Financial Reporting and Analysis for ASX Listed Companies

1. Select a listed company from the current ASX List.

2. Understand the nature of the entity and its industry, including the following items:

a) Business operations

b) Investments and investment activities

c) Financing and financing activities

d) Financial reporting practices

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 worksteps 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. Refer to the following websites for further information and research processes

Please complete this form as soon as possible and provide one copy only to your lecturer. You will select or be assigned a unique ASX listed company to review for this group assignment. It cannot be a company which has already been selected by another group.

Integrated Reporting

1. There are several companies listed on Australian Stock Exchange and are widely established but the company selected for the assignment is iselect limited . It was founded in year 2000 and has its headquarters located in Australia . It basically deals in providing expert advice relating to insurance and utilities and finance sector. Besides providing services it is also engaged in marketing and selling of various items under the above sectors viz health insurance, cars, broadbands, mobiles phones, home loans, and personal finance. It not only provides advisory services but also makes the user to make an online comparison between several options available in the market and give them the option to choice the best for them at the chepest price. Thus, it is a fully consumer based or we can say that it a consumer friendly company whose primary focus is to satisfy its customers at their level best .

2. The iselect is a consumer based organistaion and deals in providing services of different nature to the consumers to help them to figure out the best and reasonable for them.

a) Business Operations – The business of the enterprise is widely spread among the consumers. Since , it directly deals with the ultimate consumers of the enterprise, it can understand the basic requirement, purchasing power, taste and the needs of the consumer at a better level which makes them easier to understand the importance and the requirements of the products and services they deal in. The services of the enterprise is not limited to a particular society of people but is enlarged to all segments of society at a cheap cost and in a user friendly manner. As per the stats observed from the financial statements of the company , it is seen that around ninety lakhs consumers all across the country had visited the company’s website which fetched them a revenue of approximately $2m and the company in turn had got an oppurtunity to serve around sixty lakhs consumers during the year ending on 30^th June, 2016 from which the company has earned a revenue of $135m approximately. Besides, the company is also having an income from advertisement and subscription. The company is also engaged in commissioning business where the entity fetches commission income from its intermediaries for rendering the services but however, this is not the primary business operation but however can be said as a part of other incomes of the enterprise in the course or fuetherence of business.

b) Investment and Investment Activities – The substantial percentage of revenue earned by the company is invested in different areas to fetch additional income from such investments and are even used to acquire intangibles and other assets to improve the quality of service to its consumers and to upgrade the technology and most importantly to establish its reputation and goodwill in the market. The major part of the company investments is invested in intangibles which includes Trademarks, goodwill, development costs, customer contracts and brand names. The all of the intangibles totals to $46m approximately which represents near about two third of the total investments of the company as on 30^th June, 2016. Besides, the company has also invested in tangible & intangible assets during the year amounting to $7.5m approx which represents more than fifty percent of the income of the current year. Thus , it can be said that the company is under the practice of acquiring investments at a substantial rate of the income earned during the year. Further, the company has also invested the resources in its associate company during the year amounting to $1.7m. The total investments of the company as on 30^th June, 2016 represents twenty percent of the total assets of the enterprise valuing $60m in absolute terms. Thus after observing the above facts as indicated in the financial statements of the company . one can say that the company is likely to invest the resources of the company in a minimum risk bracket since the company is not engaged in investing in the stock market and other chit funds and mutual funds which have a high risk in the market.

Financial Reporting

c) Financing and Financing Activities – From the financial statements of the firm it is observed that the company has more inflow from financing activities rather than its outflow. It means company is engaged in advancing loans rather than procuring loans and advances from banks and financial institutions. It is observed from the cash flow statements of the firm for the year ended on 30^th June, 2016 that the company has received an interest of about $3.5m during the year whereas the company has an financial expense comprising of Interest of only $1.5 lac which is negligible as compared to interest received. Further,the substantial amount of interest earned by the firm is from the trail commission receivable from the third parties. The company has no loans or borrowings outstanding from any banks or financial institutions and even other private parties. Along with this, it is reflected from the cash flow statements of the enterprise that the company had buy back its shares during the year by utilising its retained earnings and had paid an amount of $22m to its shareholders against the buyback of shares from them. Further, dividend is also being paid to the shareholders of the parent company during the year amounting to $2.5m from its retained earnings (Report, 2016)

d) Financial Reporting Practices – Financial Reporting Practices include several areas of reporting involving Integrated Reporting, Financial Reporting,Corporate Governance, Corporate Responsibility and finally the Narrative Reporting.

The integrated reporting revolves around connecting information about the organizations current decisions, future prospects, risk management strategies and sources of risk, the performance of the organization on these areas and their output is to be observed .Thus, integrated reporting gives a clear view and understanding of the issues in the business of the enterprise and capabilities to mediate the same to their stakeholders and other members through the financial statements of the company at the year end. The most core and important part is the financial reporting which consists of four statements namely the Income statement, the Cash Flow statements, Balance sheet and the statement of equity shareholders of the entity with supporting notes attached to it along with the required annexures supporting the notes. It is said to be a formal record of the entities financial activities and position and is presented in a structured manner to be easily understandable by the stakeholders and the readers of the financial statements. The income statement signifies the profits earned by the company from the business it is engaged in a detailed way by reflecting all the incomes and related expenses incurred to earn the revenue. The balance sheet is the statement of the assets and liabilities which indicates the net worth of the company . It is also detailed by way of notes of each item annexed to it. The balance sheet is the backbone of the entity’s financial position. It reflects the entire worth of the company from the day the company is incorporated unlike the income statement. The statement of equity holders of the company is a part of the balance sheet and is annexed to it to make it available to the in public for the readers. Cash flow statement is also the part of the financial statements which is prepared to observe the movement of the cash within the enterprise and the balance cash in hand at the end of the year to make proper understanding of the working capital requirement to carry on the day to day operations of the business. Thus, with these statements, the financial reporting of the company is complete to be reported to stakeholders.

Current ratio

3. Analytical review is one of the techniques of analytical procedure specifically obtained by the auditor of the company to evaluate the reasonableness of the amounts and balances reported in the financial statements as per the knowledge of the auditor based on the data and information’s gained by the independent auditors in the course of performing the audit work. For instance, the auditor might analyses the depreciation charged in the income statement on assets against the value of assets recorded in the balance sheet. Analytical review might also be used to assess whether the particular income or expense account for according to the nature and size of the business. However, as per the questioned asked analytical procedures shall be performed on the basis of the key ratios to be calculated of the firm which is duly performed hereunder

Particulars	Formula	As at 30^th June, 2016	As at 30^th June, 2015	As at 30^th June, 2014	Explanation
Current Ratio	Current Assets / Current Liabilities	4.32	5.2	5.54	This ratio is also known as working capital ratio. The current ratio of the firm indicates the value of current assets is ‘n’ times over and above the current liabilities. Basically it is calculated to measure the ability of the firm to meet its short term liabilities against its short term assets. From evaluation of the past three years it is observed that the capability of the firm to pay back its liabilities is degrading every year which is a negative signal to the firm’s short term growth.
Quick Ratio	(Current Assets – Inventories) / Current Liabilities	4.32	5.2	5.54	The quick ratio indicates the liquidity of the company in terms of more liquid assets that can easily be converted into cash for meeting the short term debts. The quick ratio is same as that if current ratio since the firms belongs to services sector and therefore has no inventories in possession. Further, the analytical procedures to be applied is same as that of current assets.
Debt – Equity Ratio	Total Liabilities / shareholders’ equity	0.27	0.24	0.20	This ratio represents the percentage of debt in the firm over the equity of the shareholder’s. Lower the ratio, better the stability and position of the firm. Analysis for the past three years states that the percentage of debt over equity is increasing every year at a decreasing rate. Thus, analytical procedures need to be applied at these areas to have more knowledge in depth about such effect.
Earnings per share (EPS)	Profit attributable to the shareholders / Weighted avg no. of shares	5.1	3.7	2.4	It indicates the pace of earning of the firm against each share. It does not calculate the actual earnings per share but the pace at which such earnings are earned. It is positively increasing at an increasing rate during the past three years and thus indicates a growth in the earnings of the firm in a fast manner.

4. After reviewing the financial statements for the year ended 30^th June, 2016 it is observed that the administrative expenses of the company is highly material as it represents 85% of the total expenses of the firm. Further, he financial income of the firm is also regarded as material since it also contributes highly to the enterprise. The cost of sales shall also be noticed since the revenue of the firm has increased by 9% but the cost of sales has subsequently increased by 11% which may be said to be material.

The materiality of these items have been calculated on the basis of its effect on the income statement considering the gross profit and total incomes and expenses of the of the firm. Further, the volatility of the items are also taken into consideration to dedect the materiality. The benchmark of testing the materiality is to see the effect in the net profit as compared to the increase in the revenue of the organization. Thus, future plans is to made considering these facts upon the items of materiality and their significant effects in the later period and the steps to be taken to mitigate the negative effects that are affecting the profitability of the firm.

5. The materiality is governed with AASB 1031 in Australia. This auditing standard describes the objective, application, purpose and application of materiality in the preparation and presentation of the financial statements. Each of the phases of this standard shall be required to be known in depth for a brief understanding of the concept of materiality in the financial statements. This standard is applied to all the companies preparing the annual report beginning from 1^st of January, 2005. Financial reporting is a medium to convey the results of the business operated by the key managerial persons of the company to its stakeholders and investors. The information delivered in the financial statements shall be useful for the users and the management of the company to take relevant decisions for the betterment of the company and its growth and assessing the allocation of resources to get the best returns. This can be achieved with the objective of general purpose financial reporting and for achieving the same the concept of materiality plays a significant role in the financial statements. Thus we can say that an exclusion of material account balances or the inclusion of non-material balances may affect the decision from top to bottom substantially which in turn may affect the organization drastically (Legislation, 2015)

An information or an account balances is said to be material if the non-disclosure, omission or mis-statement potentially affects the economic decisions taken by the users on the basis of such financial statements or the discharge of the accountability either by the management or by those charged with coherence whether individually or collectively. This does not necessarily means that the items which are not material need not to be recognized, disclosed or measured in the financial statements but the significance is that they can be given less importance or avoided in certain circumstances for decision making purpose by the users. Now, materiality comes two sided – i.e.- whether individually material or materiality in aggregate. This involves assessing the size, nature, and amount of the mis-stated and omitted items all together . For instance any event occurring after the balance sheet date i.e.- 30^th June but before the preparation of the financial statements for that financial year, then in such cases, the amount of the item only shall be enough to determine the materiality . This may either occur due to certain changes in circumstances which may force the entity to pay damages against any violation of law or a new segment is being taken up and the related risk assessments and opportunities are being affected. Secondly, the materiality of the amount of the item or aggregate of items either relating to income statement or cash flows in the financial statements is determined by comparing with the opposite income and expenses of the current period and net cash flow of the year end respectively or with the average of the income and expenses of the prior periods including the current period and the average of the net cash flows from all the three activities of prior periods along with the current period (IFRS, 2015)

The different account balances including both the assets and liabilities that is material to the financial statements of the company are being discussed below

Account Balances	Financial Report Assertions as required in point - 6	Audit work steps as required in point - 7
Assets
Trail Commission Receivable	Completeness and Existence are selected as financial reporting assertion to Trail commission receivable recorded under both current and non-current assets since the auditor should be aware of the fact that the same do exist at the balance sheet date all the receivables supposed to be received are recorded in the financial statements (Accounting, 2015)	The auditor in order to gather the evidence about the existence and completeness of the fact, shall apply substantive procedures which involves through reviewing of related documents, third party confirmation, the equivalent amount of revenue whether recorded against such commission. Thus, if the auditor is not able to gather such evidences, then it should seek other alternative audit evidences required to satisfy himself about its existence and the completeness at the reporting date.
Intangible Assets	Existence, Rights and Valuation are the relevant financial assertions to intangible assets. The auditor in respect of such materiality of the item shall ensure that the intangibles are in the name of the client and exists at the reporting date along with the rights associated with it. It means that the right to use such intangibles and the control over the right is possessed with the client. Further, the auditor should also ensure that the intangibles are valued correctly and in accordance with the generally accepted principles in the books.	To verify the intangibles, the auditor shall ensure that the intangibles are recorded as per AASB 138 . In case of purchase of intangibles , the auditor shall review the relevant documents related to it and its registration and other legal work has been completed and if it is self-generated then the basis of such creation and its valuation. The auditor should obtain the schedule of intangible assets and its amortization policy and discuss with the client on such matters. In respect of valuation the auditor shall ensure that the same is being valued as per the accounting standards and not in vague.
Trade Receivables	Completeness and Existence are the perfect assertions to Trade Receivables. These assertions are applicable to ensure that they actually exist at the end of financial year and are complete i.e.- all the receivables which are supposed to be disclosed are only disclosed . All the related party transactions are disclosed in the financial statements shall be ensured.	The auditor shall ensure himself about the conformity of the financial assertions related to it and shall collect sufficient audit evidence to conclude comment on receivables. To collect the evidences, he should perform different substantive procedures which involves test check of invoices and compare them to supporting documentation to check whether they were correctly billed to the customers probably on accurate dates, shall match invoices to the shipping log, Obtain a third party confirmation in respect of material balances under the receivables, assess the provision of doubtful debts, review the credit notes and thus shall form an opinion about the completeness and existence of the Receivables.
Property, Plant and Equipment	The financial report assertions to PPE are Existence, Rights and Valuation. These assertions signifies that the plant and property are in possession of the client at the date of balance sheet and are not transferred. Also, any property which are not yet registered but are in the possession of the client is included in the financial statements. Further, the client has all the rights and control relating to such assets and the valuation of the assets are being valued as per AASB 116.	The auditor shall assure that the fixed asset register is maintained by the client and he shall review the same to ascertain the policies and correctness of the additions, deductions, depreciation and asset obsolesce. The auditor shall physically verify the assets of high value and check whether the same is in working condition and in the possession of the client. The auditor in relation to the plant property and equipment shall verify the relevant documents of acquisition and the treatment of taxes associated with such assets.
Cash and cash equivalent	Existence and the Right are the financial assertions associated with cash. The existence of cash with the management and its ownership shall be determined as at the end of the financial year.	The auditor in this respect shall physically verify the cash in hand with the management and cross check it with the books on monthly basis and obtain a reconciliation statement for the same . The auditor shall also ensure that such cash and its equivalent belongs to the client and verify related papers to such liquid cash. The auditor in addition to that shall check the cash vouchers on test basis to satisfy himself about the authorization of such receipts and payments.
Liabilities
Trade Payables	The financial assertions to trade payables are completeness and existence. The existence of the payables at the year end and the completeness i.e. record of all the payables are duly recorded and there is no irregularity and omission of any parties. Similar to trade receivables, all the related party transactions are duly recorded and disclosed in the financial statements.	The auditor in this respect shall follow significant steps to ensure the existence and completeness of the payables. The auditor shall check the purchase invoices and cross verify it with the payments made to the vendors. If required, auditor shall also collect information directly from the vendor to ensure the correctness of the transaction. The auditor shall check the debit notes issued by the vendor and the reason for the same which may be either returns or quality issues.
Deferred Tax Liability	Existence and obligation and valuation are the assertions of Deferred Tax liability. The existence of the liability and its obligation to get set off shall lie to the management at the end of the financial year to ensure its reliability. The deferred tax liability is created due to temporary timing differences of some items between the Income tax Act and the Companies Act. Thus, the same shall be recorded only if there is reasonable assurance of reversing it back within the prescribed time period.	The auditor in respect of deferred tax liability shall verify whether the same is reviewed every year by the management to check the ability of the reversal of its liabilities. The auditor shall review the time period of such creation and take decision on consulting with the management of its write back or reversal to Gove a true and fair view of the financial statements. The auditor shall calculate the temporary timing differences to arrive at the correct value of the deferred tax asset or liability to be recorded in the balance sheet.
Provisions	Completeness and Valuation are the key assertions to provisions. It is recorded both in the current assets and Non-current assets. The provisions are the estimates made by the management on the basis of past experience. The estimates shall be valued and determined in a approximate manner close to the actual and shall be completely recorded in the books in respect if all items which require provisions to be made.	The auditor in this respect shall review the estimates made by the management and if any discrepancy found, the auditor shall ask the management to revise its estimate and also give recommendations and basis of estimating the same. The auditor in respect of satisfying himself about the provisions should check the valuation of items in respect of which the provisions are made and its viability to make the provisions for that particular items.
Income Tax Payable	The assertions to Income Tax payable are the existence and completeness. The income tax payable recorded in the balance sheet shall exist at the time balance sheet is prepared and should be correctly valued and income tax payable in aggregate of all assessment years shall be recorded in financial statements and disclosed appropriately.	The auditor in respect of verifying the income tax payable shall check all the orders of the relevant assessment years received by the client and the status of the pending cases in the name of the client. Further, the auditor shall determine the current tax payable of the client and include the same in it as per the requirement of the financial reporting standards to get the true and fair view of the financial statements.
Other Liabilities	Other Liabilities include the existence, valuation and obligation as the financial reporting assertions. The obligation to pay the liabilities and its actual existence at the balance sheet date and the value to be recorded is a challenging task to be done and get it recorded in the books.	The auditor in this respect shall review the documents related to such liabilities and if required shall confirm the balances with the third party to cross verify the same with the books. The auditor shall also check that any obligation to pay the debts whether is of the same financial year or is a part of some other assessment years.

Accounting. (2015). Assertions in the Audit of Financial Statements. Retrieved from https://accounting-simplified.com/audit/introduction/audit-assertions.html

IFRS. (2015). IFRS. Retrieved from https://www.ifrs.org/

Legislation, F. R. (2015). Auditing Standard ASA 320. Retrieved from https://www.legislation.gov.au/Details/F2016C00029

Report, A. (2016). I Select. Retrieved from https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_ISU_2016.pdf

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