Companies On Basis International Experience-Myassignmenthelp.Com

Question: Discuss About The Companies On Basis International Experience? Answer: Introduction The audit of the financial statements of a company are necessarily carried out in order to evaluate the fact that whether the accounting statements that are prepared for a particular financial year reflect the true and fair view of the financial position of the company. This means that there is a regulated guideline that should be adhered to, in order to ensure the fairness of the accounting statements of a corporate entity. Moreover, the primary motive behind the activity of financial reporting by a particular organization is that the investors or the other stakeholders of business get a clarified image of the firm in terms of the financial condition of the executed business. In case of this particular study, the selected company, Australian Agricultural Company is a listed organization, which redoubles the importance of the financial statements (William, Glover and Prawitt 2016). It has been mentioned in the presented case study that being an external auditor, the audit of the financial statements of the Australian Agricultural Company has been asked to conduct. The audit fee that has been communicated to the client in the audit Engagement Letter is $350,000. The auditing framework that has been utilized in this particular study is aimed towards the identification of five significant accounts most at risk of being materially misstated. It should be noted here that the financial report for the financial year of 2017 of the selected corporate entity has been analyzed in this particular study for arriving at the desired outcomes. The auditing standards that have been adhered to in order to conduct the evaluation procedures are ASA 315. Thus, this particular study aims to provide an overview into the auditing regulations and procedures that should be adopted in order to efficiently execute the required procedures. Understanding of the client The Australian Agricultural Company had been established in the financial year of 1824. The company has been based out of Brisbane, Australia. The corporate entity has been the largest integrated cattle and beef producer in spite of being the oldest firm in Australia. The splendid fact about the company is that it is the oldest operating company in the country and has been able to maintain the top position in respect to the industrial standards. The Australian Agricultural Company has been operating since then and has been possessing the ownership of a number of properties, farms and feedlots. The organization has comprised of around 7 million hectares of land in the Queensland and Northern Territory. This means that this listed organization holds up to 1% of the total Australian landmass. The Australian Agricultural Company also deals in grass fed beef, grain fed beef and Wagyu beef production. It should be noted here that the business promoted by this particular corporate entity in cludes the essential business operations like the ownership, development and operation of the properties that are pastoral in nature. Moreover, the organization not only aims at maintaining a leadership position in terms of production of beef but also, includes breeding, feeding, processing and back grounding of cattle (Member.afraccess.com, 2018). The coverage area by this particular entity includes the implementation of a proper cattle production system across a number of eighteen owned cattle stations, two stations that have been leased, a number of two owned feedlots, one facility that processes beef and two owned farms (Member.afraccess.com, 2018). An overview into the company includes the fact that the Australian Agricultural Company had initially been established as a land development company. The company had essentially started following a rising trend from the financial year of 2006. In 2006, the company had made a purchase of the Westholme herd, which elevated the corporation in the industrial competition in regards to the Wagyu beef business. In the financial year of 2014, the company had established the world-renowned beef processing plant, south of Darwin. Finally, the present day marks the production of premium beef products for the purpose of export and production that is domestic in nature. The beef produced by the company in the recent day feeds 1,000,000 people throughout the world on each passing day (Member.afraccess.com, 2018). Assessment of the significant accounts Before identifying, the accounts that may be exposed to the auditing risk of material misstatement the particular auditing procedure that should be adopted in order to process the entire phenomenon of identification of material misstatement should be understood. The materiality misstatement refers to the particular occurrence when an account balance has been understated or overstated in order to compensate for the discrepancies that had been executed by the management of a particular organization. Therefore, it is very important for the auditor to identify the potential accounts that may have been subjected to materiality. The particular procedure that should be followed by the auditor in order to identify the issue of materiality in the financial statements of the selected organization has been mentioned in the auditing principles established by the ASA 315 (Baranov caes at al., 2017). The auditing framework that has been established by the auditing standard of ASA 315 can be framed as follows: The auditor at first has to obtain an understanding of the nature of the industry that the particular organization belongs. The auditor also has to consider the other external factors that are applicable while preparing the financial reporting framework (Carson, Fargher and Zhang 2017) The auditor also has to consider the nature of the business operation, the ownership and the governance structure that have been utilized in the corporation; the particular nature of the investments that the corporate entity engages in also should be looked into the by the auditor (Chang 2017) The organizational objectives and the strategies that are promoted by the corporate entity should also be checked by the auditor in order to understand the primary business motive by the organization (Chang 2017) The above-mentioned auditing procedures help in the potential identification of the accounts that may be subjected to materiality (Sanderson 2014). Moreover, it should be noted here that the occurrence of material misstatements in the financial statements is essentially an example of fraud or carelessness on the part of the accountants preparing the financial statements (Sanderson 2014). In order to identify the materiality in the various accounts the auditor should check and verify the occurrence of the recorded transactions, the checking of the essential aspects like the completeness, accuracy, cut-off and the of the recorded transactions (Sanderson 2014). Moreover, the auditor also has to ensure that the assertions and the disclosures provided by the management in the annual report of the company are proper and provide enough overview into the details of the proceedings that have occurred throughput the financial year in the particular selected accounts (Carson, Fargher and Zhang 2017) The auditor finally has to carry out the risk assessment procedures that are required, in order to identify the amount of materiality in the account balances. Furthermore, the auditor should also collect enough evidence for the purpose of supporting the risk assessment (Carson, Fargher and Zhang 2017). Thus, the point mentioned in the preceding paragraphs aim to summarize the auditing framework that should be adopted by the auditor in identifying the material misstatements in the selected accounts. The accounts that have been selected for determining whether materiality has occurred while preparing the financial statements of the corporate entity, Australian Agricultural Company for the financial year of 2017 are as follows: Cash Account Trade and Other Receivable Account Other Income Account Inventories Account Investment Account Cash Account the cash account has been chosen for determining the fact that whether this particular account has been exposed to materiality because the account balance shows an abnormal increase in terms of balance in respect to the financial year of 2016. As can be derived from the balance sheet of the company the cash balance for the financial year of 2016 depicts an amount of $14,659 and that for the financial year of 2017 represents a balance of $42,533. The particular disclosure provided by the management of the company also does not provide any insight into the details, in regards to such an unprecedented increase in the account balance. Trade and Other Receivable Account the trade and receivable account has been chosen for determining the fact that whether this particular account has been exposed to materiality because the account balance shows an abnormal decrease in respect to the consecutive financial years. This means that the account balance for the particular account reveals a balance of $23,705 for the financial year of 2016 and $14,091 for the financial year of 2017. However, the disclosure provided in the annual report of the company shows that the trade receivables that have been incurred by the company is $13,129 for the financial year of 2017 and that of $19,699 for the financial year of 2016. Moreover, the other receivables account for $962 for the financial year of 2017 and $2,975 for 2016. The management of the corporate entity has not provided any overview into the fact as why there has been an abnormality in the account balances. Other Income Account the Other Income account has been chosen for the similar reasons. This means that the other income account balance for the financial year of 2016 is $10,181 and that for the financial year of 2017 has been $4,722. The particular disclosure that has been provided in the annual report of the company in regards to the other income account has been that the abnormal decrease in the account balance for the financial year of 2017 has been due to the fall in the cropping income. However, the particular details into the reasons behind the fall in the cropping income have not been provided. Furthermore, the decline in the revenue related to the particular crops has also not been provided. Thus, it forms the primary duty of the auditor to look into the particular account and identify the reason behind such discrepancies. Inventories Account the inventories account is one of the crucial accounts in case of an organization irrespective the nature of the business conducted by the corporate unit. The inventories account is also important as it represents the blocked capital. Therefore, it should be noted here that the inventories accounts is majorly exposed to material misstatement. The management or the administration of the company can simply understate or overstate the inventories account in order to increase or decrease the net profit derived by the company. Moreover, the financial year of 2016 shows an amount of $34,116 and that of the financial year of 2017 reveals an amount of 28,574. Therefore, the account balances for the consecutive financial years also vary indicating the fact that there is a chance of occurrence in the inventories account. Investment Account the last account that has been selected for determining the fact that whether this particular account has been exposed to materiality is the investment account. This is because as derived from the balance sheet of the company, the particular balance in regards to the investment account that has been disclosed in the annual report of the company is $1099 for the financial year of 2017. However, there have been no transactions in regards to investment for the financial year of 2016. Thus, the particular fact that should be looked into by the auditor in the case of investments in 2017 is that the details of the sector in which the corporate entity had undertaken the investment should be investigated. Moreover, the company has not provided any disclosure in the annual report of the company in regards to investment. Planning the materiality level The planning of the materiality level refers to the process that is adopted by the auditors in order to estimate the allowed amount of materiality. The estimation of the materiality level is usually done by the auditors in order to determine the maximum amount by which the auditor believes that the statements can be misstated. The amount of materiality that is planned by the auditor is revealed in the auditors report. An auditor may arrive at the desired amount by considering a number of financial components like the net profit of the company or the revenue that has been obtained by the company for the particular financial year. The primary motive behind establishing the level of materiality is that it will help the auditor to determine whether the identified accounts have really been misstated that is whether the materiality in the selected accounts exceeds the determined amount of materiality (Kumar and Sharma 2015). In this particular project the planned level of materiality has b een arrived at by a percentage of 0.1% of the total sales revenue. This means that the level of materiality will be 0.1% * $446,727 million that is $446,727. Assessment of what may go wrong In order to determine what may go wrong, the particular aspect of audit that has been discussed, deals with the risks that is associated with the particular process of audit that is applied while evaluating each of the selected accounts. To be more precise, audit risks refer to those risks that are encountered with while performing audit. The audit risks can be broadly categorized into three types of risks that are the inherent risks, detection risks and control risk (Alhadi, Habib and Hasan 2015). Inherent risk refers to the risk of the occurrence of material misstatement in the financial statements of the particular organization, which primarily arises due to error or omission on the part of the accountant preparing the accounting statements of the company. This particular risks excludes the misstatements that may have occurred due to the lack of implementation of proper internal controls. Risk that is inherent in nature is generally assumed when the accounting transactions that are passed by a corporate entity are complicated in nature and essentially requires a higher degree of judgment (Alhadi, Habib and Hasan 2015). Control risk refers to the risk of occurrence of material misstatements in the books of accounts due to the failure or absence of the proper internal controls, implementation of which would have mitigated the fraud or error (Li caes et al., 2015). Lastly, the detection risks refers to the risk that is associated with the occurrence of material misstatements in the accounting statements which cannot be detected by the auditor due to the omission of a particular auditing procedure by the external auditor or due to the fact that the financial statements are too much complicated in nature. The degree of detection risk can be reduced by the increase in the degree of audit sampling (Li caes et al., 2015). It should be noted here that, Total audit risk = Inherent risk x Control risk x Detection risk The audit risk assessment in case of the five selected accounts can be listed down as follows: Accounts Inherent Risk Control Risk Detection Risk Cash Account the cash account may be materially misstated due to the huge volume of cash transactions that are incurred in the organization in the daily course of business the absence of a proper internal control like the segregation of duties in case of the maintenance of the proper cash records also may lead o material misstatements the occurrence of detection is low in case of this particular account as the particular cash transactions are not much complicated in nature. However, the sheer volume might be a reason of the occurrence of detection risk Trade and Other Receivable Account the trade and other receivable account may be materially misstated due to the estimation of the credit limit for each customer the absence of a proper internal control like the implementation of a proper credit limit that is applicable for all customers may lead to material misstatements the occurrence of detection risk in case of this particular account is low Other Income Account the other income account may be subjected to inherent risk due to the omission of the particulars of the cropping income, as mentioned in the balance sheet of the company the absence of a proper internal control like the verification of the accounting records by the delegated staff or the internal auditor may lead to control risk the degree of occurrence of detection risk is high as the particulars of the other income may be huge in number and would not be possible for the auditor to check each transaction individually Inventories Account the inventory account involves a lot of complex accounting adjustments which broadens the scope of materiality in this particular account the adoption of a proper method for the management of the inventory is required. Absence of a clear method may as well lead to materiality the complex adjustments make this account more prone to detection risk Investment Account the investment account may be majorly subjected to inherent risk as no information has been provided in regards to the same in the annual report of the company. Thus, the entire judgment by the auditor has to be done on the basis of assumptions and collected audit evidence this account may not be subjected to control risk this account may not be subjected to detection risk Conclusion Thus, as it can be concluded from the discussions that have been conducted in the preceding paragraphs, the importance of audit cannot be ignored by any means. The process of audit facilitates the evaluation and examination of the financial statements that has been prepared by the administration of a company for a particular financial year. 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