Part 1: Understanding a Client to Plan a Financial Report Audit

(30marks; around1800 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 500 companies (as at 1^st December, 2020).

Team Number	Company Name	ASX Code	Sector
1	99TECHNOLOGY LIMITED	NNT	Software & services
2	1414 DEGREES LIMITED	14D	Capital Goods
3	A2B AUSTRALIA LIMITED	A2B	Transportation
4	ACADEMIES AUSTRALIASIA GROUP LIMITED	AKG	Consumer Services
5	ADMIRALTY RESOURCES NL	ADY	Materials
6	ALCIDION GROUP LTD	ALC	Healthcare Equipment Etc.
7	ALLIANCE AVIATION SERVICES LTD	AQZ	Diversified Financials
8	ALTECH CHEMICALS LTD	ATC	Materials
9	AUMAKE LIMITED	AUK	Retailing
10	AUDINATE GROUP LTD	AD8	Technology Hardware Etc.
11	AUSTIN ENGINEERING LTD	ANG	Capital Goods
12	AUSNET SERVICES LIMITED	AST	Utilities
13	AUSTRALIAN VINTAGE LTD	AVG	Food, Beverage & Tobacco

Your groups choice of company must be according to the above list such that each group is the only audit team for one of the above ASX listed companies.

Having formed the audit team (i.e., assignment group), and assigned to the financial report audit of one of the above clients, (by your lecturer), your primary task is as follows.

As a part of the risk assessment phase for the financial report audit of your new client and in accordance with auditing standards (i.e., ASAs), your audit team (group) is required to gain an understanding of the structure and the business environment. By understanding the clients business, the audit team can identify potential risks that may have a significant effect on the financial report. This will assist the audit team to complete the financial report audit and fulfil a key responsibility.

Required

For your audit teams (groups) 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.
6. Other area

Note, to help you address the above areas, see the prescribed textbook. From this and the examination of the accounts, your audit team should develop questions that they consider important to address specific to your client, i.e. addressed under the Other area.

Your task is to research your clients sector and report back to your audit manager. Your report will form part of the overall understanding of clients 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 clients operations. In conducting your research, you should consider the following key market forces, as they relate to your clients operations. This will involve an analytical review of the company

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:

a) Explain why the account balance is at significant risk of material misstatement (3 marks)

b) Explain one, 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)

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

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

Choice of account will depend on the students understanding of the company chosen

	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.