Red Earth Pty Ltd is asmall company with gross assets of around $25 million and a turnover of under $50 million per year. The CEO and majority shareholders point out the importance of audited general-purpose financial statements in order to secure financing for anticipated market development.

Red Earth Pty Ltd operates in an industry that is influenced by economic factors such as customer demand, market trends, and interest rates. As they prepare to enter new markets, it is critical that they assess the economic conditions that may have an impact on their expansion objectives. The industry circumstances, competition, and market dynamics are critical factors that could affect the company's performance.

Red Earth Pty Ltd has quite strong and effective Internal control, Accounting Procedures, and Reporting which are comprehensive of the collection, storage, record, processing, and authorization of financial and accounting data. However, there are still some aspects of internal control and procedures that need to be improved andstrengthened, especially the process for adjusting depreciation records, approving sale returns, following up with bad debt, reviewing discounts by authorized persons, stock insurance, slow-moving and obsolete items, and payroll liabilities system for all service leave and superannuation, which all of them are affected the effective of company p's performance and profitability. Red Earth Pty Ltd has to improve and evaluate internal controls to help them improve the areas where the risk of errors or fraud is higher due to ineffective controls.

Red Earth Pty L's d computerized information system uses computer hardware and software, MYOB to enter, process, and store data to help them efficiently manage cash flow, payroll, and day-to-day transactions including inventory, accounts payable and receivable, and non-current assets transactions.

Red Earth Pty Ltd has prepared financial statements that include a company's income, expenses, profitability, assets,and liabilities, allowing them to determine whether the business is profitable enough. In particular, executive leadership canuse financial figures to guide decision-making. This will have an impact on the management's decisions going forward so that they can genuinely maximize profits and reduce expenses to accomplish their designated goal for the time period.

Red Earth Pty Ltd.'s profit and loss statement hasshown change and improvement in profit due to thegreater profit this year compared to last year which is a good result for the company to achieve their goal to enter new markets.

The Balance sheet shows better performance in liquidity in 2021 (Current Ratio: 1.6) than in 2020 (Current Ratio: 1.3), which shows how effectively assets can be converted into cash. The business will have more short-term resources by the end of 2021 to fulfill its short-term obligations.

A risk-based approach would be the best auditing methodology for Red Earth Pty Ltd. This strategy focuses on detecting areas of higher risk and deploying audit resources appropriately. The CEO places a strong priority on audited General Purpose Financial Statements, and the company has expansion plans, therefore it is crucial to have a thorough grasp of the inherent, control, and overall audit risks.

After reviewing, analyzing, and evaluating the organization's accounting and internal control systems ( as the information above) you must develop the financial audit methodology ( audit plan) to identify significant features of audit and to establish criteria for conducting the audit (audit process) in accordance with professional auditing standards.

Task i. Create the audit lines of inquiry (identify subsystems to be audited within the scope of audit) to support audit objectives. ii. Identify business risks associated with each subsystem. iii. Identify financial data sources from the evaluation of the organization's information systems (type of documents for verifying required information) to assess the risk of each subsystem and to reduce audit risk to an acceptable level. iv. Establish and specify sampling and selection techniques to be used in conjunction with internal control procedures and substantive testing for each subsystem.

Answer rating: 100% (QA)

Certainly Heres a structured approach to developing the financial audit methodology for Red Earth Pty Ltd Audit Lines of Inquiry 1 Revenue and Sales B... View the full answer