A Case Study in Selecting Key areas of interest to the Auditor

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Assessment Details and Submission Guidelines Auditing
Unit Title Auditing
Trimester 1/2020
Assessment

Title

A Case Study in Selecting Key areas of interest to the Auditor
Unit Learning Outcomes Addressed: a. Explain the organization’s and the auditor’s responsibilities for an audit

b. Discuss reasons for performing different types of audits

c. Understand the importance of planning an audit and distinguish the steps involved

d. Explain and apply the auditing standards, practice and process of auditing to practical situations

e. Identify and evaluate the risks inherent in an audit, and report on current auditing issues

Submission Guidelines · All work must be submitted on Moodle by the due date (as above) along with a completed Assignment Cover Page.

· The assignment must be in MS Word format, 1.5 spacing, 11-pt Calibri (Body) font and 2 cm margins on all four sides of your page with appropriate section headings.

· Reference sources must be cited in the text of the Assessment Task, and listed

appropriately at the end in a Reference List using APA 6th edition

Assessment Task Description

This assignment is comprised of three parts (Part 1, Part 2, and Part 3),.

  • Part 1:Understanding a Client to Plan a Financial Report Audit, worth 30 marks
  • Part 2: Risk of Material Misstatement (Inherent Risk) at the Financial Report Level, worth 6 marks
  • Part 3:Format and Presentation Quality, worth 4 marks

Part 1:

Understanding a Client to Plan a Financial Report Audit

(30 marks; around 1800 words)

You have recently completed your Bachelor of Business Degree – Accounting Stream at MIT and now working as a graduate auditor for a major accounting firm, Ernie and Youngster (EYS). EYS has just won the tenders for the financial report audits of the following ASX listed top 100 companies (as at 1 April 2020).

Company name ASX

code

Sector
7 AGL Energy Limited AGL Utilities

Required

For your audit team’s (group’s) chosen client (as approved by your lecturer), address the following six areas.

(6 x 5 marks = 30 marks)

  1. General and industry-specific economic trends and conditions
  2. Competitive environment
  3. Product, customer and supplier information
  4. Technological advances and the effect of the internet
  5. Laws and regulatory requirements. 200 WORDS
  6. Other area 200 WORDS

Note, to help you address the above areas, see the prescribed textbook (Moroney et al, Chapter 3, Case Study – Cloud 9 for specific questions. Not all those questions may be relevant for understanding your client, and there may be “other” questions your audit team considers important to address specific to your client,

i.e. addressed under the “Other” area.

Your task is to research your client’s sector and report back to your audit team leader. Your report will form part of the overall understanding of client’s structure and its environment, which will help you plan for the financial report audit of this client.

You should concentrate your research on providing findings from those areas that have a financial reporting impact and are considered probable given your client’s operations. In conducting your research, you should consider the following key market forces, as they relate to your client’s operations.

Part 2:

Risk of Material Misstatement (Inherent Risk) at the Financial Report Level

(6 marks; around 300 words)

From your Understanding of the Client (i.e., Part 1), identify one(1) specific account balance (not account classifications!) that you consider at significant risk of material misstatement . For your chosen account balance:

  1. a) Explain why the account balance is at significant risk of material misstatement(3 marks)
  2. b) Explain one, key assertion at risk of not being valid (1 mark)
  3. c) Detail one (1) relevant substantive audit procedure to address the assertion at risk as identified in b) above (1 mark)
  4. d) Detail one (1) relevant practical internal control that would mitigate the risk in relation to the assertion at risk as identified in b) above. (1 mark)

(3 + 1 + 1 +1 = 6 marks)

You MUST provide your answers to Part 2 in the following table format.

Specific account balance: [INSERT NAME HERE]
(a) Explain why the account balance is at significant risk of

material misstatement. (3 marks)

(b) Explain the key assertion at risk of not being valid. (1 mark)
(c) Detail one (1) relevant substantive audit procedure to address the assertion at risk as

identified in b) above. (1 mark)

(d) Detail one (1) relevant practical internal control that would mitigate the risk in relation to the assertion at risk as identified in b)

above. (1 mark)

To obtain 70 percent or more for this requirement, there must be strong evidence that your responses to this part are based on (i.e., connected) to the results of your Part 1: Understanding a Client to Plan a Financial report Audit.

There is no correct answer here. However, the requirement makes it clear that the response must refer to the six areas. For each area, award up to 5 marks. The more detailed and convincing the response the more the marks should be awarded.

See also Marking Rubric and * at bottom of the Marking Rubric.

From a big picture perspective, groups should have highlighted the key risks in respect of understanding their client sector/industry/business – as per chapter 3 of the prescribed textbook. For example;

  • How does the company control the suppliers/manufacturers? Are they onshore or offshore?
  • How do they determine the quantity/style for their purchases from the manufacturer? Ultimately, the wholesaler inherits some of the risk when determining stock balances to effectively service the retailers

What are the terms and conditions with the retailers? What rebates or discounts are provided? As price is the key driver in retail, this will be the area of concern when dealing with retailers.

Part 3:

Format and Presentation Quality

(4 marks)

As mentioned above, Part 1 should be presented in a ‘report’ format.

A key aspect in your audit team’s (group’s) choice of format/layout should be to ensure you impart your key messages effectively (i.e., complete the requirements) and efficiently (i.e., it should be succinct and take into account the word limit).

As per the Submission Guidelines on page 1, the report also should be coherent, and so consistency is expected throughout (e.g., formatting, language style, linkages between the parts, page numbering).

Note, groups who split up the requirements and work independently are likely to have more difficulty accomplishing this objective compared to groups who work on each of the parts collaboratively (i.e., as an

‘audit team’). An assignment that has been put together last minute will be obvious to the marker and, therefore, will not earn many marks for this part.

Make sure all pages are numbered, and the text fits within the margins of your pages. Start each part on a new page and start each requirement of a part on a new page, making sure to include the relevant heading.

Your ‘report’ must have a/an;

(i) Executive Summary ( around 100 to 150 words – not included in word count ),

(ii) Introduction that succinctly outlines the main theme (s) and requirements of this part of the assignment ( around 150 to 200 words ),

(iii) Body that specifically addresses the requirements of Part 1 ( around 1800 words ) and

Part 2 ( around 300 words in table format ),

(iv) Conclusion that specifically addresses (summarizes) Parts 1 and 2 ( around 100 words ),

(v) Reference list containing all cited works and

(iv) Proper English grammar, appearance.

Auditing IDEA software (windows 10)

Marking Criteria and Rubric

Part 1*

(out of 30 marks)

Part 2** (out of 6 marks) Part 3

(out of 4

marks)

Met requirement to an excellent level (80 to 100%) Fully researched and covered all six points in detail Properly indicated the account balance at risk of misstatement, and supported this with a full logical argument connected to part 1 Proper structure language and grammar and full evidence of supporting

research

Met requirement to a very good level (70 to 79%) Soundly researched and covered all six points Indicated an account balance that was at risk of misstatement and provided a sound reason for the choice and connected to part one Proper structure and language and good evidence of research
Met requirement to a good level (60 to 69%) A good development of all six points Indicated an account balance that was at risk with a reasonable argument as to why and some linking to part 1 Basic structure and grammar and evidence of

research

Met requirement to a satisfactory level (50 to 59%) All six points were covered Indicated an account balance at risk provide an week linking to part one Readable language Some evidence of

research

Did not met requirement (0 to 49%) Did not cover all six points Failed to correctly select an account balance at risk Poor grammar and little or

no research

GRAND TOTAL

(out of 40)

UNIT MARKS

(out of 20)

* For Part 1

To obtain 70 percent or more for this requirement, there must be evidence of ‘material’ (i.e., quality and quantity) research. Therefore, and as per the submission guidelines (on the cover sheet to this assessment task document), it is important that all reference sources used are cited in the text of your report and listed appropriately at the end of the report in a reference list using APA referencing style.

** For Part 2

To obtain 70 percent or more for this requirement, there must be strong evidence that your responses to this part are based on (i.e., connected) to the results of your Part 1: Understanding a Client to Plan a Financial report Audit.

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