Client Analysis Report: Vectus Biosystems, Financial Risks, Audit

This report provides a detailed analysis of Vectus Biosystems Limited, focusing on its operations, industry context, and relevant legal requirements. The report examines the company's business functions within the Australian health and medical research sector, including its research and development activities related to therapeutic candidates. It outlines four key legal acts and regulations governing therapeutic goods in Australia, such as the Therapeutic Goods Act of 1989 and the Therapeutic Goods Regulations of 1990. Furthermore, the report identifies and assesses various business risk factors, including credit risk, liquidity risk, interest rate risk, and going concern risk, and their potential impact on material misstatements in the company's financial statements. The analysis highlights how these risks, stemming from factors like cash flow management and debt obligations, can affect the accuracy and reliability of Vectus Biosystems' financial reporting, potentially leading to significant errors or omissions in the financial assertions.

Running head: ADVANCE AUDITING AND ASSURANCE
Advance Auditing and Assurance
University Name
Student Name
Authors’ Note

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Table of Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................2
Overview on operation and industry..........................................................................................3
Legal Requirements...................................................................................................................4
Business Risk Factors and their impact of Material Misstatements..........................................7
Credit Risk.................................................................................................................................7
Liquidity Risk.............................................................................................................................8
Interest Rate Risk.......................................................................................................................9
Going Concern Risk.................................................................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................13

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Executive Summary
The main objective of the current study is the detailed analysis of the firm Vectus Biosystems
Limited (also simply referred to as Vectus) for particularly audit tender. In essence, the initial
part of the current study includes illustrating business functions of the firm Vectus together
with industry details. The second part includes illustrating four important acts or else
regulations associated to therapeutic goods. Further, the study explores major business risk
facets of the firm Vectus and the manner they enhance potential material misstatements in the
financial assertions.
Introduction
Auditing can be regarded as the procedures to assess financial assertions and various
documents of Business Corporation in a bid to explore whether there are any material
misstatements. Prior to undertaking an audit agreement, it is necessary to take into account
diverse aspects and one of them is analysis of audit clientele. Essentially, analysis of audit
client indicates towards processes of preliminary analysis of business functions, industry, and
regulation along with potential risks of business of the client by assessing different facets.
The primary objective of the study at hand engages and preparation and presentation of
client analysis report of the firm Vectus. The company Vectus is necessarily an Australian
corporation listed under the Australian Stock Exchange-ASX.
Overview on operation and industry
The company Vectus was instituted during the year 2005 and functions in the health as well
as medical research sector of the nation Australia. In particular, the primary business
functions of the firm Vectus engages in medical research as well as development in the nation
Australia. Essentially, the company Vectus has parents in specifically vacoactive intestinal

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peptide along with its fragments as a particular therapeutic candidate for the treatment of
various cardiovascular fibrosis as well as systolic blood pressure. In essence, the lead element
of the company Vectus is essentially CB0004 that essentially has potent anti-hypertensive
properties along with anti-fibrotic actions in both heart as well as kidneys. In itself, the
business concern has the intent to develop candidates for the purpose of treatment of fibrotic
level diseases, various non-alcoholic steatohepatisis along with pulmonary fibrotic diseases.
In the current years, one major functional milestone of the company Vectus is
implementation of Investigational New Drug (IND). This enables toxicology along with
different pharmacokinetic studies for chiefly VB004 for satisfying different milestones.
During the year 2016 and 2017, the firm has observed success in different animal trials and
this firm has been triumphant with preliminary second species (that is dog) toxicology
independent trials. Based on the trials, it can be hereby witnessed that there was no adverse
impact after application of doses of approximately 2000 milligrams for every kilogram for
regular doses for the dogs for seven days. In essence, this specific success reflects an
exposure over and above 10000 times the expected therapeutic dosage in human beings. The
company Vectus has the target of starting phase 1 of human clinical trials during 2018.
In addition to this, the Health as well as medical research industry can be considered to be a
key industry in the nation Australia since $5.9 billion is expended on this specific industry
every year. Particularly, this specific industry primarily contributes nearly 0.37% of the
overall gross domestic product (GDP) of the nation. As such, this particular sector has
generated a total amount of approximately AUD11.8 billion. Basically, two major stratagems
of this particular segment are presentation of refined public/private healthcare arrangement
and different innovation driven corporations. In essence, these can be regarded as the major
drivers of the entire segment.

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Legal Requirements
In the nation Australia, the health as well as medical research corporations has the need to
conform to specific regulations as well as legislations for specific therapeutic goods (Arens et
al. 2016). The following segment illustrates about four different actions or else rules for
therapeutic goods.
Therapeutic Goods Act of the year 1989
This particular regulation can be regarded as a major act for particularly therapeutic goods in
the nation Australia. The primary aim of particularly Therapeutic Goods Act of the year 1989
is to deliver for establishment as well as maintenance of a nationwide system of controls. The
controls are associated to quality, well timed, availability, overall safety and whenever
necessary efficiency of particularly therapeutic goods. In essence, efficiency of therapeutic
goods is utilized in the nation Australia whether manufactured in the nation Australia,
therapeutic goods that are exported from nation Australia (Messier et al. 2015). Therapeutic
goods also provide a structure for the States as well as Territories to assume a uniform
advance to control accessibility as well as availability and make certain secure handling of
poisons in nation Australia (Basu 2016).
In particular, the therapeutic Good Act of the year 1989 together with Regulation along with
Orders establish necessities for inclusion of different therapeutic goods in the register of
particularly therapeutic goods, counting advertising, labelling as well as appearance of
product. Again, the legislation also established the rights of diverse individuals to arrive at a
decision that exerts influence (Chandler 2014).
Therapeutic Goods Regulations of the year 1990

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Essentially, this regulation can be regarded as an important act associated to specifically
therapeutic goods in the nation Australia. In particular, this act is associated to advertisement
of therapeutic goods in the nation Australia. According to this regulation, business concerns
running in the industry of health as well as medical research have the need to conform to
specific regulations for the purpose of advertisement (Simnett et al. 2016). In essence, this
application of this particular act can be observed for the advertisement for assigned
therapeutic goods issued. As per the requirements of the act, the financiers of therapeutic
goods have the need to deliver goods in case the specific goods do not conform to the
necessities of information on patient (Arens et al. 2014).
Therapeutic Goods (particularly Medical Devices) Regulation of the year 2002
Therapeutic Goods (particularly Medical Devices) Regulation of the year 2002 refers to
regulations that illustrate specific words along with expressions (Knechel and Salterio 2016).
This also takes in, for that reason, particular reference to particular words with expressions
that are explained in the act or else somewhere else in the regulations. This particular
regulation has a measuring function as well. According to this regulation, a specific medical
device necessarily has a measuring function in case if the specific device can measure
quantitatively a psychological else wise physiological or else anatomical parameter (Rezaee
et al. 2018). Again, the manufacturer might also has the intent to measure a definite quantity
or in other words a qualifiable feature of specifically energy or else substance provided to
other wise taken out from human body. This regulation also deals with refurbishment of
medical device (as pr refurbishment Act 3(1)) (Alles et al. 2018). The refurbishment of
medical apparatus is said to have taken place at the time when medical apparatus or a specific
section of the device (Kunz et al. 2014). It is considerably re-developed from a particular one
or more utilized medical device of that particular kind. This can help to generate a medical
apparatus that can be utilized for the reason that was initially intended by the manufacturer of

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the original apparatus. Also, this regulation mentions about different types of medical devices
along with common characteristics according to the Act 41 BE(1) (e)) (Simnett et al. 2016).
Therapeutic Goods (Charges) Act of the year 1989
It is necessary for the health as well as research corporations of the nation Australia to
conform to this act (Junior et al. 2014). In essence, this specific act inflicts a yearly charge
on registration, insertion as well as listing in the register of particularly therapeutic goods on
acquiring license for producing therapeutic goods.
Business Risk Factors and their impact of Material Misstatements
Detailed analysis of annual reports of the firm as well as other organizational facets of the
firm Vectus reveals the fact that the company has the need to encounter certain business risks
factors. In essence, these business factors can direct the way towards potential material
misstatements in the pecuniary assertions of the firm (Chan and Vasarhelyi 2018). The
ensuing discussion recognizes four different business risks facets and the manner they direct
towards material misstatement in the financial declarations of the firm Vectus.
Credit Risk
As rightly indicated by Vasarhelyi et al. (2018), credit risk indicates towards default risk in
particularly debt that might perhaps stem from a borrower failing to pay off their loans.
Particularly, in the first option, this risk is necessarily that of the lender and takes in
principles along with interests, disruptive flows of cash and augmented costs of collection. In
essence, business concerns encounter credit risk owing to decrease in value of
resources/assets brought about deterioration in the financial circumstances of the business
entity to which credit is delivered (Simnett and Huggins 2015). In the company Vectus, credit
risk stems from cash as well as term deposits. Fundamentally, it is the risk in the company

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Vectus and the counterparty might fail in undertaking the necessity. As such, it needs to be
stated that intricacy in the approximation of credit losses can direct to material misstatements
in the financial assertions (Knechel 2016). This implies that higher inputs as well as
suppositions can create material misstatements. Further, the company Vectus can encounter
prospective material misstatements owing to the enhanced approximated uncertainty.
Liquidity Risk
This is a specific financial risk that for a particular time period a particular financial asset,
specific security or else commodity cannot necessarily be traded swiftly enough without
exerting influence on the price of the market. This particular risk arises at the time when a
specific financier, business unit or else a financial institution cannot necessarily satisfy short
term debts (Tripathy et al. 2017). In this case, a financier might find it difficult to covert a
particular asset into cash without sacrificing capital or earnings owing to inadequacy of
purchasers or else an efficient market (Wingate 2016).. Financiers, managers along with
creditors make use of different liquidity measurement ratios at the time of deciding liquidity
risk level within the corporation. Essentially, they compare different short term liabilities of
the firm with varied liquid assets that are listed on the financial assertions of firms (Johnstone
et al. 2018). In case, if a specific business can be assets to have high liquidity risk, then the
management of the firm can sell out firm’s assets and acquire supplementary revenue or else
find out another way of lessening discrepancy between cash and obligations of debt. As
correctly mentioned by Tobin (2015), in the company Vectus, risk of liquidity stems from
management of working capital of company together with finance charges as well as
principal reimbursements on specific debt instruments. Also, the company also faces risk to
satisfy diverse financial obligations particularly at the time when they become due. ()
suggests that liquidity risks can direct towards material misstatements in the assertions of the

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company Vectus. In particularly, it can be hereby mentioned that in uncertain environment,
decrease in liquid funds for short term financing can generate issues in going concern
supposition of the corporation. In this context, this aspect can necessarily lead to material
misstatements in the financial assertions of the business concern Vectus. The declarations
regarding financial conditions presented at a specified time represents overall financial health
of the company. This is essentially structured to reflect the approximate liquidity of the assets
as well as liabilities (Rezaee et al. 2018). Essentially, the income statements delivers the
degree as well as extent to which firm’s earnings have been generated and the declaration of
flows of cash reflects the degree to which profit generated can be translated to positive flows
of cash. Essentially, financial assertions are primarily made up of different historical
information. As per requirements of standards, there is need for comprehensive
understanding regarding contractual maturity of different liabilities. Also, there is need to
understand the way business entities can manage different exposures (Hayes et al. 2014).
Interest Rate Risk
DeFond and Zhang (2014) recommend that interest rate risk can be regarded as another
important risk facet in a company. As rightly indicated by Chan and Vasarhelyi (2018),
interest rate risk can be considered as the risk to income or else capital stemming from
fluctuations of rates of interest. As per ASA 315, identification as well as assessment of risks
particularly associated to material misstatement can be carried out by means of understanding
the business entity as well as its environment (Tobin 2015).
At the time of undertaking business operations, the company Vectus gets exposed to
fluctuations and movement in the interest rate that is intrinsic in the financial market and
stems from both assets as well as liabilities having variable interest rate. In the business
concern Vectus, risk associated to rate of interest can direct towards material misstatements.

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The business concern does not possess control over rate of interest on various financial
instruments. Therefore, the inadequacy of disclosure regarding interest rate in the pecuniary
statements can direct to material misstatements. Furthermore, non-inclusion of rate of
interests in the financial statements can direct the way to material misstatements in the
corporation.

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Four accounts or areas of concern that can be considered to be risky
There is a risk that the group might perhaps not be successful in the process of implementing
different initiatives
Revenue:
Revenue of the firm is enumerated at the value of consideration accepted or else receivable.
Again, interest revenue is essentially accepted utilizing effectual rate of interest method that,
for floating rate financial assets can be considered as the rate inherent in the specific
instrument. Particularly, dividend revenue of the firm is identified at the time when the
authority to accept a dividend has been instituted. In essence, all revenue is mentioned net of
total amount of diverse goods as well as services tax. Essentially, revenue can be considered
to be imperative for the audit. This is because it is one of the major business procedures.
Essentially, it is also one of the major accounts where there can be financial nt misstatements.
Assets: The assets of the firm Vectus stands at $720550. At the time of conducting auditing
of assets of the firm Vectus, it is important to concentrate on recognizing risks in particularly
fixed-asset management procedure. Two different inherent fixed asset facets of risk include
registering the appropriate cost basis and operating with complicated accounting transactions.
Registering the appropriate cost basis is also important in addressing risks of material
misstatements in the fixed asset.
Accounts Receivables:
Risk can be identified in the areas of accounts receivables of the firm Vectus. Essentially,
accounts receivables of the firm reflect the total amount that different customers of the firm
owe for diverse goods as well as services delivered. In this regard, it can be said that
verification of the balances presented in the revenue as well as receivables account can help

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in identification of the issues during the process of audit, namely channel stuffing as well as
side agreements.
Going Concern Risk
Assessor has the need to acquire appropriate audit evidence as regards appropriateness of
management’s use of the going concern supposition in the process of preparation of financial
statements. Founded on audit evidence acquired, it can be said that material uncertainty that
subsists associated to incidents or else circumstances might perhaps cast considerable doubt
on potential of the entity to continue operations particularly as a going concern (Tobin 2015).
In addition to this, the assessor also has the objective to ascertain the implication for the
report of auditor. All assessment have the need to include an analysis of appropriateness of
the entire going concern suppositions. As such, it is quite obvious that investigator might well
have to perform supplementary processes when there are heightened risks associated to going
concern, created by difficult economic as well as market circumstances. We draw attention to
As per Note 1 mentioned in the financial report of the firm Vectus, the Group registered a
total loss of approximately $3,794,254 in the financial year 2017. The net assets balance of
the Group was documented to be $116,563. Essentially, ability of the Group to keep on
operating as a going concern is reliant on the potential of the entire Group to productively
execute different capital raising proposals. Therefore, in this regard, it can be said that there is
a risk that this specific Group might perhaps not be flourishing in executing these schemes or
the execution of substitute options that might be presented to the Group. Essentially, these
circumstances in common with diverse other matters, refers to material uncertainty that might
perhaps cast uncertainty on ability of the Group to keep on operating as a going concern.
Therefore, it might possibly realise assets as well as discharge firm’s liabilities in the
standard route of business, and at the quantity mentioned in the pecuniary statement.