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Determine the level of materiality to be used for the audit of the group accounts for the year ending in 2017. Your answer should include a discussion of the nature of materiality, and a description of what materiality represents in terms of the audit of a set of financial statements,and should discuss the different bases and considerations employed in arriving at materiality.

Explain the rationale behind your choice of a certain level of materiality. Provide a quantitative estimate of materiality for your company.
? Review the various draft notes and disclosures accompanying the draft annual report.Highlight those that may have significance to the audit, eg. Contingencies, and outline the audit procedures that you will need to perform.

Section 2.
The partner has requested you to prepare a preliminary analytical review on the information provided by your company. The partner suggests that as a minimum you address key balance sheet and profit and loss ratios over the period 2014 to 2017.Based on these results and the nature of your company’s business and its markets, outline the
apparent trends and changes in these ratios, the key risk areas for the audit and the matters that will have to be addressed in the audit plan. Give examples of relevant assertions and at least one audit procedure for each assertion.

Section 3.
? Review the statement of cash flows. Which category of cash flows provided the majority of cash inflows? Which category had the greatest outflows?Identify the primary cash receipts and cash payments during the year.What were the main non-cash financial and investing activities?Using the results of questions 2 and 4, evaluate the going concern risk of this company.What audit procedures would you recommend to address this risk.

? Review the audit report of the 2017 financial report. What type of opinion was expressed?Are there any additional sections or paragraphs indicating any audit issues? If any, describe the nature of these issues in detail. 


In the given report the discussion will be held on the auditing, and key financial ratios regarding the balance sheet and the profit and loss statement (Sinha and Arena 2018). Many auditing procedures have been analysed in the report.The focus of this analysis will be on materiality. Significance of auditing contingency, audit, and auditing procedures and others will be discussedfrom the reports of Independence Group NL thatis an ASX listed company. In addition to that, the discussion will contain the cash flow statement analysis and financial report reviewing, and audit report analysis. Further, the market and nature of the company will be discussed to provide an ultimate understanding of the business activities of the Independence Group.


In the given report, various methods and tools are to be used to make a qualitative and quantitative analyses of the financial data and auditing procedures, in addition to that the company’s ratios are calculated for trend analysis (Simnett, Carson and Vanstraelen2016).

Section 1:

Materiality in the auditing procedure means reliability on the statements and the reports of a company (Samsonova-Taddei and Siddiqui 2016). The materiality is an inherent part of the auditing procedure as this helps the auditor to fix the audit planning and procedure that are required to perform in the auditing procedure. In addition to that if the materiality on the client or on the company’s financial statements and accounting is low the auditor needs to implement more substantive auditing procedure to make decision and comment on the company’s financial report.

The materiality of the company will be determined by conducting the compliance procedure which will evaluate the strength of the internal control of the client. If the internal control of the client is regarded as strong then the auditor assumes that the findings of the auditing procedure will be contributory in the preparation of the audit report. If the internal control is weak then in that case the auditor needs to conduct an investigation for more audit evidences to make find the findings material.

In the given report the chosen company Independence Group is a listed company in the ASX majorly operates in the excursion of copper, nickel, gold and others. The internal control of the company is regarded well and strong as there are separate departments and supportive documents are available in research outcomes (Moroney2015). The materiality is obtained by the analysis of comprehensive review of the independence group’s adherence to regularity guidelines and security policies to access control over the financial management.

From the audit report of the company and other financial notes it has been found that the company’s auditor needs to review the statutory audit duties in the auditing procedure.In evaluating the mining assets, the management’s impairment models are used for the NOVA mine, as there are significant issues that are affecting and challenging the assumptions of the management for the assessment terms. In addition to that benchmarking and analysing the management’s commodity price assumptions against the external market information and trends to determine whether the significant changes might leave an impact on the assets valuations. In addition to that, the companies production forecasting and challenging the appropriateness of the management on the ore reserves are being required to make the estimates on the assumption of the source data available (Louwerset al. 2015).

Section 1: Materiality and Audit Procedure

Section 2:

In this portion of the report the main objective is to provide an analytical view of the key ratios of the profits and loss statements and the balance sheet. The ratios taken here are net profit ratios, current ratio and the Debt equity ratio. The study will held upon the annual report oflast four financial years. In addition to that for better understanding of the study and increase and decrease of the cost or component of the financial statements bay taking the base of the figures of 2014.

Independence Group













Net Profit ratio

Net Profit


















Net Profit ratio









Debt Equity ratio

Total Debt









Total Equity









D/E ratio









Current Ratio:

Current assets

Cash and cash equivalents









Trade and other receivables


















Total Current Assets









Current Liabilities

Trade and other payables


















Total Current liabilities









Current ratio









From the above analysis, it is identified that the portion of their Equity investment of the company is increased substantially over the periods (LarránJorgeet al. 2015). The margin of profits has been raised to maximum in the year 2015. However, in the year the company has initiated some loss in 2015’s operations. The trend of the net profit ratio is the measurement of the ability of The Company to make profits against the sales. This shows the ability of the company to make the profits for the shareholders of the company. In addition to that, the company’s ability to pay the liquidity obligations is calculated by the current ratio analysis.

The ratio depicts the difference of the short term or current liabilities and the current assets of the company. In the analysis period, one significant observation has been located as the company is not having the Receivable or debtors as the current asset rather they are taken as the non-current assets of the company. This is because of the nature of the business that the company is associating with or the business policies. The possible reason of such is that the company is not selling the products in credit. The assets that are located in the non-current assets because of the any special case allowance (Knechel and Salterio2016).

From the above analysis the main portion of the auditing risk are associated in the sudden increase in the borrowing of the company and the lower profitability of the Company. In the auditing procedure the company needs to comply with the associate lists that are lowering the profit margin of the company. In addition to that the company’s receivable is also increasing over the years this means the company is not getting paid back the dues. The current collection policy is to be reviewed a major portion of the funds which are blocked in the way of receivables.  Management assertion in auditing is the claims made by the members of the management regarding certain aspects of the business management.

In the auditing of the financial statements, the auditor primarily uses the reliability upon the variety of assertion regarding the activities performed in the business. Therefore, auditing of the assets presentation and discloser appropriateness for each of the main debtors of the company is to be analysed. The confirmation of the salesis required to be attained from the external sources by the purchasing company;however, the risk of mismanagement for each assertion will vary according to the type of account (Karaibrahimoglu and Cangarli2016).

Section 2: Financial Ratios and Analysis

Section 3:

The statement of cash flow is a part of financial statement that depicts the collection and allocation of the cash in various activities (Kaptein2015). In the cash flow, the cash are segregated into three different categories based on the character of the cash flow activities. These activities are operating activities. The other two activities are investing and Financing activities. In the financing activities, the sources are related with financing or sources of finance.In the report, the major discussion will be held regarding the allocation and sources of the cash inflows and outflows in relation to the operating activities. The major source of fund are collected from debtors of the company, the company from the interest income that was amounted as $416375 and $ 2201 respectively generated a minor portion of the cash inflow.

The collected cash are utilised and allotted in the payments to the suppliers and employees of the company. Out of the collected cash $ 323416 are paid for the payment to the suppliers and employees of the company. Another cash outflow was initiated by payments for exploration expenditure. In addition to that, another inflow of the company was generatedfrom other operating activities.The major or non-cash investments are made by providing the equity shares of the company. But in the year 2017 there was no non cash investing and financing activities during the current or previous year (Hutabarat2018).

Audit report analysis

For the year ended 2018 the auditors of the independence group is BDO.

Opinion- It is the primary and main objective or duty of the auditor to comment on the financial statement of the client. In the opinion paragraph the auditorinclude an opinion out of “Fair”, “Qualified”. if the auditor present the clear opinion that will signify and assure the shareholders of the company that all presented information including the financial statement and the directors report are made properly. The company has maintained all material discloser in relation to the business and preparation of the financial statement are made in association with the Australian Accounting Standards (Ghahramani, Soleymanporand Fatahi2016).

The audited financial statements include the report of the independence group and the subsidiaries of the company which comprises the consolidation balance sheet as at 30 June 23017, the statement of profits or loss and other comprehensive income, the consolidated equity and consolidation statements of cash flows for the year ended and the notes to the financial statements. The word consolidation means to gather a consolidated data of independence group and its subsidiaries (García-Marzá2017).

In addition to that the company has accompanied with all the components of corporation Act 2001, and the auditor of the company form an opinion “FAIR” for the financial performance in the year ended 30 June 2017.

Basis for Opinion:

The audit conducted on the basis of Australian Auditing Standards. In the auditing procedure the auditor BDO has complied with the corporation act 2001, ethical requirements of the accounting Professional, and Ethical Standards Board APES 110, Code of Ethics For Professional Accountants (Ferrell and Fraedrich2015).

Section 3: Cash Flow Analysis and Audit Report Review

Key Auditing Matters:

As on 30 June 2017, the value of the nova mine has been increased to $1.61 billion due the effect of volatility of the nickel price. The Carrying value of the mining properties is taken in to consideration under note 14. The company has reassessed the value on the nova mine that concludes that the mining assets was not impaired. In the assessment the following discussion and analytical reviews are connected and discussed which states that the company:

  • Long term nickel, copper and cobalt pricing;
    • Reserves estimates;
    • Production and processing volumes;
  • Operating costs: ·
  • Foreign exchange rates and inflation rates; and ·
  • Discount rate.

Commodity prices against external market information and trends are used to determine whether a significant change would impact the value of the asset by Benchmarking and analysing management assumptions.

There are differences in valuation of ore reserves estimate by assessing the significant assumptions, methods and source data used by management in estimating ore reserves, are contradictory with the auditor’s assumption (Beauchamp and Bowie 2014).

Further, the forecasted evaluation productions and the processing volumes operating cost of the Board and the auditor are not agreeable (Adelopo2016).

Another issue that is observedis the internal values discounting rate in the impairment model is contradictory with the management’s discount rate.

Another issue that had come into existence in the auditing matter relating to accumulated losses as well as the judgements behind preparing forecast to demonstrate the future expected losses in association with the Australian accounting standards (Akbari2017).

Reference List

Adelopo, I., 2016. Auditor Independence: Auditing, Corporate Governance and Market Confidence. Routledge.

Akbari, N.A., 2017. Identification and Prioritization of Ethics Enhancement Strategies in Corporate Governance from Internal Auditing Perspective. International Journal of Economic Perspectives, 11(1), pp.948-957.

Beauchamp, T.L. and Bowie, N.E. eds., 2014. Ethical theory and business. Pearson.

Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making& cases. Nelson Education.

García-Marzá, D., 2017. From ethical codes to ethical auditing: An ethical infrastructure for corporate social responsibility communication. El profesional de la información (EPI), 26(2), pp.268-276.

Ghahramani, B., Soleymanpor, M. and Fatahi, R., 2016. ETHICS IN ACCOUNTING AND AUDITING. IIOAB JOURNAL, 7, pp.293-299.

Hutabarat, G., 2018. The Effect Of Audit Experience Time Budget Pressure, and Auditors’ Ethics On Audit Quality. JurnalIlmiah ESAI, 6(1), pp.1-15.

Kaptein, M., 2015. The effectiveness of ethics programs: The role of scope, composition, and sequence. Journal of Business Ethics, 132(2), pp.415-431.

Karaibrahimoglu, Y.Z. and Cangarli, B.G., 2016. Do auditing and reporting standards affect firms’ ethical behaviours? The moderating role of national culture. Journal of Business Ethics, 139(1), pp.55-75.

Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.

Larrán Jorge, M., Andrades Pena, F.J. and Muriel de los Reyes, M.J., 2015. Factors influencing the presence of ethics and CSR stand-alone courses in the accounting masters curricula: An international study. Accounting Education, 24(5), pp.361-382.

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.

Moroney, R., 2015. Auditing: A practical approach. Wiley Global Education.

Samsonova-Taddei, A. and Siddiqui, J., 2016. Regulation and the promotion of audit ethics: Analysis of the content of the EU’s policy. Journal of business ethics, 139(1), pp.183-195.

Simnett, R., Carson, E. and Vanstraelen, A., 2016. International archival auditing and assurance research: Trends, methodological issues, and opportunities. Auditing: A Journal of Practice & Theory, 35(3), pp.1-32.

Sinha, V.K. and Arena, M., 2018. Manifold Conceptions of the Internal Auditing of Risk Culture in the Financial Sector. Journal of Business Ethics, pp.1-22.

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