Auditing Vmoto Ltd: Financial Analysis, Risks, and Performance Review

This report provides an in-depth audit of Vmoto Ltd, an Australian scooter manufacturer and distributor, focusing on its nature, key business risks, and financial performance. It includes an analysis of the company's financial position using performance analytical procedures, relevant financial report assertions, and a sampling plan. The report assesses the impact of technological obsolescence and other risks on the company's sustainability, using the risk model AR = f (IR x CR X DR) to determine the level of risk. Analytical procedures, including gross profit ratio, net profit ratio, current ratio, and debt-equity ratio, are applied to analyze the company's financial position over three years, highlighting trends and offering recommendations for improvement. The report also discusses materiality for planning purposes and associated assertions, emphasizing the importance of accurate and complete accounts for auditing purposes. This detailed analysis aims to provide auditors with a comprehensive understanding of Vmoto Ltd's financial standing and potential risks.

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Table of Contents
Introduction:...............................................................................................................................3
Content:......................................................................................................................................4
Understanding of the nature of the entity and its industry and then identify key business
risks along with the risk metrics:...........................................................................................4
Conclusion:..............................................................................................................................19
References:...............................................................................................................................20

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Introduction:
The report will be providing learning over the diverse concepts of auditing. The organization
selected for the process is Vmoto Ltd. Which is an Australian company dealing with scooter
manufacturing and distribution. The report will be providing the nature of the entity and key
risks that are faced by the company in the particular market segment. The performance
analytical procedures for developing the statement of financial position will be taken into
consideration in the report. Relevant financial report assertions and the reasons for their
selections will also be done in the task. The sampling plan will also be provided in the report
and audit evidence will be provided for Vmoto Ltd. The report will include the overall
findings and analysis about the company in respect of the auditors and recommendations will
be made after a critical evaluation have been made of the financialposition of company. The
overall report will help in gaining a briefunderstanding about the various aspects and
performance measures of company.

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Content:
Understanding of the nature of the entity and its industry and then identify key business
risks along with the risk metrics:
The organization Vmoto Ltd. is occupied with the matter of assembling and offering bikes.
The significant business of the organization is to take part in assembling, creating and
marketing universally the electric controlled two-wheel vehicles, off-road vehicles and oil
vehicles. The business to which the organization has a place relates to the vehicle business
and there is mind-boggling rivalry winning in the car business of China and Australia. The
organization has been offering its items based on a unique producer hardware premise. The
geological fragment where the organization is working its business incorporates Australia and
China. The organization from the ongoing past years have been putting forth green electric
controlled bikes and has been occupied with assembling the western designed electrical bike
to cover an extensive variety of items. There are two kinds of brands through which
organization is working in the market one is Vmoto which is gone for making and creating an
incentive in Asia and the other one is Emax which is worried about focusing on western
markets (Kim, 2016).
There are roughly 40 units from where the organization is working its business which
comprises the blend of different retail outlets and the outsider merchants among China. The
organization has a limit of assembling and creating no less than 450000 of units for each
annum. The material hazard related to the business which is looked at by the organization and
that can affect the future prospects of the organization incorporates the hazard related to
innovative technological obsolescence (Lee, 2014). The tending of these issues has been
made through an interest in promoting and research, patent and enrolling the equipped and
productive experts in the workforce of an organization.

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The hazard can affect the long-haul maintainability of the organization in the vehicle segment
as the out-dated items won't be favoured by the clients in this industry. It tends to be seen that
the organization has been working in the business comprising of green and electric vehicle
innovation and any sort of mechanical out of date quality will significantly affect the
budgetary aftereffects of the organization in future. The danger of material misquote can be
available in the valuation of the benefits where the valuation systems as embraced by the
organization requires different suspicion to be made whose precision and adequacy can be
influenced by the objectivities and judgment of the administration making the fitting
presumptions. Anyway, the organization has been tending to this as a negligible hazard as the
organization is always checking available and building up the innovations and capacities
which are in concurrence with the most recent innovation(Vmoto Limited, 2017).
The different kinds of hazard influencing the business will incorporate natural hazard that
speaks to the defencelessness of the declaration to susceptibility accepting that there are no
inside controls working inside the endeavour. The control hazard will be related with the
actuality that the material errors won't be controlled and forestalled on an auspicious premise.
The discovery hazard, on the other hand, is related to the hazard that material error won't be
recognized by the inspectors. The different components influencing intrinsic and control
hazard includes:
Nature of the business: This will incorporate the elements, for example, nature and many-
sided quality of exchanges related to maintaining a business.
Cultural rehearses: The components influencing the related party exchanges and the
deceitful budgetary detailing will likewise shape some portion of the elements.
Experience of inspectors: The underlying review commitment and the earlier review results
will shape a premise of distinguishing and evaluating the danger of material error in the
organization and setting controls for the same (Petty, et. al., 2015).

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In connection to Vmoto Constrained the risk model [AR = f (IR x CR X DR)] has been
connected and the outcomes are drawn as under:
AR = f (IR x CR X DR)
AR = .05 (.80 x .60 X .25)
AR = .006
The risk rating in which the organization is working as a place with the medium level of
hazard as the intrinsic and control chance is making a moderate effect on the material error
occurring. The location hazard should be tried all the more oftentimes for this situation as the
controls are not executed adequately in the organization and along these lines, the recognition
of hazard winds up essential for this reality.
Analytical procedures for analysing the financial Position and financial Performance
over the last three years using appropriate ratios and metrics.
The ratio metrics will be a useful tool in analysing and assessing the company’s financial
position and performance in comparison to the industry averages and past performers. The
various ratios presented in the report will help in assessing the position concerned with
profitability, liquidity and capital position of thecompany(Vmoto Limited, 2017). The ratios
will be calculated after considering the latest annual reports and financialstatements as
presented by the company and the result will be drawn accordingly. The calculation ofvarious
in respect of Vmoto Limited for the period ending 2017, 2016 and 2015 are presented below:
Calculation of gross profit ratio:

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Calculation of net profit ratio:
Calculation of current ratio:

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Calculation of debt equity ratio:
Analytical review:
The analytical review is concerned with preparing and presenting a report in which various
ratio trends will be identified and the results will be drawn accordingly. The performance of
the company in relation to different years will be critically assessed for thepurpose of
drawingrecommendation and audit conclusions.
Ratio Description Analytical review
Gross profit ratio The gross profit ratio
represents the critical
profitability ratio which helps
in identifying the
performance of company in
relation to
productioncapacities and
controlling the cost of goods
sold. The gross profit is
The trend analysis shows that
the gross profit was 17% in
the year 2015 which reduced
significantly with a decrease
of about 30% and it became
12% in the year 2016. The
gross profit ratio further
decreased to 10% in the year
2015 which shows that the

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worked out after considering
the cost of goods sold and it
is deducted from the
revenues obtained by
thecompanyduring the period
of reporting. The ratio is
calculated by dividing the
gross profit with revenues
obtained by the
company(Pavlova, 2017).
company was not achieving
the efficient level of cost of
goods sold in relate to
revenues achieved by
thecompany. The same can
be improved with identifying
and implementing the cost
reduction and cost control
strategies in the company.
The application of these
strategies will help in
achieving an appropriate
level of cost of goods sold
under which the gross profit
ratio will be maximum for
the company Vmoto Limited.
Net profit ratio The net profit ratio is another
way of identifying and
assessing the operational
efficiency of thecompany in
relation to industry averages
and other market factors. The
net profit ratedescribes the
operationalperformance of
The net profitability of
thecompany shows the trend
analysis associated with
operational efficiency of
thecompany. The net profit
ratio in the year 2015 was
only -2% which increased to
the loss of 82% in the year

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the company during the
reporting period. It is worked
out in the same manner as of
gross profit ratio of the
company that is by dividing
the net profitwith the
revenues achieved by the
company during the
year(Vmoto Limited, 2017).
2016. The loss further
remained at a significant
level of 54% in the year
2017. Therefore it can be
established that the company
is facing financial crunch due
to increased losses in the
current years and therefore it
is required to establish and
implement the appropriate
controlling policies to ache
higher margins of net profit.
The approach to increased
net profit can beefficient
achieved with controlling the
operating expenses and
achieving higher grossprofits.
Current ratio The liquidity position and
aspect of the company
Vmoto limited can be
analysed with the help of this
ratio. The current ratio is
determined by dividing the
current assets with the
The current ratio of the
company Vmoto limited is
1.79 in the current year 2017
which shows an adequate
position of liquidity. The
same ratio is 1.96 in the year
2016 which was significantly

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current liabilities of the
company. The ratio helps in
establishing the working
capital position of company.
higher in the year 2015 that
is 5.16. The ratio above 1
represents that there are
enough and adequate assets
covering the current debt
liabilities of thecompany
Vmoto limited.
Thusthecompany is operating
sufficiently in this
aspect(Pavlova, 2017).
Debt to equity ratio The capital structuring ratio
helps in determining the
capital base with which the
company is operating I the
financial market. The debt
equity ratio helps in
assessing the efficiency with
which the capital employed
has been utilized in
thecompany associated. The
debt equity ratio of 2:1 is
considered optimum for the
companyoperating in
automobile sector(Petty,
The ratio of debt equity
remained constant in the year
2017 and 2016 in respect of
the company Vmoto limited.
The ratio was .45
whichrepresents that the debt
is employed at only half of
the amount of equity
employed in thecompany.
This has been resulting in
excessive pressure on the
operational capability as the
shareholders are expecting
higher returns. The debt

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et .al., 2015). equity ratio should be
optimised at the level of 2:1
and thus more of long term
debt should be employed in
thecompany in order to
achieveminimum cost of
capital as required by
thecompany. This will also
help in maximising the
returns and increasing the
profitability of thecompany.
Materiality for planning purposes and the associated assertions in relation to Vmoto
limited:
The materiality in planning the audit work of company will be recognized as a crucial aspect
in which material accounts balances are determined with the appropriate amount of
materiality that should be examined to identify and consider the material misstatement in the
financial records of company. It can be established that there are different categories of
accounts balances as depicted in the accounts of the company and there are significant
amount of material balances which when exceeded can affect the performance and position of
the company in the industry and market concerned. The judgments about materiality will be
made in the light of the surrounding circumstances and will also be affected by the types and
nature of business transactions entered into by the company Vmoto limited. The auditors
while determining the level of materiality has to take into consideration the nature and
amount of the transaction which are happening during the reporting period. The materiality in