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Steps of Audit - BSF Ltd

Discuss about the Audit, Assurance, and Compliance Trimester.

The company, Bio Sustainable Feeds Ltd of Australia Is mainly engaged in the research and development process related to different eco-friendly products including fish feed. So far the case study says, the engagement of Bio Sustainable Fish Feeds Ltd in the research of fish feed had faced early setback when their effort towards research of exploring new range of fish feed with the ingredients of earthly items like canola, corn, soya-bean, sunflower, etc. could not be able to produce desired result. To hour their effort with constant endeavor to excel in the field of environmental friendly fish feed had been recognized by Commonwealth Scientific and Industrial Research Organization or CSIRO by extending a grant of AUD 500 million with specific terms and conditions of spending the money in the activity of research on the eco-friendly fish feed (Morgan, 2015).

The company had engaged themselves with further research in this filed of fish feed by exploring the scope of deploying ingredients like wood chips, cane residue or captured methane gas from different sources, which had seen some success in the respective field in the context of feed products increasing the weight of the valuable fishes like salmon, tuna, trout with reasonable satisfactory standard. The respective company will undergo a audit program by a professional audit agency who will undertake the assignment after verifying certain issues like the detection of audit risk, the financial accounting documents and with the context of certification of the claim of the company related to their exclusive patent right and TBL as per GPFS of BSF ltd.

As per the standard procedure, the audit firm has to set steps of audit before the assignment is to be started. There are different opinions of fixation of steps of audit for any assignment which is depending upon the volume of documents to be checked and assessing the gravity of the situation which is needed for concluding part through generation of audit report. Steps are basically framed in macro level with planning of audit, conducting audit and conclusion of the audit activity. These steps are divided micro level of activities to be compliant of audit purpose (Asic, 2016).

These steps will be discussed as follows to understand the utility of these steps and the respective outcome these steps can produce to make the final audit report for the stakeholders of the company. The basic requirements of an audit program is to be entertained with the steps of audit program and these preliminary steps are more essential to ensure the accuracy of the audit process and ultimately to provide with the best possible audit report to the process owner and other stakeholders of the company (Penn, 2016).

Planning of Audit

Planning of audit is divided into different micro aspects which are being appended below:

To plan any audit assignment, first to derive by the auditor is to ascertain of the assignment is suitable for the auditors. The identity of an auditor for any assignment is unique and in any case auditor should not get involved with any such assignment which is of material interest. The auditor has to ensure that he is not at all attached to the company by any means with some material interest and except for the purpose of audit, the auditor should not get involved in any sort of such activity which is directing towards any sort of interest of the auditor with the company or any such activity which is related to company other than of audit process. It is also advised to introduce fresh personnel in the audit process to have fresh outlook on the process (Penn, 2016).

To ensure the above point, the auditor and his team should involve themselves in the derivation of the size of the audit process along with the scope of the audit work. To ensure this, there should be an homework to ascertain how the members of the audit team will get involve in the process with the specific time limit to be fixed related to this assignment.  Also it is to be noted if any special investigation is to be done any specific issues which is related to work-intensive. These elements can make the leader of the audit team about fixing the number of team members for successful completion of audit assignment (Acca, 2016).  

Prior to staring the audit process, the team leader should assess the probable areas which may produce potential mistakes which will be caused due to misstatement in the reports of financial accounting system of the company. The right spade of ding this is the highly professional and experienced background of the team leader. This identification process can be done though the knowledge of the company with the past financial statements and as because this is of subjective nature; the team leader should depend upon his self-judgment. 

Post the introductory assessment, the auditor has to fix the strategy of undertaken audit assessment by segregating different activities to be done which should include identifying the critical area of interests depending upon which the task assignment is to be made with the factor of time limit by which the job is to be done (Asic, 2016).

Conducting part of the Audit

It is the execution part of the audit assignment which includes different micro activities like advance intimation, verification of concerned documents, like financial accounting statement and relevant documents, compliance of statutory obligation, reviewing of the audit process and making of draft audit report.

It is the first step of conducting audit to place the intimation to the company in which the audit process is to be taken care. The intimation should be in black and white and will contain the start date of the audit process with proposed completion date,  checklist of documents and records pertaining to the financial accounting to be made available for the purpose of audit, well in advance for the period specified for which the audit process will take place (Mediacongo, 2015).

The basic criterion of any audit process is to ensure proper verification of financial accounting documents and records in the form of receipts, payments and the respective entries in journal and ledger.

The main job of auditing is to verify the documents provided by the company with proper checking. The documents such ought to be verified are statements, registers and records. While checking the application of mind with the professional knowledge is required for checking and subsequent derivation of judgment. The documents and records are to be substantiated with the respective journal and ledger entries which are instrumental for the process of finalization of accounts; hence this is the most discrete part of the entire audit operation (Mediacongo, 2015).

The statutory obligations for any company arise from the implication of several taxes payable by the company through the generation of business. It is the obligatory part of the company to ensure the payment of taxes and other statutory compliance within specified period; otherwise the company will face liability by penalty and interest, being a defaulter. Hence it is one of the important areas to find out by auditor that the compliance in the said field is properly ensured by the company. 

After the audit is over, the generation of financial review report is compulsory with the view of the auditor. The same report is to be forwarded to the management of the company for required clarification in different issues which are found not abiding by the system and the process of the company.

Post all these activities, the auditor has to furnish the recommendation which will guide the company to make their strategies to be reviewed or fixed as per the constitution of the company. Violation on any issues must be highlighted with the preferred recommendation of the auditor to get rid of such instances.

Audit Risk- identification and decision

After all activities related to audit process is over, the auditor ahs to handover the necessary copies to the respective stakeholders with signature. The report is to be signed by the director of the company simultaneously as a token of acceptance of the facts revealed in the audit.

With all the above steps to be completed, the audit process comes to an end for any specific financial period of the company concerned. The audit report will be elementary for the company to find out the lacuna of the system adopted by the company with clear and transparent recommendation to avoid those in future so far accounting standard is concerned. When the auditor will take the assignment of BSF Ltd. Preferably these steps will be adopted for a professional audit of the company.

Audit risk is a regular feature for determining if the assignment is to be taken or not. There are three types of risks prevalent in this segment- inherent risk, control risk and detection risk.

It is that type of risk which is inherent in nature within the culture of the company due to misstatement of subject appearing in the financial statement of the company. Inherent risk is featured in the high range where it s found that high level of judgment is involved to encounter complex transactions observed in the process (Accounting-simplified, 2010).

This risk is generated from the activities which are arising out of the lesser –practice of internal control which subsequently leaves the scope of high level of material misstatement. To mitigate control risk, high level of multi-layer internal control check is to be implemented with the professional knowledge in the respective field of accounting and finance.

This risk arises when the auditor can not detect the focus area and put highlight on the areas which are not so important, and at the same time ignoring the areas which are of more importance is status. This situation arises when the auditor is getting confused with the issues arising during the process of audit (Unifr, 2016).

The acceptable model of risk assessment determination is practiced with the below formula:-

Audit risk= Inherent risk x control risk x detection risk

 In this case the assumed audit risk is derived with the coefficient provided in case of BSF Ltd.:-

Inherent risk = 90%, control risk =5% and detection risk = 80%

Thus audit risk derived is = 90% x5% x 80% or 0.036

Recommendation

This audit is risk is reasonable, if the audit firm is accepting. Otherwise the audit firm has to follow the specified benchmark they follow for derivation of audit risk (Unifr, 2016).

Following is the audit program for BSF Ltd.:

The Assigned audit firm has to assess the audit risk and then serve a notice to the management of BSF Ltd with the time limit and the requirement of the financial documents of BSF Ltd. along with acceptance of the assignment.

To start with the process, schedule of audit is to be made containing the detailed program and the time limit with assigned members of the audit team.

The plan of audit is the next step which should emphasize on the objective, scope and detection of critical area of the audit to be made on BSF Ltd.

Management of audit process is the most vital step of audit program which is the responsibility of the team leader who will concentrate on the schedule and ensure compliance of audit plan.

Submission of the draft audit report to the management for further discussion on the gray areas of observation is the next step with highlighting the discrepancies found during the course of audit(Cag, 2011).

Date

Particulars

Debit ( in AUD)

Credit( in AUD)

15.07.2013

Bank A/c  debit

500 million

CSIRO grant a/c Credit

500 million

 Receipt of grant from CSIRO

18.09.2014

Research a/c  debit

150 million

Bank A/c Credit

150 million

  Spent on research 1st installment

14.10.2014

Fixed Assets a/c debit

50 million

Research a/c  debit

50 million

 Expense on procurement of fixed assets for research

28.09.2015

Research a/c  debit

180 million

Bank A/c Credit

180 million

 Spent on research 2nd  installment

08.02.2016

Research a/c  debit

170 million

Bank A/c Credit

170 million

 Spent on research 3rd and final  installment

19.04.2016

Development a/c  debit

100 million

Bank A/c  debit

100 million

 expenses incurred in development

Observations of the journal entries related to CSIRO grant and R & D expenses:

CSIRO grant had been booked properly in the books of financial accounting.

R & D expenses are booked as per expenses made with the conditions applied as per CSIRO

TBL or Triple Bottom Line concept endorses the concept of compliance of any organization by exposing their concern about social environmental and economical bottom line. As per BSF Ltd. they are claiming their compliance of TBL through GPFS and they need the certification of the same from the auditor. So far their activities of research with the eco friendly ingredients are proved, and with their endeavor to serve the society through their efforts they are substantially comply the same along with the economic bottom line of profit generation. Hence the claim may be certified with true and fair observations from the auditor.

It is found that BSFR had acquired the patent of the product which is the result of their effort exploiting the environment friendly bacterial based resource. Their patent is being allowed on the subject with the product they have explored. But the entire field of bacterial based feeds technology can’t be their claim area as patent. Hence the claim such placed may not be allowed by the auditor keeping in mind the said factor of covering entire range of that technology (Acca, 2016).

References:

Acca. (2016, May 31). Planning an Audit of Financial Statements. Retrieved September 22, 2016, from accaglobal: https://www.accaglobal.com/in/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles/audit-financial-statements.html

Accounting-simplified. (2010). Audit Risk Model Inherent Risk, Control Risk & Detection Risk. Retrieved September 20, 2016, from https://accounting-simplified.com/audit/risk-assessment/audit-risk.html

Aicpa. (2006). Audit Risk and Materiality in Conducting an Audit. Effective for audits of financial statements for periods beginning on or after December 15, 2006. Earlier application is permitted; https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00312.pdf , 47 (107), 1647-1662.

Asic. (2016). Are you a large or small proprietary company. Retrieved September 17, 2016, from https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-small-proprietary-company/

Cag. (2011, March 31). Audit Plan. Retrieved September 22, 2016, from Cag: https://dgace.cag.gov.in/pdf/AMG-III-Audit-Plan.pdf

Mediacongo. (2015, April 15). ToR Audit BSF-IA Final. Retrieved September 17, 2016, from mediacongo: www.mediacongo.net/docs/jobaof/2015/wv_tdr_anglais_20150418.docx

Morgan, H. (2015, December 07). CSIRO fund to support Australian start-ups. Retrieved September 22, 2016, from Csiro: https://www.csiro.au/en/News/News-releases/2015/CSIRO-fund-to-support-Australian-start-ups

Penn, S. (2016). Six-Step Audit Process. Retrieved 09 17, 2016, from https://smallbusiness.chron.com/: https://smallbusiness.chron.com/sixstep-audit-process-17816.html

Unifr. (2016). Risks (Audit Risk Formula). Retrieved September 20, 2016, from https://www.unifr.ch/controlling/assets/files/Noesberger2016/3-audit-risk-formula.pdf

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