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  1. Select a listed company from the current ASX List or this will be allocated to your group.(Company needs to be VMOTO Ltd.
  2. Gain an understanding of the nature of the entity and its industry and then identify key business risks. After this is completed, assess where the risks of material mis-statements could be in the financial report. Consider the factors affecting both Inherent Risk and Control Risk. Finally, apply the Audit Risk Model [AR = f (IR x CR X DR)] to the selected company. Which risk rating would you apply (Low, Medium or High) to the company’s inherent risk assessment and control risk assessment? How does this affect your assessment of Detection Risk and Audit Risk?
  3. Perform analytical procedures of the Statement of Financial Position and of Financial Performance over the last three years using appropriate ratios and metrics. Select four key ratios and provide a brief explanation in the report. This can be presented in a table format.
  4. Discuss with your group members which account balances are considered “material”. Explain how you calculated materiality for planning purposes and provide appropriate justification for your decision-making. (Note - Use a table format to structure your answers to questions 5, 6 and 7.)
  5. Select up to ten different material account balances, at least five assets and five liabilities.
  6. For each material account balance selected, list the relevant financial report assertions and explain why the selected assertions are applicable to each account.
  7. Design a comprehensive set of audit work steps for each material account balance, which addresses the selected assertions and which will result in sufficient and appropriate audit evidence being collected for your selected client company. (Assume that a predominantly substantive approach is being adopted)
  8. Include a sampling plan, which details how you will use sampling for each material account balance to be tested. How many items will be tested for each test?
  9. Refer to some or all of the following websites for further information and research processes: http://www.auasb.gov.au/Home, http://www.asic.gov.au/, www.cpaaustralia.com.au, http://www.ifrs.org,
Nature of the Entity

The report will be providing learning over the diverse concepts of auditing. The organization selected for the process is Vmoto Ltd. Which is an Australian company dealing with scooter manufacturing and distribution. The report will be providing the nature of the entity and key risks that are faced by the company in the particular market segment. The performance analytical procedures for developing the statement of financial position will be taken into consideration in the report. Relevant financial report assertions and the reasons for their selections will also be done in the task. The sampling plan will also be provided in the report and audit evidence will be provided for Vmoto Ltd. The report will include the overall findings and analysis about the company in respect of the auditors and recommendations will be made after a critical evaluation have been made of the financialposition of company. The overall report will help in gaining a briefunderstanding about the various aspects and performance measures of company.

The organization Vmoto Ltd. is occupied with the matter of assembling and offering bikes. The significant business of the organization is to take part in assembling, creating and marketing universally the electric controlled two-wheel vehicles, off-road vehicles and oil vehicles. The business to which the organization has a place relates to the vehicle business and there is mind-boggling rivalry winning in the car business of China and Australia. The organization has been offering its items based on a unique producer hardware premise. The geological fragment where the organization is working its business incorporates Australia and China. The organization from the ongoing past years have been putting forth green electric controlled bikes and has been occupied with assembling the western designed electrical bike to cover an extensive variety of items. There are two kinds of brands through which organization is working in the market one is Vmoto which is gone for making and creating an incentive in Asia and the other one is Emax which is worried about focusing on western markets (Kim, 2016).

There are roughly 40 units from where the organization is working its business which comprises the blend of different retail outlets and the outsider merchants among China. The organization has a limit of assembling and creating no less than 450000 of units for each annum. The material hazard related to the business which is looked at by the organization and that can affect the future prospects of the organization incorporates the hazard related to innovative technological obsolescence (Lee, 2014). The tending of these issues has been made through an interest in promoting and research, patent and enrolling the equipped and productive experts in the workforce of an organization.

Key Risks Faced by Vmoto Ltd.

The hazard can affect the long-haul maintainability of the organization in the vehicle segment as the out-dated items won't be favoured by the clients in this industry. It tends to be seen that the organization has been working in the business comprising of green and electric vehicle innovation and any sort of mechanical out of date quality will significantly affect the budgetary aftereffects of the organization in future. The danger of material misquote can be available in the valuation of the benefits where the valuation systems as embraced by the organization requires different suspicion to be made whose precision and adequacy can be influenced by the objectivities and judgment of the administration making the fitting presumptions. Anyway, the organization has been tending to this as a negligible hazard as the organization is always checking available and building up the innovations and capacities which are in concurrence with the most recent innovation(Vmoto Limited, 2017).

The different kinds of hazard influencing the business will incorporate natural hazard that speaks to the defencelessness of the declaration to susceptibility accepting that there are no inside controls working inside the endeavour. The control hazard will be related with the actuality that the material errors won't be controlled and forestalled on an auspicious premise. The discovery hazard, on the other hand, is related to the hazard that material error won't be recognized by the inspectors. The different components influencing intrinsic and control hazard includes:

Nature of the business: This will incorporate the elements, for example, nature and many-sided quality of exchanges related to maintaining a business.

Cultural rehearses: The components influencing the related party exchanges and the deceitful budgetary detailing will likewise shape some portion of the elements.

Experience of inspectors: The underlying review commitment and the earlier review results will shape a premise of distinguishing and evaluating the danger of material error in the organization and setting controls for the same (Petty, et. al., 2015).

In connection to Vmoto Constrained the risk model [AR = f (IR x CR X DR)] has been connected and the outcomes are drawn as under:

AR = f (IR x CR X DR)

AR = .05 (.80 x .60 X .25)

AR = .006

The risk rating in which the organization is working as a place with the medium level of hazard as the intrinsic and control chance is making a moderate effect on the material error occurring. The location hazard should be tried all the more oftentimes for this situation as the controls are not executed adequately in the organization and along these lines, the recognition of hazard winds up essential for this reality.

Performance Analytical Procedures for Analyzing Financial Position and Performance over the Last Three Years

Analytical procedures for analysing the financial Position and financial Performance over the last three years using appropriate ratios and metrics. 

The ratio metrics will be a useful tool in analysing and assessing the company’s financial position and performance in comparison to the industry averages and past performers. The various ratios presented in the report will help in assessing the position concerned with profitability, liquidity and capital position of thecompany(Vmoto Limited, 2017). The ratios will be calculated after considering the latest annual reports and financialstatements as presented by the company and the result will be drawn accordingly. The calculation ofvarious in respect of Vmoto Limited for the period ending 2017, 2016 and 2015 are presented below:

The analytical review is concerned with preparing and presenting a report in which various ratio trends will be identified and the results will be drawn accordingly. The performance of the company in relation to different years will be critically assessed for thepurpose of drawingrecommendation and audit conclusions.

Ratio

Description

Analytical review

Gross profit ratio

The gross profit ratio represents the critical profitability ratio which helps in identifying the performance of company in relation to productioncapacities and controlling the cost of goods sold. The gross profit is worked out after considering the cost of goods sold and it is deducted from the revenues obtained by thecompanyduring the period of reporting. The ratio is calculated by dividing the gross profit with revenues obtained by the company(Pavlova, 2017).

The trend analysis shows that the gross profit was 17% in the year 2015 which reduced significantly with a decrease of about 30% and it became 12% in the year 2016. The gross profit ratio further decreased to 10% in the year 2015 which shows that the company was not achieving the efficient level of cost of goods sold in relate to revenues achieved by thecompany. The same can be improved with identifying and implementing the cost reduction and cost control strategies in the company. The application of these strategies will help in achieving an appropriate level of cost of goods sold under which the gross profit ratio will be maximum for the company Vmoto Limited.

Net profit ratio

The net profit ratio is another way of identifying and assessing the operational efficiency of thecompany in relation to industry averages and other market factors. The net profit ratedescribes the operationalperformance of the company during the reporting period. It is worked out in the same manner as of gross profit ratio of the company that is by dividing the net profitwith the revenues achieved by the company during the year(Vmoto Limited, 2017).

The net profitability of thecompany shows the trend analysis associated with operational efficiency of thecompany. The net profit ratio in the year 2015 was only -2% which increased to the loss of 82% in the year 2016. The loss further remained at a significant level of 54% in the year 2017. Therefore it can be established that the company is facing financial crunch due to increased losses in the current years and therefore it is required to establish and implement the appropriate controlling policies to ache higher margins of net profit. The approach to increased net profit can beefficient achieved with controlling the operating expenses and achieving higher grossprofits.

Current ratio

The liquidity position and aspect of the company Vmoto limited can be analysed with the help of this ratio. The current ratio is determined by dividing the current assets with the current liabilities of the company. The ratio helps in establishing the working capital position of company.

The current ratio of the company Vmoto limited is 1.79 in the current year 2017 which shows an adequate position of liquidity. The same ratio is 1.96 in the year 2016 which was significantly higher in the year 2015 that is 5.16. The ratio above 1 represents that there are enough and adequate assets covering the current debt liabilities of thecompany Vmoto limited. Thusthecompany is operating sufficiently in this aspect(Pavlova, 2017).

Debt to equity ratio

The capital structuring ratio helps in determining the capital base with which the company is operating I the financial market. The debt equity ratio helps in assessing the efficiency with which the capital employed has been utilized in thecompany associated. The debt equity ratio of 2:1 is considered optimum for the companyoperating in automobile sector(Petty, et .al., 2015).

The ratio of debt equity remained constant in the year 2017 and 2016 in respect of the company Vmoto limited. The ratio was .45 whichrepresents that the debt is employed at only half of the amount of equity employed in thecompany. This has been resulting in excessive pressure on the operational capability as the shareholders are expecting higher returns. The debt equity ratio should be optimised at the level of 2:1 and thus more of long term debt should be employed in thecompany in order to achieveminimum cost of capital as required by thecompany. This will also help in maximising the returns and increasing the profitability of thecompany.

The materiality in planning the audit work of company will be recognized as a crucial aspect in which material accounts balances are determined with the appropriate amount of materiality that should be examined to identify and consider the material misstatement in the financial records of company. It can be established that there are different categories of accounts balances as depicted in the accounts of the company and there are significant amount of material balances which when exceeded can affect the performance and position of the company in the industry and market concerned. The judgments about materiality will be made in the light of the surrounding circumstances and will also be affected by the types and nature of business transactions entered into by the company Vmoto limited. The auditors while determining the level of materiality has to take into consideration the nature and amount of the transaction which are happening during the reporting period. The materiality in the account balances will be considered crucial for ensuring the accuracy and completeness of the accounts for auditing purposes(Christensen, et. al., 2014).

There are various types of audit procedures which have been applied while determining the amount of materiality as associated with the material accountbalances of thecompany. The process of determining the materiality will include identifying the risk of material misstatement and assessing the exposure with which it can affect the long term position ad performance of the company. There are certain kinds of predetermined steps which have been followed by the auditors of Vmoto limited in order to set out the materiality levels:

  1. The first step in determining the materiality will include determination of the nature and extent of the audit procedures that should be applied in thecompany for the purpose of assessing the materiality(Smith, et. al., 2017).
  2. The next step in the process will be associated with assessing the risk of material misstatement and the exposure with which it can affect the company and its results.
  3. The resultswill be drawn and recorded appropriately by the auditors of company.
  4. The results drawn will be assessed for the purpose of determining the appropriate level of materiality in respect of various account balances as reflected in the financial statement of thecompany.

Account Balance

Amount ($)

Assertions

Audit procedures

Audit evidence

Cash and cash equivalents

3,172,792

Existence

Disclosure

Completeness

Reconciling the bank statement it the cash statementsprepared by the company in order to reconcile the accounts(Smith, et. al., 2017).

Obtaining an appropriate and adequate confirmation from the bankers by preparing and asking for confirmation certificates.

Certificate of bank confirmation

Reconciliation statement as prepared by the management

Inventories

2,780,782

Existence

Valuation

Conducting the physical stock taking in the company at the time when management places the same.

Reviewing and examining the inventory sheet and the line items of thecompany

Preparing and inventory reconciliation report

Physical stock taking report prepared by management and notes as prepared

Trade and other receivables

1,385,118

Accuracy

Completeness

Existence

Verifying the balances of debtors with the third partiesand the debtors themselves in order to reconcile the same(Weil, et. al., 2013).

Reviewing the general journal and obtaining the confirmation of invoices amount from customers or third parties

Confirmation statement of debtors

Ageing report of the debtors

Other assets

3,119,683

Recoverability and existence

Accuracy

Completeness

Identifying the ageing report and confirming the recoverability of the same in regard to the specific clients of thecompany.

Confirmation of the balances of the suppliers and customers in regard to particular assets of the company (Cavusgil, et. al., 2014).

Confirmation balance reports

Ageing reports

Intangible Assets

595,533

Existence

Completeness

Accuracy

Rights and obligation

Valuation

Validating and examining the accuracy of the recording of intangible assets

Identifying and assessing the valuation of intangible assets in regard to contractual agreements and businesscombination agreements(Weil, et. al., 2013).

Contractual agreements and legal findings

Actuarial valuation of intangible assets

Loans and borrowings

1,966,878

Existence

Completeness

Rights and obligations

Applying for confirmation from third parties and examining the valuation of loans

Identifying and analysing the interest rate agreements so as to assess the validity of same(Christensen, et. al., 2014).

Agreements associated with the long term borrowings

Reconciliation of interest payments

Trade and other payables

3,867,726

Existence

Completeness

Examining and reviewing the suppliers agreed in regard to payments and supplies

Takingconfirmation from the third parties which can be acting as a guarantees

Guarantees statement in regard to obligation confirmation

Classification statement f theaccounts payable of thecompany

Deferred tax liabilities

Nil

Existence

Accuracy

Identifying the temporarydifferences associated with taxation matters of thecompany and assessing the tax liabilityof the same(Sirois, et. al., 2018).

List of temporary differences and computation records

Current tax liabilities

Nil

Accuracy

Completeness

The current taxcomputationshould be examined by the date in order assess the accuracy of the same.

Computation records maintained by the auditors.

Other liabilities

Nil

Right and obligations

The third party confirmations can be taken by the parties to the contract

Reconciliation documents and other agreements in relation to liabilities

Materiality in Planning the Audit Work of Company

The sampling plan in relation to checking the accuracy of material account balances will be related with identifying the risk of material statement on a sample basis and applying and implementing the adequate testing in respect of each and every item under consideration. The sampling in the case of Vmoto limited will include systematic sampling where the samples will be determined n a systematic basis and the results will be drawn accordingly(Sirois, et. al., 2018). In a systematic sampling plan the observations are identified and worked out for the purpose of assessment in a careful manner and regular intervals are determined or conductingthe sampling in an appropriate manner. The number of items of material accountbalances which will be tested in this manner will be at least 2 and this will lead to appropriate results and conclusions. The audit will have to apply the substantiveauditorsprocedures in relation to the audit work performed. The sapling plan will help the auditors in determining the substantive audit procedures which will be required for planning the audit work of company and assessing the riskofmaterialmisstatements. The audit procedures and audit process will be conducted in mannerwhich will beappropriate t the audit sampling pan as framed by the auditors of company and this will lead to the appropriate auditing results for the company(Christensen, et. al., 2014).

Conclusion:

It can be concluded that audit procedures and applications will be needed for checking the accuracy and comparability of the accounts that are prepared by Vmoto Ltd. The ration analysis of company indicates that the liquid and capital position of the company is satisfactory. The report provides with a comprehensive set of audit work for material account balance that addresses the selected assertions. For all the material account balances that are selected have been listing the relevant results in sufficient audit evidence. The conclusion which can be drawn by this report can be summarised in the way that auditing procedures and audit processes which are applied in the corporate accounting will relate to identificationandassessment of risk of material misstatement. The sampling plan which is drawn under the systematicsamplingwill help the auditors in identifying and assessing the riskappropriately. The ratio allays will be regarded as an appropriate technique to compete the analysis process of company’s financialpositionandperformed.

References:

Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., (2014) International business.Pearson Australia.

Christensen, B.E., Glover, S.M. and Wolfe, C.J., (2014) Do critical audit matter paragraphs in the audit report change nonprofessional investors' decision to invest?. Auditing: A Journal of Practice & Theory, 33(4), pp.71-93.

Collier, P.M., (2015) Accounting for managers: Interpreting accounting information for decision making. USA: John Wiley & Sons.

Fields, E., (2016) The essentials of finance and accounting for nonfinancial managers.AMACOM Div American Mgmt Assn.

Hartley, W.C., (2014) An introduction to business accounting for managers.USA: Elsevier.

Kim, J.B., (2016) Accounting flexibility and managers’ forecast behavior prior to seasoned equity offerings. Review of Accounting Studies, 21(4), pp.1361-1400.

Köhler, A., Ratzinger-Sakel, N. V., &Theis, J. (2016) The Effects of Key Audit Matters on the Auditor's Report's Communicative Value: Experimental Evidence from Investment Professionals and Non-Professional Investors.

Lee, T.A., (2014) Evolution of Corporate Financial Reporting (RLE Accounting).Germany: Routledge.

Pavlova, K., (2017) Revenue management system for the hospitality industry–essence and elements. Economics and computer science, (1), pp.42-71.

Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., (2015) Financial management: Principles and applications. Australia: Pearson Higher Education AU.

Sirois, L. P., Bédard, J., &Bera, P. (2018) The informational value of key audit matters in the auditor's report: evidence from an Eye-tracking study, Accounting Horizons. PP. 1-57.

Smith, S.B. and Thomas, N.A., Smith Steven B. and Thomas Nicholas A., (2017) Systems and Methods for Managing Financial Transaction Information. U.S. Patent Application 15/43,930.

Vmoto Limited, 2017. Annual report 2017 .[Online]. Available at: https://www.vmoto.com/assets/uploads/20180517/2018051712333861064.pdf,  (Assessed on: 21st September 2018).

Weil, R.L., Schipper, K. and Francis, J., (2013) “Financial accounting: an introduction to concepts, methods and uses”,USA: Cengage Learning.

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My Assignment Help. Audit Report On Vmoto Ltd. Essay. [Internet]. My Assignment Help. 2021 [cited 24 July 2024]. Available from: https://myassignmenthelp.com/free-samples/busn3002-auditing/a-report-on-the-diverse-concepts-of-auditing.html.

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