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Auditing And Ethical Practice In Australia

  326 Downloads   |   11 Pages 2,634 Words   |   Published Date: 09/07/2015

Ques: Describe the purpose and concepts of analytical procedures based on the applicable auditing standards (ASA) in Australia?


Table of Contents

Executive summary


Purpose and concepts of analytical procedures in ASA standards in Australia

Analysis of the performance, risk and continuity of three public listed companies

Comparison between the three companies

Affect of auditor’s judgment on the various analytical procedures




Executive summary

The report investigates the reason and the different ideas of the systematic strategies of the different measures of auditing in Australia. In this setting, the auditing measures of Australia have been dissected. In the second piece of the report three Australian Public recorded organization is picked. HIH insurance is the organization which has been indebted from 2001. The execution of the organization has been investigated. The organization which is as per evaluator's assumption ongoing concern issues is Hamilton Health sciences. The execution of the organization is examined and the future danger of the organization is evaluated. The picked organization without any qualified assessment or stress of matter is AGL vitality. The execution of the organization has been dissected in the report. A short correlation and differentiation is made between the notion that has been accumulated


The report analyses the purpose and the various concepts of the analytical procedures of the various standards of auditing in Australia. In this context, the auditing standards of Australia have been analyzed. In the second part of the report three Australian Public listed company is chosen. HIH is the company which has been insolvent from 2001. The performance of the company has been analyzed. The company which is according to auditor’s opinion on going concern issues is Hamilton Health sciences. The performance of the company is analyzed and the future risk of the company is assessed. The chosen company without any qualified opinion or emphasis of matter is AGL energy. The performance of the company has been analyzed in the report. A brief comparison and contrast is made between the opinion that has been gathered.


Purpose and concepts of analytical procedures in ASA standards in Australia

The auditing standard in Australia establishes the various requirements and provides application to the various responsibilities of the Auditor (, 2014). The responsibilities that the auditor has to perform when he has to undertake an audit of the financial report or complete the analysis of the financial statements are laid down in the Australian Auditing standards. The auditor has certain obligations when he reviews the historical financial information. There are certain guidelines which ascertain the form and the content of the auditor’s report. There are various regulations that an auditor has to abide by while conducting an audit. The Auditing standard of Australia conforms to the International standards of Auditing. The overall objectives to be performed by an independent auditor have been laid down in the auditing standards. The Australian auditing standards lay down the scope and the nature of the audit that can auditor has to perform in order to meet the objectives of auditing. The various obligations of the auditors in order to comply with the ASA have been entailed in the report. The various responsibilities of the auditor according to the legislation or regulation are not addressed by the ASA. The ASA is written in context of an audit of a balance sheet by an auditor.   Thus the various features of the auditing standards in ASA are helpful for the auditors. The standard laid down in ASA is relevant to the legal, professional and regulatory obligations. The standards will enhance the level of confidence of the auditors. The framework of the auditing standards will ascertain that whether the financial report has been prepared in a fair way and it is in accordance with the various standards of accounting. The ethical requirements have to be fulfilled by the auditor in accordance to the Australian Auditing Standards. The financial report is prepared by the financial managers of an organization. The ASA do not impose any kind of responsibility on the financial managers responsible for the preparation of the financial statements. The ASA is formulated in such a manner so that the auditor can exercise professional judgment and maintain skepticism professionally while he is performing the audit (Auditing Standard ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards, 2013).

Analysis of the performance, risk and continuity of three public listed companies

HIH Insurance company

It is a publicly listed company in Australia. The company was liquidated in 2001. The company collapsed in the year 2001. The HIH group was one of the largest insurance companies in Australia. In 2001 the companies under HIH group were under provisional liquidation. The companies were finally liquidated in August 2001. The administrator group in HIH will pay initial payment to the creditors and further payment to the creditors will be made over the upcoming years. Out of the various companies under HIH insurance 82 companies were placed under liquidation. There is pending liquidation of 51 Australian companies under HIH group. The loss of the company totals to $5.3 billion. The collapse has led to the imprisonment of the various members of the management under the groups of HIH. There are various licensed companies under the HIH group. They are HIH general insurance limited, CIC insurance limited and FAI General insurance company Ltd (, 2014). The year 2000 annual report of HIH shows that HIH insurance suffered from loss of $800 million in 2001 (, 2014).

Among the various companies under the HIH group, the financial report of CIC insurance Limited is analyzed to judge the financial position of the company. In 2011, the total deficit of the company was $109,345,000. In 2012, the net deficit of the company was $114, 053,000.  In 2013, the net deficit of CIC insurance was $109,868,000 (, 2012); (, 2013). In 2014, the net deficit of the company was $198,327,000 (, 2014). The liabilities of the company have been increasing. Thus the company was finally liquidated. The creditor with insurance liability in Australia amounts to 64.48%. The company is under high rate of financial risk. The liability of the company to the creditors is more than 50%. The continuity of the companies under the HIH group is under question. The liabilities of the companies have reached beyond the limits. This had resulted in the slow decline of the company. The company has to repay the creditors which constitute a huge amount. This has resulted in the insolvency of the organization. Since the company is insolvent, the performance of the company cannot be ascertained using the financial ratios.

Hamilton Health Sciences

The performance of Hamilton Health Service is on the increasing side. The company is able to provide best health care service to the people. On the other hand, Hamilton makes sure that the best resources can be utilized so that health care system can be enhanced and sustainability can be achieved for future generations (Bratman et al. 2012). On the other hand, the performance of AGL Energy is on the dipping side. The company is not able to maintain their net income and due to that company has loosed its market share to its competitors such as EDF energy, SEE, etc.

 It can be noted from the current ratio that Hamilton falls behind in meeting the short term obligations and the company is facing a slight liquidity risk. Therefore, it can be analyzed that Hamilton may be having difficulty in paying their bills or debts on time. Apart from that, AGL Energy is also facing problem in their liquidity position and the company is also not able to disburse their debt in scheduled time (Casares et al. 2012). Both companies is lacking behind the standard current ratio that is 2:1. The operating efficiency is thus in question but in long run both companies can be able maintain their liquidity.

However, Hamilton Health Sciences is in a position to continue with their operation of providing health service to large number of people. Moreover, as the HHS is composed of six hospitals, therefore, it reveals that company holds large number of customer base (Moller, 2012). The people have a trust over the company due to that company is able to provide best facilities to people. On the other hand, in spite of low profit, the company holds good customer base and adds value to the GDP of the country by providing sufficient amount of renewable energy. Therefore, both the company can continue with their respective business activities (Duong et al. 2014).


Comparison between the three companies

The liability of HIH insurance is enormous. Thus it will liquidate itself to overcome its liabilities. Hamilton Health insurance company has certain issues which can threat the existence of the organization. The AGK energy is a growing company.

The annual report of the companies shows that each company is performing their activities in their own way. The Hamilton Health Sciences performance has slightly declined in 2014 due to increase in the cost of operation to provide quality medical service to people. Moreover, increase in the fuel price, the transportation of drugs to far flung areas is emerging costly for the company. Therefore, it makes the company to increase the price of medicine or drugs that is affecting the purchasing power of people (Hamilton-Ekeke, 2012). On the other hand, due to better technology AGL Energy is able to transport the energy to far areas and on the other hand, the investment of company in renewable energy has attracted the customers. Therefore, it helped in increasing the net profit of the company in 2014 to $570 million. On the other hand, the current ratio of the AGL Energy is better than the Hamilton Health Sciences. Therefore, it reveals that AGL Energy is able to check their short term liabilities much quicker than the Hamilton Health Services.

On the other hand, if the comparison is made on the basis of Assets Turnover Ratio, Hamilton Health Sciences is more efficient in utilizing their assets in order to gain revenue but the rate of earning revenue in case of AGL Energy from the sale of assets is slight slow. Hamilton Health Sciences is able to generate more sales but the sales gained by AGL energy are low. However, both the companies are able to increase their sales each year but the only difference is the sales rate (Rankin, 2012).

Apart from that, the accounts receivable turnover ratio shows that Hamilton Health Sciences is efficient in converting their account receivable in cash much quicker. AGL Energy, on the other hand, is also able to convert accounts receivable into cash but AGL Energy is not able to increase the rate of conversion. Therefore, it takes time for the AGL Energy to collect cash in right time. Moreover, it can be analyzed that Hamilton Health Sciences is able to acquire the credit sales from the customers in prescribed time. Therefore, it can be concluded that all the three companies is able to perform their activities but the rate of growth is slow

Affect of auditor’s judgment on the various analytical procedures

The analytical procedures constitute an important part of the auditing process. The analytical procedures are used to evaluate the financial information. The financial and the non financial data is important for the process of auditing (, 2014). The processes of analysis in auditing can he done by using simple to complex models. The relationship between the data is analyzed using the complex models. However the relationship between the data can vary as a result of the variations in the relationship. The judgment of the auditors can cause variation between the financial information. Any kind of accounting changes, change in business or random fluctuations can occur as a result of which the judgment of the auditor will vary. The auditor will review the financial statements and they will perform the analytical procedures to evaluate the conclusions of the conclusion from the analysis. The auditor will identify the unusual or unexpected event in the financial statements. The judgment of the auditors will vary the financial information from the financial statement. Any kind of unethical practice in accounting can be determined from the judgment of the auditor. If in any case it is identified by the auditor that the information provided in the financial statement is not appropriate then the auditor may conclude that the information provided by the financial managers is not adequate. He will modify the procedures of auditing and he will perform certain additional procedures to ensure the fidelity of the financial information. The judgment of the auditor will be based on the explanations of the managers regarding the unusual event in financial reporting (Pasewark and Strawser, 1992). If it is seen that the response from the manager is implausible or it is inconsistent with the evidence gathered from the audit, then the financial statement will not be accepted by the auditor. The auditor will perform necessary procedures to address to any kind of discrepancies in information. The analytical procedures used by the auditor will not be accepted (, 2014). Thus the information and the judgment of the auditor will affect the results obtained from the analytical procedures.



 The report presents the various purposes and the importance of the analytical procedures in auditing. The performance of three Australian companies has been analyzed in the present study. The report also presents the variability of the analytical procedures as a result of the change in the judgment of the auditor. The relationship between the data is analyzed using the complex models. However the relationship between the data can vary as a result of the variations in the relationship. The judgment of the auditors can cause variation between the financial information. Any kind of accounting changes, change in business or random fluctuations can occur as a result of which the judgment of the auditor will vary.

References, (2014). HIH Insurance Group collapse         – Parliament of Australia., (2014). Australian Auditing Standards.

Auditing Standard ASA 200 Overall Objectives of the Independent  Auditor and the Conduct of an Audit in  Accordance with Australian Auditing  Standards. (2013). 1st ed. 

Bratman, G., Hamilton, J. and Daily, G. (2012). The impacts of nature experience on human cognitive function and mental health. Annals of the New York Academy of Sciences, 1249(1), pp.118-136.

Casares, J., Ribo, M., Ribas, I., Paredes, J., Vilardell, F. and Negueruela, I. (2012). On the binary nature of the γ-ray sources AGL J2241+4454 (= MWC 656) and HESS J0632+057 (= MWC 148). Monthly Notices of the Royal Astronomical Society, 421(2), pp.1103-1112.

Duong, H., Chivas, A., Nelemans, B., Duke, M., Gray, S., Cath, T. and Nghiem, L. (2014). Treatment of RO brine from CSG produced water by spiral-wound air gap membrane distillation a pilot study. Desalination.

Hamilton-Ekeke, (2012). A Comparison of Adolescents Consumption of Micro and Macro Nutrient Rich Foods. Int. J. Child Health Nutr.., (2012). CIC Insurance Limited  ACN 004 078 880. [online] Available at: [Accessed 29 Dec. 2014]., (2013). CIC Insurance Limited., (2014). CIC Insurance Limited, (2014). HIH Insurance - Creditors Reports

Moller, F. (2012). Polynomials with AGL-monodromy. Proc. Amer. Math. Soc., 140(9), pp.2967-2980.

Pasewark, W. and Strawser, J. (1992). AN INVESTIGATION OF AUDITOR JUDGMENTS OF THE EFFECT OF PRELIMINARY ANALYTICAL PROCEDURES ON THE EXTENT OF SUBSTANTIVE TESTING. Accounting & Finance, 32(2), pp.91-108., (2014). AU Section 329A - Analytical Procedures, (2014). Auditing Standard No. 14

Rankin, J. (2012). The reporting of the influenza pandemic, 1918-1920 in Hamilton, Ontario. Health, 04(12), pp.1317-1327



Hamilton Health Science






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AGL Energy






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Accounts Receivable Turnover Ratio




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