Audit Plan For Crikey Computers Ltd Audit (June 30, 2018)

Risk Assessment

As the title of the report suggests, the importance of the Australian accounting standards have been described as to how the accounting standard help the concern in making the financial statements as presentable in the required format. Without the compliance of the accounting standards no company can work as it is mandatorily required to be complied with. The report has started with the discussion of the new accounting standard on leases and how the same have made the clear cut expression with the disclosure due to which the financial statements have become more useful and meaningful. This disclosure has intended to provide the true presentation of the financial statements.

Then the detail has been given of the revenue recognition policy that should have been adopted by the company related to Information technology and how far the management decision to change the revenue recognition policy in regard to the debt hypothesis of the positive accounting theory has been the effective one and how it will have the significance on the financial reporting at the end of the reporting period. The position and the performance statement have been detailed for the New Space Limited and that too as per the provisions of the accounting standards. Two more statements are prepared, first is the trial balance and the comprehensive income and the other one is the statement of affairs. Not only the statements are only required to be prepared but also the preparation of the notes to the accounts shall be done. These have been made in the separate excel workbook. The report has then ended with the appropriate conclusion and the recommendation.

PART A

1 Evaluation – The new accounting standard on leases – 16 will not only details as to what position the company is in term of the financial matters but also will affect the financial performance due to this the equity of the company will also gets affected. The effects have been detailed below:

Financial Position – It covers the reported figures of the company’s equity, assets and liabilities. It has been observed from the old accounting standard that neither the assets nor the liabilities are liable to be recognized in case of leases. Therefore, these items are kept off the balance sheet. It has been observed further that the new accounting standard has laid down the measures as to how the same shall be recognized and the proper recognition of the assets and liabilities are made as per the provisions of that standard only. The recognition has been given because of the model on which the new standard has been based and that is the right of use basis (Singh, 2011).
Thus, new standard has helped in recognition and that too on the date when the lease come into place (Moore and Nagy, 2013). The liabilities corresponding to the asset will be calculated on the basis of the period up to the lease shall be valid. It includes period of the lease which may be extended and but excludes the lease which can be continued forever. Also, in case the rental occurs due to some urgent event which cannot be avoided like the difference in the index rate then the same shall be added to the value of the assets and liabilities as mentioned in the financial statements (Knubley, 2010).
Equity – The profit will be low and hence equity will also be low (Ma, 2010). It is because of the fact that only rentals are required to be mentioned in the financial statements in the earlier regime of the leases. And in the new accounting standard, three head of expenses are required to be considered. These are – service fee, depreciation and the interest and all are debited to the profit and loss account and therefore the profit will be low and therefore it will affect equity negatively (Arrozio, 2016)

2 .Consistency with IASB –

The conceptual framework of accounting has been identified as applicable in the case of the implementation and the adoption of the new accounting standard on leases (Singer, 2017). It is due to the fact that this framework laid down the principles and the provisions as to how the particular transaction shall be considered in the reflection of the transactions in order to provide the clear picture of the results of the company keeping in view the needs and the requirements of the shareholders (FASB, 2016).

Planning Materiality

From the above it is clear that the accounting standard will make the recognition of the required assets and liabilities and therefore there will be no deviation from the principles of the conceptual framework of reporting

PART B

Evaluation of Recognition Policy – In accordance with the paragraph number nine to forty five of the Australian Accounting standard number 15 relating to the recognition of the revenue from the contracts that is entered into with the customers, the revenue is recognized. At first the contract that the company has entered into will be identified with the help of the five criteria which has summed up as under:
Contract must have been approved
Rights of each parties shall be clearly mentioned and detailed
The payment terms shall be easily verified
The contract so entered shall have the substance in commercial terms
There must be the likelihood that the amount shall be received by entity transferring the goods and services as when it becomes due.

As per the paragraph number 31 of the accounting standard, the revenue shall be recognized only when the promised assets is transferred to the buyer and that too as per the paragraph number 35 of the accounting standard, the revenue shall be recognized over the time only when the entity satisfies the customer with the performance over the time in case any one of the criteria is met:

The buyer receives and consumes the benefit simultaneously
There is enforceable right for payment (AASB 15, 2014).

In the given case, the change that the company has made in the revenue recognition is not as per the accounting standard as the company satisfies performance obligations overtime.

Debt Hypothesis – Positive accounting theory helps in analyzing the behavior of the employee involved in the account setting function and accordingly helps in establishing the cause and effect relationship of the act. In view of this definition, Debt hypothesis in the positive accounting theory is concerned that the more likely the situation where the company is going to compromise with the covenants or the stipulations made by the lender organizations, more are the chances the company will have the tendency to adopt the accounting policy which will help in increasing the revenue in current periods by shifting the same from the future periods (Sweeney, 2014).

In the given case, the company has been in the earlier years deferring its revenue of 25% for over three to four years as there will be future upgrades and add on. With the launch of the Vista item in the year of two thousand and eight, the company has started recognizing the sales on the premise of the time when item is sold and avoid deferring the revenue of the product. It has created the increase in earnings resulting to the 65%. This will affect all the accounting ratios which in turn will induce the lenders and investors of the company to invest more and more in the company in order to have the higher returns (Watts and Zimmerman, 2014).

Thus, in this way the debt hypothesis has helped in analyzing the relationship between the behavior of the employees involved in the account settings and the change in revenue recognition policy.

PART C

PART 1

NEW SPACE LIMITED
TRIAL BALANCE AS ON JUNE 30,2018

Particulars	No.	Debit ( $ ‘000)	Credit ( $ ‘000)
Sales of goods			$ 2,444
Interest Income			$ 5
Cost of Sales		$ 1,212
Sales & Marketing Expense		$ 610
Selling & Distribution expenses		$ 50
Administration expense		$ 100
Interest expense		$ 30
Income tax expense		$ 130
Cash on Hand		$ 5
Cash on deposit, at call		$ 10
Accounts receivable – trade		$ 150
Allowance for doubtful debts/Impairment			$ 14
Other receivables		$ 50
Inventories, 30 June 2018		$ 401
Land and Buildings		$ 135
Plant and Equipment		$ 210
Accumulated Depreciation – buildings			$ 22
Financial Assets held for trading		$ 101
Amortization of Patents			$ 2
Patents		$ 15
Accumulated depreciation – Plant and Equipment			$ 45
Bank loan			$ 12
Loans Payable in One Year			$ 140
Other loans			$ 111
Accounts payable – Trade			$ 132
Provision for employee entitlements			$ 32
Provision for employee entitlements < 1year			$ 22
Warranty Provision			$ 31
Current Tax Liability			$ 12
Retained earnings			$ 25
Dividends paid		$ 59
Land revaluation reserve			$ 33
Share Capital			$ 186
Total		$ 3,268	$ 3,268

PART 2

NEW SPACE LIMITED
STATEMENT OF PROFIT AND LOSS
FOR THE YEAR ENDED 30TH OF JUNE 2018
	Note No.	Amount
Revenue
Sales Revenue	10	$ 2,444
Other Revenue		$ 5
Total Revenue		$ 2,449

Expenses
Cost of Sales		$ 1,212
Employee Benefit Expense		$ –
Administration Expense		$ 100
Selling and Distribution Expense		$ 660
Amortization and Depreciation	6	$ –
Earnings Before Interest and Tax		$ 477
Finance Costs	11	$ 30
Earnings before Tax		$ 447
Income Tax		$ 130
Profit after Tax		$ 317

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30TH OF JUNE 2018
Profit after Tax		$ 317
Other Comprehensive Income
Land Revaluation		30
Tax effect on land Revaluation		(7)
Total Comprehensive Income attributable to the members of the company		$ 340

PART 3

NEW SPACE LIMITED
STATEMENT OF CHANGES IN EQUITY

Particulars	Share Capital	Retained Earnings
As at 30th June 2017	$ 140	$ 25
Issued during the year	$ 46
Dividend Declared and Paid		$ (59)
Profit during the year		$ 317
TOTAL	$ 186	$ 283

PART 4

NEWSPACE LIMITED

STATEMENT OF FINANCIAL POSITION AS ON 30TH OF JUNE 2018

Note No.

Amount

Current Assets

Cash and Cash Equivalents

$ 15

Accounts Receivable

$ 186

Inventories

$ 401

Other Current Assets

$ 101

Total Current Assets

$ 703

Non Current Assets

Land and Buildings

$ 113

Plant and Equipments

$ 165

Patents

$ 13

Total Non Current Assets

$ 291

Total Assets

$ 994

Current Liabilities

Accounts Payable

$ 132

Loans Payable in one Year

$ 140

Provision for Employee Entitlements

$ 22

Warranty Provision

$ 31

Other Current Liabilities

$ 12

Total Current Liabilities

$ 337

Non Current Liabilities

Bank Loan

$ 12

Other Loans

$ 111

Provision for Employee Entitlements

$ 32

Total Non Current Liabilities

$ 155

Total Liabilities

$ 492

Net Assets

$ 502

Equity

Contributed Equity

$ 469

Land Revaluation Reserves

$ 33

Total Equity

$ 502

PART 4

	NOTES TO THE FINANCIAL STATEMENTS

1	Summary of Significant Accounting Policies
	Basis of Accounting
	The financial report is a general purpose financial report which has been prepared on the historical cost basis, except where stated otherwise.
	Statement of Compliance
	The financial statements have been prepared in accordance with the requirements of the Corporations Act, Australian Accounting Standards which include Australian equivalents to International Financial Reporting Standards (AIFRS) and AASB Interpretations. Compliance with AIFRSs ensures the financial statements and notes comply with International Financial Reporting Standards.

	Use of estimates
	The preparation of financial statements in conformity with AASB Standards requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management’s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.

	Tangible Fixed Assets
	Fixed assets are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. The company identifies and determines cost of asset significant to the total cost of the asset having useful life that is materially different from that of the remaining life in which case the cost of replacement of such components is capitalized and the non depreciated value, if any, of such replaced components is derecognized. Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred. Gains or losses arising from non recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.

	Inventory
	Traded goods are valued at lower of cost and net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on a First in First Out (FIFO) basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.



2	Cash and Cash Equivalents	30-06-2018
	The cash and cash equivalents include the cash in hand and the balance of Cash at bank as on 30th of June 2017.
	Balances with banks:
	On current accounts	10
	Cash at Bank	5
		15
3	Accounts Receivable
	The accounts receivable represents the amount due from the customers and the debtors and the same has not been impaired during the year.

4	Inventories	30-06-2018
	Inventories has been valued at cost or net realizable value whichever is lower
	Inventory	401
		401

5	Other Current Assets	30-06-2018

	Financial Assets held for trading	101


7	Accounts Payable	30-06-2018

	Accounts Payable	132


8	Provision for Employee Entitlements	30-06-2018
	Provision for Employee Entitlements for less than one year has been classified as Current Liabilities and above that
	it has been classified as Noncurrent Liabilities
	Current Liabilities	22
	Noncurrent Liabilities	32
		54

9	Contributed Equity	30-06-2018
	It includes the share capital, balance of retained earnings and general reserve. The movement in equity has been separately shown in Statement of Changes in Equity forming part of the financial statements of the company.
	The paid up capital consists of the 100000 ordinary shares of $2.50 each.	469

10	Revenue	30-06-2018
	Revenue has been recognized on the date when the risks and rewards are transferred to the buyer.
	Sales Revenue	2449

11	Finance Costs	30-06-2018
	Finance Costs includes the interest expense payable on the loan obtained
	Interest expense	30
	Other borrowing expenses	0
		30

NEW SPACE LIMITED



6. Tangible assets and Intangible Assets
	Land and Buildings	Plant	Patents	Total
Cost	and equipments
At 30th of June 2018	135	210	15	360
Additions
Disposals
At 30th of June 2018	135	210	15	360
At 30th of June 2018	135	210	15	360

Depreciation
At 30th of June 2018	22	45	2	69
Charge for the year
Disposals
At 30th of June 2018	22	45	2	69
At 30th of June 2018	22	45	2	69

Net Block
At 30th of June 2018	113	165	13	291

The report has overall laid down the principles and the ways as to how to analyze the financial reporting and that too has been dealt in two heads. At first lease standard which is new has been detailed and then revenue recognition standard has been described. Then the method and the ways of the preparation of the financial statements have been detailed. A new accounting standard on leases has brought more transparency as compared to the old accounting standard. It is because of the fact that earlier the liabilities were usually kept out of the statement of affairs and the new standard details the assets and the corresponding liabilities have to be disclosed. The new lease standard has assured the greater transparency.

The recognition policy for revenue has also been expressed and the value of the accounting standard has been highlighted. The debt hypothesis relating to the positive accounting theory has further explained the reason as to why the recognition of the revenue has been made in the particular matter. The annual report of the New Space Limited has been presented with the accounting policies and schedules. In order to conclude the report, the accounting standards plays very important factor in reflection of the annual report and without having the clear accounting policies and procedures the same cannot be prepared in the useful manner

AASB 15, (2014), “Revenue from Contracts with Customers”

FASB, (2016), “New Guidance on Lease Accounting”

Knubley, R., (2010). Proposed changes to lease accounting, Journal of Property Investment & Finance, 28(5), pp.322-327

Ma W, (2011), “Impact on Financial Statements of New Accounting model for leases”

Moore, S. and Nagy, A., (2013), “CONTRACT STRUCTURING UNDER THE NEW LEASE ACCOUNTING RULES: THE CASE OF CUSTOM DESIGN RETAIL, INC.” Global Perspectives on Accounting Education, 10, p.81

Singer, R, (2017), “Accounting for Leases Under the New Standard, Part 1: Definition and Classification of Leases and Lessee Accounting”. CPA Journal, 87(8).

Singh, A., (2011). A restaurant case study of lease accounting impacts of proposed changes in lease accounting rules. International Journal of Contemporary Hospitality Management, 23(6), pp.820-839

Sweeney, A.P., (2014), “Debt-covenant violations and managers’ accounting responses”, Journal of accounting and Economics, 17(3), pp.281-308

Watts, R.L. and Zimmerman, J.L., (2014), “Positive accounting theory: a ten year perspective”, Accounting review, pp.131-156.

Turn in your highest-quality paper
Get a qualified writer to help you with

“ Audit Plan For Crikey Computers Ltd Audit (June 30, 2018) ”

Get high-quality paper

NEW! AI matching with writer

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order