
The above equation shows that the audit risks of the business incorporates detection risk,
control risks and inherent risks which affects the total audit risks of the business. The auditor the
business needs to consider all these risks while applying audit procedure to the business. The
account balances which is considered for the business is shown in the table below:
Account
Name
Audit Risks
(AR)
Inherent
Risk (IR)
Control Risk
(CR)
Detection
Risk (DR)
Requirement
of Evidences
Total
Revenue
High High (90%) High (95%) Low High
Expenses High High (85%) High (80%) Low High

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Cash and
Cash
Equivalents
High Low (40%) Moderate Moderate Moderate
Intangible
Assets
High Low (40%) Moderate Low Moderate
Borrowings High High (70%) Moderate Moderate Moderate
Account
Balances
Assertions Audit Work Steps Audit Sampling
Sales The auditor of the business
needs to properly assess the
values which are presented in
the annual reports. The
auditor needs to check if there
is any misstatement in the
financial statements for the
purpose of effectively
assessing the risks of the
business.
The auditor of the
business also needs to
apply vouching
practices in order to
check all expenses
and income which the
business has entered
in the financial
statements of the
business
(Naslmosavi, Sofian
and Saat 2013). The
auditor would be
The auditor would be
applying attribute
sampling test for
collection of
appropriate data.

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assessing the cash
sales and credit sales
items for proper
understanding of the
sales of the business.
Expenses The auditor of the business
needs to check the expenses
amount which are shown in
the annual reports of the
business and estimate
whether the financial
statement is showing accurate
results. The auditor also
needs to determine if the
expenses have actually been
incurred and whether proper
record regarding the same has
been maintained or not.
The auditor will be
applying vouching
technique of audit for
analyzing the
expenses of the
business so that
proper assurance can
be established
regarding the
accuracy of the
financial statements
(Brown, Preiato and
Tarca 2014). The
auditor would also be
checking the internal
control system so that
the expenses are
properly recorded
Random sampling
approach should be
applied by the auditor
for ascertaining the
costs figures.

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Cash and
Cash
Equivalents
The cash and cash equivalent
balance which is shown in the
annual report would be
assessed with an objective of
ensuring that the same does
not contain any material
misstatement (Duncan and
Whittington 2014). The
auditor needs to check if the
management has maintained
proper records regarding the
cash balance of the business
and effectively value the
same so that it can be
established if the figures are
showing true a fair view.
The auditor would
apply verification
practices so that the
amount which is
presented is showing
true and fair view. In
addition to this, the
auditor would also
check the cash
budgets and all cash
inflows and outflows
of the business to
ascertain if the value
which is presented in
the annual report is
showing accurate
view or not.
Variable sampling
test on the balances
of cash would be
applied by the auditor
so that appropriate
evidences can be
collected.
Intangible
Assets
The auditor of the business
will be assessing whether the
asset is owned by the
business and whether the
same exist or not. The auditor
would also ensure that the
The auditor would be
applying verification
practices in order to
properly value the
asset of the business.
In addition to this, the
The auditor of the
business would be
applying attribute
sampling for
collecting appropriate
evidence regarding

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same are valued in
accordance of relevant
accounting standards. The
auditor needs to also assess if
the asset is under the
licensing of the business or
not. In addition to this,
impairment testing also needs
to be done on the asset so that
appropriate impairment
charges have been made on
the asset or not can be
assessed.
auditor would also be
evaluating if the
impairment charges
made on the asset are
suitably done or not.
the intangible assets
of the business.
Borrowings The auditor must check the
loan value which is shown in
the financial statement for
any discrepancies which may
have occurred in the reporting
of the loans (Cahan and Sun
2015). The auditor would
check if the records
maintained are complete or
not. The auditor would also
The auditor needs to
apply verification as
an audit procedure as
well as engage in
external confirmation
under ASA 505
External
Confirmation so that
appropriate
information regarding
The auditor would be
applying variable
sampling test for
assessing the value of
the loans.

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be checking the accuracy of
the reporting by adhering to
relevant accounting standards
the loan amount can
be collected from the
financial institution
which would help the
auditor to collect
more information
Conclusion
The above discussion effectively shows the planning process and program which the
auditor needs to undertake before engaging in audit of the business. The auditor has the
responsibility of ensuring that the financial statements are free from material misstatement and
therefore the auditor needs to apply appropriate audit procedure for ascertaining the presence of
material misstatement in the annual report of the business. The discussion above shows the
business of Konekt Limited for identifying items which are mostly likely to be misstated and
form counter measures in order to avoid the risks which is related to audit of the business. The
discussion above also shows application of audit materiality and audit risk model for evaluating
the risks which is faced by the auditor during the audit process.

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