Materiality Concept
Auditing and assurance is the key aspect of strengthen the true and fair view of the assets and liabilities recorded in the financial statements of company. The main objective of the audit and assurance program is to increase the transparency of reported financial statements of organization. In this report, different three sections have been answered by undertaking the proper methods and auditing assertion test. The audit and assurance program have been undertaken for the company Technology one which has been operating its business on international level. In the starting Materiality concept have been explained after that review of the financial statement of Technology one and audit assertion test have been analyzed. Afterward, in the end, analysis of the cash flow statement, financial and non-financial activities of the company have been taken into consideration to determine the highest and lowest activity of the cash flow.
Materiality could be defined as evaluating the quantifiable financial data to identify the internet risk such as misstatement, omission and errors in the prepared financial statements of company. As per ASA 320 , the concept of materiality is discussed with reference to the preparation and presentation of the financial report which analaysi the ommmision and problems in the financial statements. In this regard, the misstatements are considered to be material if they individually or in the aggregate impact the decision taken by the users with regards to financial statements. Materiality in planning and performing audit focuses on the auditor’s responsibilities to determine the materiality for the financial statements. Each and every auditor while auditing the financial statement of company set the materiality level to analysis the inherent risk and viability of the prepared financial statements. This set materiality level is determined on the basis of performance materiality concepts which emphasis upon the viability of the set parameters in the particular time period. For instance, performance materiality may be fixed such as 1% of the revenue, 10% of revenue, .5% of revenue and 5% to 10% of revenue. This will allow auditors to determine the viability of the overall turnover shown in the financial statements while preparing the audit report without any disclaimer. It is analyzed that there could other parameters as well which could be used by auditors while setting the performance parameters such as net income, gross profit and total turnover of company (Jelinek, 2015).
After analysing the annual report of company, it is analyzed that Technology one company increased its revenue to AUD $ 271.61 million in 2017 which is 15% higher as compared to last year data. However, the figured detailed given have been adjusted for the tax computation. The overall turnover could be used to set up the materiality level which could be between AUD 25 million to 30 million. The main disclosure made by the Technology one company is related to its business expansion in other market segment and diversified business functioning. It will allow organization to strengthen its overall sales. In addition to this, merger strategy has also allowed company to increase its overall market share in given time period (Mock, Ragothaman, & Srivastava, 2018).
Analysis of Financial Statements and Audit Assertion Tests
Audit and assurance process checks the viability of the financial statements and errors and issues in the books of account of company. The preliminary analytical review is the beginning stage which is adopted by the auditors reviews the reporting financial statements. In ASA 450 , the auditors evaluate the effect of misstatements on the audit and the impact of uncorrected misstatements on the financial statements.. As per ASA 1031It also influences the discharge of accountability by the governing authority or the management As per the ASA 300, it is analyzd that review of thefinanical statemetn by the auditros is very much required to assess the risk asociated with the finanical statements. This analysis allows auditros to identify the relation between the financial and non-finanical information (Louwers, et al. 2015).
|
KEY RATIOS |
2014 |
2015 |
2016 |
2017 |
|
CURRENT RATIO |
1.1 |
1.56 |
1.25 |
1.65 |
|
FINANCIAL LEVERAGE |
1.25 |
1.52 |
1.82 |
1.98 |
|
NET MARGIN (%) |
20.2 |
32.5 |
45.5 |
47.5 |
|
RETURN ON ASSETS (%) |
18.1 |
18.2 |
6.01 |
14.15 |
|
RETURN ON EQUITY (%) |
27.20 |
15.32 |
9.49 |
21.31 |
|
RETURN ON INVESTED CAPITAL (%) |
23.86 |
13.80 |
9.25 |
17.17 |
|
RECEIVABLES TURNOVER |
2.57 |
2.89 |
2.66 |
4.60 |
|
FIXED ASSETS TURNOVER |
39.33 |
49.96 |
47.32 |
39.74 |
After analysing all the details and financial performance of company, it could be inferred that company has consistently increasing its overall profitability and increasing the overall outcomes in determined approach. It is analyzed that company needs to increase its investment its operating assets which would be helpful in meeting the client’s demand in long run. However, company has kept high financial leverage due to the increased debt funding which might be negative indicator for the Technology one company if it has to face issue due to the sluggish market condition (Pratt, & Peters, 2017). It has to establish the equilibrium between the organizations’s cost of capital and financial leverage. The conditions of the industry and amounts may affect the trends of earning. It can affect its capability of going concern.
|
Business key risk |
AUDIT ASSERTION |
AUDIT PROCEDURE |
|
FIXED ASSETS |
Existence |
This existence test will be used to assess the true and fair view of the financial statement of company. It will manage the misstatement omission and fault in the prepared financial statement. . |
|
Liquidity risk |
Obligation and right of auditors |
The auditor shall insect the roles and responsibilities of the Liquidity Risk Management Division and Funds Management Division and review if the liquidity risk management system is functioning efficiently. Auditors needs to assess whether on the reporting time, company has that much level of liquidity capital in its business or not (Bik, & Hooghiemstra, 2018). . |
|
SALES OR TURNOVER |
Occurrence |
Company might record the falsified sales in tis books of account which may result to misleading data to stakeholders. They should also analyse the supporting goods dispatched notes and orders to the consumers It means that the disclosures of transactions are easy to understand. They are also required to validate the formulas used for calculation and correlate them to the regulatory guidelines. They should validate the computation of liquidity coverage ratios . |
|
Account payables |
COMPLETENESS |
They should analyse the report of the items of accounts payable not matching with the machine systems . They should also use the software to prepare the role of debit to account payable other than the payment made to the vendors. The role of auditors, in this case, is to assess the risks in the acquisition cycle. They should focus on payments made to the vendors and review the files of accounts payable ( Fuhrmann, Ott, Looks, & Guenther, 2017). |
The cash flow statement of Technology one company has reflected that company has high cash outflow from its investing and financial activities. It is analyzed that investing activities of the cash flow statement of company reflects AUD $ 113 million of cash outflow. The cash outflow from the financial activities of company reflects cash outflow of AUD $ 171 million. However, there are several primary financial activities of the Technology one company such as sale or maturity of investments, proceeds from the convertible bonds, and proceeds from the issue of shares and income from the consolidated funding. On the other hand, primary cash payment of company would include purchase of property, net cash paid, payment to shareholder to dividend and rest payment to stakeholders for the investment purpose. There are other non-cash financial activity which needs to be managed such as investing in buying new assets, convertible bonds and hedge funding investment (Mala, & Chand, 2015).
Review of Statement of Cash Flow
The main risk company is facing is related to going concern if it failed to manage the proper flow of cash funding for its business. The financial activities of Technology one is comparatively high which reflects that company might face issue related to increased cash risk. The Auditors of company has also faced the issue related to the maternity level and cash risk in its business.
The cash transactions in the cash flow statement of company include payment to shareholders as dividend, issue of shares and payment for the investment. On the other hand, non-cash transactions include depreciation, impairment loss and charge created on the assets of company. This has shown that company might face issue related to the sustainable business practice and may increase business risk which might negatively impact the business growth of Technology Company (Legoria, Melendrez, & Reynolds, 2013).
The opinion of the auditors for the financial statement of the Technology one company is favourable. They centralize their visibility and policy setting regarding the risks of increasing commodity price. Auditors of company have given in its report that it shall have counterparty credit policies. Judgments regarding materiality are made in the context of surrounding circumstances and they are influenced by the nature or size of the misstatements. The determination of materiality is a matter of professional judgment and it is often influenced by their perception. As the percentage of materiality varies from industry to industry, but it also depends upon the perception of the auditors. Auditors have passed non-qualified audit report which reflects that company has complied with the all applicable laws and regulations in preparation of the financial statements. The unqualified audit report of the auditor reflects that company has complied with the applicable rules and regulation in effective manner (Choudhary, Merkley, & Schipper, 2018).
Conclusion
The annual report of technology one company has been assessed and it is analyzed that auditors has set up their materiality performance ranging from 5% to 10% that reflects the viability of the changes in its overall turnover. Auditing and assurance undertaken in this report reflects that audit process helps in of company The financial performance of company is also increasing and strengthening the true and fair view of the assets and liabilities recorded in the financial statements reflecting the positive indicator for the future growth and business outcomes in long run. Now in the end, it could be inferred that company should establish the harmonization in its domestic and international reporting frameworks for preparing the financial statements.
References
Bik, O., & Hooghiemstra, R. (2018). Cultural Differences in Auditors’ Compliance with Audit Firm Policy on Fraud Risk Assessment Procedures. Auditing: A Journal of Practice and Theory.
Choudhary, P., Merkley, K. J., & Schipper, K. (2018). Auditors’ Quantitative Materiality Judgments: Properties and Implications for Financial Reporting Reliability. 28(2), 44-82
Fuhrmann, S., Ott, C., Looks, E., & Guenther, T. W. (2017). The contents of assurance statements for sustainability reports and information asymmetry. Accounting and Business Research, 47(4), 369-400.
Jelinek, K. (2015). The auditing profession: Accounting for some things. Business Horizons, 5(58), 483-484.
Legoria, J., Melendrez, K. D., & Reynolds, J. K. (2013). Qualitative audit materiality and earnings management. Review of Accounting Studies, 18(2), 414-442.
Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services. McGraw-Hill Education.
Mala, R., & Chand, P. (2015). Judgment and Decision?Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective. Accounting Perspectives, 14(1), 1-50.
Mock, T. J., Ragothaman, S. C., & Srivastava, R. P. (2018). Using Evidential Reasoning Technology to Enhance the Audit Quality Assurance Inspection Process. Journal of Emerging Technologies in Accounting, 15(1), 29-43.
Pratt, S., & Peters, E. (2017). Internal audit: Raising the bar in auditing financial crime risk. Journal of Financial Compliance, 1(3), 237-244.
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