Your audit firm is conducting the audit of Big Ears Ltd for the year ended June 30,

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Question:

Your audit firm is conducting the audit of Big Ears Ltd for the year ended June 30, 2017. Prepare a report dated April 15, 2017, for the chairperson of the audit committee of Big Ears Ltd outlining your audit plan for the year ended June 30, 2017. As it is the beginning of the audit do not prepare a final audit report/opinion. The report should cover the following areas under the suggested headings:

· Audit Scope and Approach

You are not required to prepare an engagement letter however this section should briefly document; the purpose and scope of the audit; the basis of your audit approach; the responsibilities and limitations of an audit as covered in an engagement letter.

· Preliminary Risk Analysis

o Part A Analysis –identify and discuss the relevant issues from the information provided, that potentially impact on the audit of Big Ears Ltd. Explain how each issue affects the risk assessment by identifying the risk and the financial statement account balances that require closer attention.

o Part B Analysis – Perform analytical procedures in respect of the ratios of Big Ears Ltd to identify the financial statement account balances that may require additional audit evidence. Document the analysis you perform and discuss briefly in one or two sentences the type of audit procedure you would recommend.

· Audit Fees

Audit Timetable

Conclusion- Summary of audit focus.

Company Information

Big Ears Ltd manufactures hearing aids, hearing implants and accessories. The company is considered a medium sized company which is listed on the securities exchange.

Big Ears Ltd has been a client for four years and your firm has always had a good relationship with the company. No material misstatements have been found in prior year’s audits.

In previous audits, internal controls have been evaluated as reasonably effective for all cycles.

The majority of the company’s hearing devices are patented. Its number one selling device, which will come off patent in one year, has accounted for approximately 30% of the company sales during the past five years.

Big Ears Ltd’s senior management is competent however their remuneration packages include share options and bonuses based on performance benchmarks.

Big Ears Ltd has sourced some of its product from distributors in lower cost of production countries.

The accounting system was replaced in the last year going live in November 2016 without running parallel with the previous system. The accounting department has not experienced any major turnover in personnel in the last year.

Ratios see attached appendix.

Audit Fees: Progressive Payments: June, 2017 $190,000

August, 2017 $250,000

October, 2017 $400 000

Timetable: Interim Testing May, 2017

Year End Testing August, 2017

Completion of Accounts September, 2017

Audit firm name: your choice

Audit partner name: your choice

Learning Criteria

To identify and assess the various risks associated with a business; understanding their impact in planning and designing an audit approach; and communicating the analysis using a report format.

General Presentation

Your report should adopt the format illustrated in the “Gold Guide” available at

http://www.newcastle.edu.au/__data/assets/pdf_file/0005/149918/Gold-Guide-NBS-APA-Referencing-Resource.pdf

Note: Word limits are to be used as a guide only.

Appendix

Ratio	9mths to March 2017	2016	2015	Current Industry
Current ratio	1.70	2.35	2.45	2.20
Quick ratio	0.75	1.32	1.76	1.4
Times interest earned	1.6	5.89	6.3	4.5
Accounts receivables turnover	3.35	3.65	5.07	5.29
Inventory turnover	2.40	3.96	5.31	4.33
Research & Dev % sales	1.3	1.94	2.03	4.26
COGS % sales	38.5	41.02	43.8	44.5
Debt/Equity ratio	3.85	1.25	1.13	1.25
Earnings per share	$1.23	$4.32	$4.26	$3.70
Sales growth over past year	3%	4%	5%	6%

ACFI3005 Auditing and Assurance: 2017 Marking Criteria for Assignment 2

Does Not Meet Expectations	Meets Expectations	Exceeds Expectations	Mark
No Executive summary	Satisfactory Executive summary (150- 200 words)	Good Executive summary (200-350 words)
0	0-2	3-4	/4
Limited discussion of the scope and audit approach. (100-150 words)	Satisfactory discussion of the scope and audit approach. (200-300 words)	Good discussion of the scope and the audit approach. (200-400 words)
0-1.5	2-3	3.5-6	/6
Limited discussion of Part A preliminary risk analysis/ account balances affected (100-150 words).	Satisfactory discussion of Part A preliminary risk analysis /account balances affected (200-300 words)	Good discussion of Part A preliminary risk analysis/ account balances affected (200-400 words).
0-2	3-5	5.5-8	/8
Poor discussion of reasons – Part B risk and audit responses. (0-200 words)	Satisfactory discussion of reasons – Part B risk and audit responses (300-500 words)	Good discussion of reasons -Part B risks and audit responses (500-800 words)
0-5	6-7.5	8-10	/10
No conclusion with recommendations of audit focus	Satisfactory conclusion with recommendations of audit focus (50-100 words)	Good conclusion with recommendations of audit focus (100-200 words)
0	1- 3	4	/4
Does not express ideas coherently and logically, uses poor sentence and paragraph structure, grammar, punctuation	Ideas expressed logically and coherently with satisfactory sentence and paragraph structures, grammar and punctuation	Ideas expressed logically and coherently with good sentence and paragraph structure, grammar and punctuation
0-1	2-3	4-5	/5
No information regarding audit timetable and/ or fees.	Incomplete presentation of information regarding audit timetable and/or fees.	Good presentation of information regarding audit timetable and/or fees
0	2	3	/3
Contains frequent spelling errors No title page No table of contents No reference list Presentation requirements not adhered to	Contains spelling errors Incomplete title page Incomplete table of contents Incomplete reference list Some presentation requirements adhered to	Correct spelling Satisfactory title page Satisfactory table of contents Appropriate reference list All presentation requirements adhered to
x 0 =	x 0.5 =	x 1 =	/5
Note: word counts are only a guide			/45