Requirements

Assume you are one of the audit team members who will conduct the financial report audit – year ending 30 June 2021 - for OneWorld. Using the company’s information given above, prepare a report dated June 12, 2021 for the audit manager outlining the audit plan. 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:

 

1. Risk Assessment

From the background and financial information given above:

• identify and explain four (4) potential HIGH inherent risks and two (2) potential HIGH control risks. Please note, the risk given must be key and related to the client’s characteristics/situation.
• for each risk listed, identify the type of risk (inherent risk or control risk), and the associated financial accounts and key assertions that would be affected.

Please use the following table to present your answers:

Potential risk – type of risk, description	Accounts	Assertions

 

2. Planning Materiality

The audit firm dictates that one planning materiality amount (and percentage if necessary) is to be used for the financial statement as a whole. The planning materiality bases are as follows:

Base	Threshold (%)
Profit before tax	5-10
Turnover	0.5-1
Gross profit	2.0-5
Total assets	0.5-1

Based on the information given and your risk assessment,

• select the base for planning materiality that you believe is most appropriate, and provide three reasons justifying the base you have chosen.
• calculate and suggest the planning materiality that you would use for the client.

(You can refer to GT program and textbook pages 106-107 and other resources for further understanding.)

 

3. Analytical Procedures

 

As part of the risk assessment phase, you have to conduct analytical procedures:

• Based on the financial information given above, conduct analytical procedures using common-size analysis.

• Using the planning material set out above, discuss the results of the analytical procedures by outlining six (6) potential problem areas (that is, where possible material misstatements in the financial reports exist), and any other special concerns (for example, going concern). Specify the account balances and related assertions that would require attention in the audit. For each problem identified, you must use your quantitative analysis (with detailed calculations) to support your argument.

 

4. Conclusion

Based on the risk assessment processes and analytical procedures undertaken in the previous sections, conclude the overall level of risk, materiality of the firm and recommend the areas of audit focus.

 

APPENDIX D – INCOME STATEMENT (PART B)

All figures in Australian Dollar	JUN '21	JUN '20	JUN '19	JUN '18
	Estimated	Actual	Actual	Actual
Revenue	16,256,779	3,002,339	2,626,009	6,236,046
Share of profits of associates accounted for using the equity method	53,400
Other income	1,369			12,733
Interest revenue	4,970	8,338	42,376
Gain from deemed disposal of associate shareholding	145,968
Expenses
Cost of sales	-5,705,534	-1,380,724	-1,775,523	-3,537,527
Marketing	-1,089,951	-91,685	-50,599	-71,451
Occupancy (Leasing)	-266,382	0	-11,926	-55,764
Administration	-7,453,540	-1,560,008	-2,385,159	-2,199,018
Impairment of goodwill			-16,016,577
Acquisition costs	-180,417
Other expenses	-718,638	-1,085,902	-1,226,499	-1,376,068
Finance costs	-48,785	-24,450	-51,769	-106,050
Profit/Loss before income tax (expense)/benefit	999,239	-1,132,092	-18,849,667	-1,097,099
Income tax benefit	1,626,926	0	-418,942	59,922
Profit after income tax (expense)/benefit for the year attributable to the owners	2,626,165	-1,132,092	-19,268,609	-1,037,177
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to the owners	2,626,165	-1,132,092	-19,268,609	-1,037,177

APPENDIX E – BALANCE SHEET (PART B) pages 1 - 2

APPENDIX E continued – BALANCE SHEET (PART B) pages 3 - 4  
 

Transcribed Image Text:

OneWorld Limited is a publicly listed company. The company is a world-leading provider of mobile roaming solutions. It has formed many successful partnerships with well-known brands both globally and locally in travel, insurance, airlines, and supermarkets. Its products include providing global roaming, data, local connectivity solutions, global Wi-Fi, flight delay compensation app, flight delay insurance, global Sos alerts, global duty of care platform, travel insurance, etc. The company is headquartered in Australia, with dedicated and expert teams operating across Asia, Europe, and North America. The company operates within a highly competitive, technology-based industry. As such, acquisitions have been considered a key strategy for increasing the company's capabilities and growing recurring revenue. Financial year 2021 (ended 30 June) has been an extremely successful year of performance, underpinned by several key developments. From August 2020 to May 2021, the company has completed four acquisitions, acquiring 100% of the issued shares of Netcom and TravelNet (Hongkong), and X5 Innovations and Mika Pty Limited (Australia). These acquisitions have been successfully integrated into the business, delivering recurring revenue and new customers to the business. In addition to these acquisitions, the company also acquired 50% of the issued shares of Maitland Pty Ltd for the total consideration transferred of $300,000. The consideration transferred is payable in 15 equal monthly instalments of $20,000, with the first instalment paid on completion in December 2020. Acquisition related costs amounting to $380,000 are not included as part of consideration for the acquisitions, but recognised separately in the statement of profit or loss as acquisition costs. The company generates revenues from after-sales service and maintenance provided as well as construction contracts for telecommunication solutions. For after- sales service and maintenance provided, the majority of customers are required to pay in advance and services are delivered over the length of the contracts. Consideration received for those services is initially deferred, included in other liabilities and is recognised as revenue in the period when the service is performed. For telecommunication construction contracts, contracts specify a fixed price for the development and installation of IT and telecommunication systems. When the outcome can be assessed reliably, contract revenue and associated costs are recognised by reference to the stage of completion of the contract activity at the reporting date. The company issued a promissory note of $1,100,000 to one of its subsidies. The promissory note is secured under a General Security Agreement and interest is charged at 6%. During the year, sale of services to related parties is $120,000, payment for services from related parties is $230,000, payment for interest paid to related parties is $16,000. The (company) business has transformed since October 2020 with the most notable milestones being: 1. New CEO and experienced Executive Team who are ambitious to drive the company to growth; 2. Established Managed Service Division with three more staff and a new facility built in order to improve customer service, at an extra cost of $750,000 allocated for FY2021; 3. Completed the integration from multiple to single billing system and one accounting platform, incorporating data simultaneously from different branches. The integration was completed in November 2020 during the Covid lockdown, and training was provided to key staff via online mode OneWorld Limited is a publicly listed company. The company is a world-leading provider of mobile roaming solutions. It has formed many successful partnerships with well-known brands both globally and locally in travel, insurance, airlines, and supermarkets. Its products include providing global roaming, data, local connectivity solutions, global Wi-Fi, flight delay compensation app, flight delay insurance, global Sos alerts, global duty of care platform, travel insurance, etc. The company is headquartered in Australia, with dedicated and expert teams operating across Asia, Europe, and North America. The company operates within a highly competitive, technology-based industry. As such, acquisitions have been considered a key strategy for increasing the company's capabilities and growing recurring revenue. Financial year 2021 (ended 30 June) has been an extremely successful year of performance, underpinned by several key developments. From August 2020 to May 2021, the company has completed four acquisitions, acquiring 100% of the issued shares of Netcom and TravelNet (Hongkong), and X5 Innovations and Mika Pty Limited (Australia). These acquisitions have been successfully integrated into the business, delivering recurring revenue and new customers to the business. In addition to these acquisitions, the company also acquired 50% of the issued shares of Maitland Pty Ltd for the total consideration transferred of $300,000. The consideration transferred is payable in 15 equal monthly instalments of $20,000, with the first instalment paid on completion in December 2020. Acquisition related costs amounting to $380,000 are not included as part of consideration for the acquisitions, but recognised separately in the statement of profit or loss as acquisition costs. The company generates revenues from after-sales service and maintenance provided as well as construction contracts for telecommunication solutions. For after- sales service and maintenance provided, the majority of customers are required to pay in advance and services are delivered over the length of the contracts. Consideration received for those services is initially deferred, included in other liabilities and is recognised as revenue in the period when the service is performed. For telecommunication construction contracts, contracts specify a fixed price for the development and installation of IT and telecommunication systems. When the outcome can be assessed reliably, contract revenue and associated costs are recognised by reference to the stage of completion of the contract activity at the reporting date. The company issued a promissory note of $1,100,000 to one of its subsidies. The promissory note is secured under a General Security Agreement and interest is charged at 6%. During the year, sale of services to related parties is $120,000, payment for services from related parties is $230,000, payment for interest paid to related parties is $16,000. The (company) business has transformed since October 2020 with the most notable milestones being: 1. New CEO and experienced Executive Team who are ambitious to drive the company to growth; 2. Established Managed Service Division with three more staff and a new facility built in order to improve customer service, at an extra cost of $750,000 allocated for FY2021; 3. Completed the integration from multiple to single billing system and one accounting platform, incorporating data simultaneously from different branches. The integration was completed in November 2020 during the Covid lockdown, and training was provided to key staff via online mode

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