Contents
Introduction 2
Telecom Industry: 3
Audit Risk Assessment 3
Audit Risk Model 3
Inventory Valuation Risk 3
Intangible Asset valuation risk 4
Foreign Currency Risk 4
Tax Risk 4
Compliance Risk 4
BUSINESS RISK 4
Liquidity Risk: The liquidity risk of Telstra can be analysed from the help of these two ratios 5
Quick Ratio 5
Current Ratio 5
Control Risk: 5
Inventory and Warehousing cycle: 5
Sales and collection cycle: 5
Payroll and personnel cycle: 6
Acquisition and Payment cycle: 6
Capital Acquisition Cycle: 6
Planned Detection Risk: 6
Analytical Procedures: 6
Recommendation: 6
Conclusion 7
References: 7
Introduction:
This project presents an audit risk assessment on Telstra Corporation Limited using advanced accounting techniques
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It has three components viz. inherent risk, control risk and detection risk.
In today’s world, the role of IT has turned accounting estimated critical in financial reporting and disclosure. Houghton and Fogarty have said that non-accurate or incorrect estimates have often caused to misstatements in audit report (Gray & Manson, 2007).
Audit Risk Model
Audit Risk Assessment can be done by this Audit Risk Model. This model consists of 3 types of risks i.e., inherent risk, control risk and detection risk. Eventually, audit risk is a product of these 3 types of risks (Griffiths, 2012).
Inherent risk:
It is the susceptibility of an account balance or a class of transactions to a material misstatement, assuming that there were no internal controls. The inherent risk at Telstra is that there may be certain types of misstatements that may not be identified during the course of audit. The inherent risk associated with the audit of Telstra is ascertained based on the nature of the business. Telstra Corporation Limited have these kinds of risks:- inventory valuation risk, intangible assets valuation risk, foreign currency risk, interest rate risk, tax risk, amendment risk and compliance risk. All the above stated risks pose potential material misstatements on the financial statements and thus need to be addressed (Telstra
Accounting is a product of many estimates and judgments. It is essentially a rear-view mirror, looking back at what has happened. To add to the problem the view changes with each new accounting period.
"In applying analytical procedures as risk assessment procedures, the auditor should perform analytical procedures relating to revenue with the objective of identifying unusual or unexpected relationships involving revenue accounts that might indicate a material misstatement, including material misstatement due to fraud. Also, when the auditor has performed a review of interim financial information in accordance with AU sec. 722, he or she should take into account the analytical procedures applied in that review when designing and applying analytical procedures as risk assessment procedures."
CAS 300 requires auditors to their audit using a risk based model where the nature, timing and extent of audit procedures are based on the assessed risk of material misstatement. Pickett (2006) argues that for audits to be effective and efficient, much of the audit effort should be focused on areas that are considered to pose the highest audit risk. Additional audit procedures should be linked to individual audit assertions whereas other audit procedures need to be performed as and when needed. Thus, for an audit plan to be put in place, it is necessary for an auditor to come up with a risk profile of the client comprising an understanding of the business operating by the audit client, assess business risk and also perform its preliminary analytical review.
#3. Inherent Risk Factors; audit planning decisions. Businesses that face extreme competition are susceptible to many inherent risk factors – the measurement of the auditor’s assessment of the likelihood that there are material misstatements in an account balance before considering the effectiveness of internal control. Complex valuation issues and related party transactions are two such factors that would affect audit planning decisions. Valuation issues may lead the audit team to request more evidence, if they choose to accept the audit at all. Risks such as inventory turnover leading to potential misstatements of inventory, costs of goods sold, or obsolescence of inventory may influence the audit firm’s decision to hire outside specialists to assist in the audit. Another inherent risk factor, client business risk (competitive
First I would categorized them in 3 different groups, business related, political and environmental, but is very important to mention that in some cases a single risk can be categorize in more than one group, for example, that is the case of the weather risk that I consider in the environmental group but it has a direct impact in the business related group.
Executive Summary: Audit risk analysis gives a transparent image of the company. It shows that if the company is depicting accurate information in its financial report. In this report we did an audit risk analysis for Caltex Australia Limited. It is a company traded on Australian Securities Exchange (ASX: CTX). It is a company which has its business expanded all over Australia and they are involved in the purchase and distribution of oil and they have outlets spread across Australia.
Analysis of the liquidity ratios of Verizon wireless unveiled the fact that the company liquidity position
During the performance of this integrated audit, require numerous judgments about the internal control and overall financial reporting and how well it addresses risks of material misstatements within the financial statements (AICPA, 2014). After re-evaluating the previous errors found from the previous audit, the audit team found the corrective actions to be appropriate and justified in elimination of human error by implementing additional checks and balances within the manual process. No additional misstatements have been found and all internal controls off the financial reporting seem appropriate and just.
Liquidity ratio. The firm’s liquidity shows a downward trend through time. The current ratio is decreasing because the growth in current liabilities outpaces the growth of current assets. The quick ratio is also declining but not as fast as the current ratio. From 1991 to 1992, it only decreased 0.35 units while the current ratio decreased 0.93 units. Looking at the common size balance sheet, we also see that the percentage of inventory is growing from 33% to 48% indicating Mark X could not convert its inventory to cash.
Liquidity ratios measure the short term ability of a company to pay its obligations and meet their needs for maintaining cash. According to Cagle, Campbell & Jones (2013), “A good assessment of a company’s liquidity is important because a decline in liquidity leads to a greater risk of bankruptcy” (p. 44). Creditors, investors and analysts alike are all interested in a company’s liquidity. After computing liquidity
The liquidity position of a company can be evaluated using several ratios which evaluate short-term assets and liabilities and a firm’s ability to settle short-term debts (Gibson, 2011). These ratios can provide insight into a firm’s ability to repay its debts in the short term (Gibson, 2011). In turn they suggest a firm’s capacity for debt-satisfying capabilities into the future (Gibson, 2011). This paper will use financial statement data as cited in Gibson (2011) from 3M Company (3M) to better understand liquidity measures to evaluate a firm’s total liquidity position. The following paper will focus on various liquidity calculations, their meaning, and their interpretation relative to 3M. Finally, an overall view of 3M’s liquidity
Liquidity ratios are defined as a class of financial metrics that is used to determine a company 's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debt (Liquidity Ratios, 2006). In simple terms this states for every dollar of current debt FedEx has, they have $1.96 to pay it off.
The long-term liquidity risk ratio such as LT debt/Equity, D/E, and Total Liabilities to Total Assets all show a decline from year 2005 due to the repayment of debts. The interest coverage ratio also shows a healthy number of 29.45 in comparison to the industrial average of 15.04 indicating a high ability to pay out its interest expense. Such a low relative risk is not surprising due to the nature of its business depending heavily in R&D development and large intangible assets.
This article initiates with the introduction on what is audit planning. It basically addresses the audit plan strategy of K & S Corporation limited’s Financial Statements. Being an external auditor of the company, key factors to be considered in auditing the financials of the subject company have been discussed in the article. The most significant accounts at risk being materially misstated have been critically examined citing the possible risks associated with such accounts. Last but not the least, the article concludes with recommendations with respect to audit assessment plan of the company. Hence, this article seeks to act as a ready reckoner guide for an audit manager in audit planning of K & S Corporation Limited.