Discuss about the Systematic Auditing and Assurance Services.
Bega Cheese operates in the dairy industry where they supply cheddar cheese as well as processed cheddar cheese into the retail and food service markets in and across Australia (William Jr, Glover and Prawitt 2016). The company is a public listed and owned by shareholders where the business manufactures natural cheddar cheese that can be either cut or pack the cheese into the retail packs made available in the supermarket. Bega Cheese has forever supposed the best approach for building value as well as managing risk for combining with the enduring knowledge as well as business information with innovative approaches and thoughts (Elder, Beasley and Arens 2012). The company delivers number of positive outcomes for its stakeholders for the financial year 2017 where they face many challenges and intense competition. The company works together for generating top line revenue growth, improved financial performance as well as maintaining strong balance sheet at the time of investing in the near future. The company built on partnerships with the valued customers as well as maintaining trust from valued milk suppliers (Ricchiute 2014).
What particular laws or regulations affect its operations?
- National Greenhouse and Energy Reporting Act 2007- Bega Cheese Group is subject to Federal as well as State Environmental Regulations. This takes into consideration the reporting requirements under the above-mentioned act (Louwers et al. 2013).
- State Environment Protection Regulations- Bega Cheese manufacturing sites are licensed under the regulations where the licenses stipulated performance for all the emissions such as air, noise, odour and wastewater (Gay and Simnett 2015). Bega Cheese has a code of behavior that enclose a cohesive set of philosophy as it will engage all the officers and employees for abiding by the business and dealing with the stakeholders
- In the year 2016, Chinese authorities proclaim changes for regulating the sale as well as allocation of infant formula to China (Garner 2015). The company is well placed for operating activities in accordance with the revised legislation that anticipates for coming into effect in the year 2017.
- Bega Cheese continues to work with the regulators as well as actively involved in managing actions for reducing the emissions to air and waste water volumes (Elder, Beasley and Arens 2012).
- The Protection of the Environment Act 1997
- The Clean Energy Act 2011
Identification of five inherent risks for the audit of Bega Cheese
Inherent Risk is one of the risk that is pretense by an error or omission in a fiscal statement because to a feature other than a malfunction of control. It is the risk that mostly occur other than a failure of control where the transactions are intricate or situations that need a high degree of decision in regards to fiscal approximation (Elder, Beasley and Arens 2012). Some of the inherent risks faced by Bega Cheese at the time of audit are as follows:
- Understanding the risk as well as control systems operated by Bega Cheese used for assessing the design and effectiveness that include managing compliance. As a food producer, Bega Cheese faces various communal sustainability risks that take into consideration matters connecting to safety of products as well as workforce in the communities (Eilifsen et al. 2013). It is all about consumer safety that should be taken as top precedence and any breach to that will result to reputational damage. Bega Cheese mature quality management takes into consideration quality declaration with absolute traceability of the entire element as well as products (Elder, Beasley and Arens 2012).
- Bega Cheese expose to various financial risks such as market risks. The market risk comprises currency risk, price risk and interest rate risk. Addition to that, there are even credit risk and liquidity risk that are faced by Bega Cheese (Campbell 2015). The company risk management approach mainly deals with the unpredictability of fiscal markets as well as finds ways for minimizing probable unfavorable effects on the financial presentation in the most appropriate way (Elder, Beasley and Arens 2012). Bega Cheese uses derivative financial instruments like foreign swap contracts for hedging specific risk exposures. It is the derivatives that are used for hedging purposes and not for trading of any tentative purpose. Bega Cheese uses various techniques for measuring the risks to which they are exposed (Elder, Beasley and Arens 2012). The methods used by the company include sensitivity analysis especially for interest rate, foreign exchange as well as price risks. One of the inherent risks is assessing the internal controls as well as policies and procedures that complement delegated responsibilities of management for the given functions. This includes assessing the adequacy of the policies, procedures and internal controls at the same time. Bega Cheese Audit Committee need to assess whether there are adequate resources as provided for the management after taking care of delegated responsibilities (Bierstaker 2012).
- Bega Cheese exposes to market risks in relation to foreign currency as well as interest rate actions. The company enters into a wide assortment of derivative financial instruments for managing exposures where it takes into consideration foreign currency contracts for hedging exchange rates risks from the sale of exported goods as well as purchase of imported goods (Arens, Elder and Mark 2012). Other inherent risk faced by Bega Cheese is monitoring as well as review at least annually on the risk register. The auditor needs to collect external as well as internal information that is directed to the Committee that necessitates strengthening or reviewing of internal controls (Elder, Beasley and Arens 2012).
- Inherent risk include situation where auditor of Bega Cheese need to make sure that all material as well as compliance risks are adequately reflected in the financial statements (William Jr, Glover and Prawitt 2016). The Governance & Assurance Manager as well as internal auditor that prepares the annual governance and assurance audit plan that details the activities to be undertaken for each year in regard to key organizational risks in the business. It is in accordance with the determination of Enterprise wise risk management framework as well as material financial risks and last audited figures (Arens, Elder and Beasley 2016).
- Foreign exchange risks arise from the future commercial transaction as well as recognized assets and liabilities that demonstrate in a currency that is not the entity domiciled currency (Arens et al. 2015). Bega Cheese exports dairy products that are exposed to the foreign exchange risk that moves in exchange rate of US dollar. Bega Cheese involves in purchase that include capital equipment, ingredients as well as packaging that actually expose to the movements in exchange rates of US dollar and Euro. Internal audit is one of the key responsibilities of Governance as well as Assurance function within Bega Cheese (Elder, Beasley and Arens 2012). It is role of the internal auditor for providing independent as well as objective assurance in the adequacy and efficiency of Bega Cheese arrangement for risk administration, governance and internal control. Addition to that, the auditor need to make recommendations that will help in improving the effectiveness as well as efficiency of systems and process (William Jr, Glover and Prawitt 2016).
Assessing the likelihood of the potential reliance that could place on the overall control environment
- From the Corporate Governance arrangements of Bega Cheese, it is understood that the company is committed towards maintaining higher standards of accountability as well as transparency in the administration and behavior of its trade operations (William Jr, Glover and Prawitt 2016). Board of Bega Cheese has accepted corporate governance strategy as well as practices that it is reliable with the sustained augmentation as well as achievement. This leads to constant improvement of value for Bega Cheese group shareholders.
- Bega Cheese has a diversity as well as inclusive strategy used for building a competitive advantage for the particular company. Addition to that, the strategy used need enduring assurance for leaders that embeds a society of improved thinking on matters relating to working in a diverse work environment (William Jr, Glover and Prawitt 2016).
- Bega Cheese has made strategies in involving for gaining acceptable development towards achieving the assortment approach objectives. It is represented by women who occupies the management position and increased from 23% to 26% during the previous years (Elder, Beasley and Arens 2012).
- Audit and Risk Committee is comprised of Independent Director who has certain responsibilities for overseeing the procedure of financial coverage, non-financial risk administration as well as internal control and compliance on external audit (Elder, Beasley and Arens 2012).
- Audit and Risk Committee members of Bega Cheese will be monitoring the compliance with laws as well as regulations in its own policies. The company should ensure in maintaining positive association between Bega Cheese and he external auditor that remains self-governing. It is necessary for the company for evaluating the adequacy of process as well as control over the established ways for identifying and managing the areas of potential risk in a given way (William Jr, Glover and Prawitt 2016).
Arens, A.A., Best, P., Shailer, G., Fiedler, B., Elder, R.J. and Beasley, M., 2015. Auditing and assurance services in Australia: an integrated approach. Pearson Education Australia.
Arens, A.A., Elder, R.J. and Beasley, M.S., 2016. Auditing and assurance services: An integrated approach. Prentice Hall.
Arens, A.A., Elder, R.J. and Mark, B., 2012. Auditing and assurance services: an integrated approach. Boston: Prentice Hall.
Bierstaker, J.L., 2012. Auditing and Assurance Services. Issues in Accounting Education, 17(3), pp.341-344.
Campbell, D.R., 2015. Auditing and Assurance Services. Issues in Accounting Education, 16(1), pp.157-157.
Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance services. McGraw-Hill.
Elder, R.J., Beasley, M.S. and Arens, A.A., 2012. Auditing and Assurance services. Pearson Higher Ed.
Garner, D.E., 2015. Auditing & Assurance Services. Issues in Accounting Education, 13(3), p.768.
Gay, G.E. and Simnett, R., 2015. Auditing and assurance services in Australia. Sydney: Mcgraw-hill.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2013. Auditing and assurance services. New York, NY: McGraw-Hill/Irwin.
Ricchiute, D.N., 2014. Auditing and assurance services. South Western Educational Publishing.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic approach. McGraw-Hill Education.