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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.

Overview of Asia Pacific Digital Limited Services

Digital marketing and e-commerce services is provided by Asia Pacific Digital Limited subsidiaries in Australia. The Company does it operations through consumer acquisition, plans and solution, consumer management and segments related to e-commerce. Plans and solutions stages suggests digital marketing services, technologies and creativity. The Customer Acquisition division provides presentation based digital promotion amenities that concentrates on consumer acquirement and lead compeers, such as search machine optimization, salaried exploration, and associate marketing facilities. The Customer Management sector offers electronic mail promotion, memo, and crusade administration amenities.

The e-commerce section delivers end-to-end ecommerce amenities. It serves leisure, auto, health and beauty, media, financial services, FMCG, liquor, logistics, public sector, retail, technology, Telco, and mobile industries. The company is founded in Pyrmont, Australia. Asia Pacific Digital Limited is a subsidiary of Valuestream Investment Management Limited. (APD, 2018)


Key Business Risk for Asia Pacific Digital Limited.

  • Compliance Risk: The hazard for the company smears, when the company does not follow to the ethics and guidelines laid by the leading body. The Asia Pacific Limited Company fulfills with all of the core obedience moralities and the danger for the same is insignificant.

Financial Risk: The risk related with the experience of debt and long term borrowings of the company. The company experience to debt and long-term borrowing shows the inbred monetary risk in the company. Main risks are interest rate, credit and liquid risk. Different measures are used for monitoring the different risks.

The internal controls identified in the system, which are potentially effective, are mentioned below:

Effective Control

Risk Alleviated

Test of Control

Environment Sustainability

The risk assuaged due to non-sustainability of environment is the degrading reputational and operational risk of the company

The test or the actual way of regulatory the same could be by enhancing the skills and growth of the employees in preserving and safeguarding sustainability of the similar.

Risk Analysis

Risk recognized in the corporation are that of commercial and monetary risk. There should be proper outline analysis of risks involved in the company.

The test for regulator for the same could be by guaranteeing that the appropriate risk investigation along the risk outline of the business must be done. (Griffiths 2016).

Identifying Material Information

The material given by the business should be obviously free from material misstatement and mistake free then, the company’s goodwill and trustworthiness will be hindered.

Internal checking of records and information provided by the employees should do the audit procedure for the same. Verification of statistics and material must be done.


The company’s processes and financials of the business must be well evaluated in order to decrease the commercial risk of the company.

There should be actual monitoring actions and ladders laid depressed in order to reduce the business and monetary risk of the company.

Physical monitoring and controlling

The internal control of the company should be such that the risk assessed in assets like theft, loss of goods, damage are some of the internal risk associated with the company 

Verification and periodical review of the assets of the company shall be done in order to avoid exploitation of resources.

Ratio analysis is an analytical tool, which supports us to evaluate the monetary of the company. The gears aids us give an overall understanding of the fiscal of the corporation The business selected for the auditing process is the Asia Pacific Digital Limited Business for which the accounts investigated are Accounts Receivables of the company, Plant and property and investments of the firm.

Ratio Analysis





Current Ratio

Current Ratio




Quick Ratio




Activity Ratio

Debtor Turnover




Sales to Asset




Solvency Ratio

Equity Ratio




The current ratio is the amount of company’s current assets over the current liabilities of the company. The current ratio signifies the liquidity ratio of the business. The ratio for the company in the year 2016 is about 0.95 times, while it is 0.55 times in the year 2017 and it was 1.10 times in 2015. The ratio is showing a downfall trend.

Quick Ratio:  The acid test ratio or the quick ratio for the business is about 0.86 times in the year 2017, 0.95 times in the year 2016 and 0.91 times in the year 2015.

Debtors Turnover Ratio: The receivables turnover ratio is an secretarial amount used to count a firm's efficacy in covering credit and in assembling debts on that credit. The receivables turnover ratio is an activity ratio gauging how proficiently a firm uses its resources. The above table shows that company has an upward trend in assembling the amount by debtors.

Customer Acquisition Division

Sales to Asset:  the ability of a company to generate revenue or sales is measured by sales to total assets ratio. The higher the ratio is it indicates that the management is able to bring out a lot out of the assets. The above table signifies that the company is on a medium track of rendering services.

Equity ratio: The equity ratio is a solvency ratio that events the aggregate of assets that are funded by proprietors’ reserves by relating the total equity in the business to the total assets.

The equity ratio highpoints two vital financial thoughts of a bankrupt and maintainable occupational. The first constituent shows how much of the entire corporation assets are owned absolute by the depositors. In other words, afterward all of the accountabilities are paid off; the nominees will end up with the outstanding assets. The equity ratio of the company shows a downtrend as it is 0.11 in 2017 as compared to 2015 it was 0.40.

Audit Model:

Audit Risk= 0.26*0.15*0.20= 0.0078

Inherent Risk

 Control Risk

Planned Detection Risk

Amount of Evidence Required





Overall Materiality

At the planning stage, overall materiality is set by the auditors for the inspection of the financial statement of the company. The foremost reason for setting the base of overall materiality is to recognize the performance of the materiality that helps auditors to construct the procedure for audit and to get a clear view of the misstatement present in the statements. (Endaya and Hanefah, 2013). Assessing the overall materiality can be done through :

  • Selecting the right benchmark
  • Defining a part of the selected benchmark
  • Support the selected benchmark.

Other challenges are also taken into consideration such as class of transaction and disclosures, accounts that belongs to long and short period, and setting materiality for single balances. While selecting the benchmark the nature and the industry in which the entity operates is taken into account, even auditor may put stress in finding out that the company focuses on a specific item of the financial statements.  As per ISA 320.A8 are for a profit oriented manufacturing occupational that is 5% of profit before tax from continuing operations and a not-for-profit entity 1% of total income or expenses. Asia Pacific Digital Limited overall materiality is ( 1%* $45518000= $ 455180)

Key Material Accounts:

  • Cash and Cash equivalents
  • Trade and other receivables
  • Non-current assets and disposal groups held for sale or deemed discontinued operations

Provisions and employee benefits (APD, 2018)

Account Balance




Audit Procedure

Audit Evidence

Cash and cash equivalents


Existence-exists in the balance date. Completeness-all items related to cash is recorded as on balance date.

Appeal and scrutinize bank confirmations

2. Assume tests of bank reconciliations, trail-up integration article.

Bank Confirmation credential from the Bank (Document). Obtain duplicates of client’s bank reconciliations (Document). Enquiry and proceedings of integration item (oral)

Accounts Receivables


Accuracy- the item is recorded correctly.

Request for the invoices and record of the amounts from the management of the company.

Scrutinize the receipts of the debtors. ( Document and oral) Crosschecked the earlier payment received. (Document and oral)

Plant & Equipment


Valuation- the amount recorded, as on balance date is appropriate. Existence- the item recorded in the balance sheet exists in the period end.

Appealed for the invoices of the asset purchased and documents regarding the valuation.

Physically verified the asset. Properly scrutinize the valuation designed by the management.( Document)



Cut- off- the transaction have been identified in the correct accounting period.

Request for the valid documents and the process of determining the fair value.

Examined the documents and the calculations of the fair value( Documented and oral)

Intangible Asset


Valuation- has been appropriately valued as on balance date.

Ask for the result of internal review conducted.

Examined the internal review conducted by the management.( Document and oral)

Accounts Payable


Accuracy- the item is recorded correctly

Request for the invoices and record of the amounts from the management of the company

Scrutinize the receipts of the creditors. ( Document and oral) Crosschecked the earlier payment made. (Document and oral)

Deferred Income


Existence- appropriately recorded as on balance date.

Requests for documents relating to recognize the taxable temporary differences.

Examine critically the documents and discussed the transaction with the management. ( Document and oral)



Completeness- provision made are as on balance date.

Request to present the basis of provision made by the management.

Critically examines the basis of provisions.( document)

 Interest and loan  bearing borrowings


Accuracy- the amount recorded is accurate as on the balance date.

Appeal for the proofs of the transaction record made against the item.

Critically examines the documents presented.( Document and oral)

Provision for Income Tax


Accuracy- the amount recorded, as on the balance date is correct.

Request to present the document related to tax.

Examines the tax statement of the company and the basis of provisions. (Document and oral ) (Endaya and Hanefah, 2013).


Sampling is the presentation of an audit procedure to a smaller amount than 100% of the items within a justification balance or class of transactions for the determination of assessing some typical of all the substances within the stability or period of connections. Much of the evidence comprised in the guide was occupied from the Statement on Auditing Standards No. 39 on Audit Sampling that delivers direction on the use of sampling in an audit of financial statements. This evidence has been modified to fit the situations most often come across in tax auditing. (Elder 2013).

Account Head

Evaluation/ Analysis

Auditing Risks

Steps for Eliminating Risks

Accounts Receivables

The quantity due to the corporation by the customers and clienteles of the business. The amount signify the quantity for which imbursement is yet to be established by the company. The Days of Accounts Receivable for the company is around 30 -60  Days and for debts.

The business deal and goods are sold below the praise sales tactic to its clienteles. The commercial risk of the company is high in this case.

The commercial risk of the corporation is in elevation, the auditor need to prudently reconsider the quantity of sales and the quantity of debtors it is able to realize. The auditor requirements to carefully identify different components of the account and provide materiality regarding the same


The analysis of the investment done by the company by the equity ratio. The company had saw an decrease in the equity ratio from the year2016-17 from 0.30times to about 0.11

The equity ratio for the company depends on the investments done by the company.

The auditor of the company must reconsider the investment assets class in which the investment is done. The assets class should be well studied and the same should be checked by the investment policy of the business. The key audit technique would be to checkered about the asset assets class and the tendency in the return from these funds.

Property Assets

The ratio for sales to assets shows the efficiency in the utilization of the assets of the company. The ratio for the company in the year 2017 is around 1.88% that has shown improvement from the last year figures of around 1.80%

The key risk related with this type of asset period is concerning the estimate of assets and correctly identification of assets.

The key step complicated in this type of auditing would be to decrease the auditing complexity by founding a common financial skull and reporting classification. The auditor must also capitalize all the leased assets of the firm, which is confidential as functioning leases. The capitalization of the identical would give a true and fair view of the financial records.

Marketing Expenses

The marketing expenditure is the total selling expenditures for the company. The proportion and the benefit would be calculated by the output the expense is generating in the form of the revenue.

The risk associated with such expenditure would be regarding proper classification and recording of expenses by the company.

The steps to decrease the risk related with such type of expense is to assess the record for the overheads done and analyze whether the incidentals owed does not get outstanding by the company (Elder 2013).

Customer Management Sector


External audit plays important role in the business world. Particularly in the fast-altering and instable financial environment, there is a continuous need for guarantee services of the superiority and dependability for company’s financial statements, exclusively in companies listed on stock exchange. Improvement and transparency of the company`s public image is supremely ensured by the process of external audit. While performing audit many problem regarding the internal control is recognized and is reported to the management of the company with the belief of improvement within the company.

Presently, the audit is principally based on the audit risk approach consequently, from the audit company’s point of view, it is critical to achieve the risk assessment measures adequately and suitably in planning phase because it will decrease the efforts and wealth in the subsequent ladders. Fundamentally, audit firm needs to accomplish their planned fees to client in order to endure modest in the arcade. In other words, the more comprehensive the audit risk assessment is, the improved the wealth such as time, money and efforts are applied. The report states the audit procedure for Asia Pacific Digital Limited.


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