- Requirements Question:
- Solution Answer:
- Nature of the entity:
- Investment and investment activities:
- Finance and the financing activities:
- Financial reporting practices:
- Analytic procedures for the financial performance and the financial position of the company:
- Ascertainment of the materiality of the accounts of the company:
1- Write a report on AUDITING in 3000 words with reference to Havard.
In the present report and effort is being made to understand the nature of the business that is being conducted by the selected company, the financial performance, and the position of the company. Subsequent to this, an effort will be made to determine the materiality of the accounts of the financial statements of the entity. The various factors that were being considered for the purpose will be explained and the around ten material accounts will be identified in the financial statement of the entity.
The company that has been selected for the purpose if Amber technology Ltd. The company is a listed entity in the Australian Stock Exchange and conducts operations in the areas of media systems, professional products, integrated solutions and major retail.
Nature of the entity:
The company is a publicly listed entity. The company has its listing in the Australian Stock Exchange. The details regarding the operations and the structure of the company are being given below:
Business operations: The company conducts its operations that are spread across several product portfolios. Some FO the most significant products that are being pursued by the company are as follows:
Media systems- The media system division of the company is concerned with the product and service delivery to traditional radio and television broadcast industry. The company has also been able to establish partnership in varied industries like that of the defence and the law enforcement, sport, large-scale events and education. The company is engaged in the function of content creation, acquisition delivery, processing and management of the asset of the company (Leunget al. 2014).
Professional products- This segment of the company is concerned with the provision of high quality live sound across many industry segments like tourist artists, live stage shows, film and television production, broadcast news and sport.
Integrated solutions- This segment of the company is concerned with the provision of the cohesive systems for the custom installation and the professional installation market. The company is able to deliver the same with the help of a portfolio of high-end audio visual and infrastructure brands. This is done in respect of the residential commercial installation projects (Hayet al. 2017).
Major retail- This division of the company is dealing with the home electronics retailers nationally, mass-market retail chains and independent specialist outlets for supplying home entertainment solutions for the consumers present in the residential market. The company through this division focusses on the delivery of high-end audio video and accessory brands to the end users of the company’s products.
Investment and investment activities:
The company’s investment portfolio is not very significant. The main and the significant investment that is being conducted by the company are in respect of the various plant and equipment that is being purchased and sold by the company. The company has to acquire the latest plant and machinery for producing the best quality product that is available in the market. It can be ascertained from the cash flow statement of the company that the amount that has been incurred by the company in respect of the various investment that is being made by it amounted to $45000 and $85000 respectively for the year 2016 and 2017 respectively. It can be easily ascertained that the investment that is being incurred by the company over the period of one year has almost doubled (Byrneset al. 2017). The reason for this can be attributed to the requirement of the company in respect of the acquisition of the latest plant and machinery by the company.
Finance and the financing activities:
These are the activities related to the ways in which the company enables the collection of the funds for carrying out its various activities that are related to the regular operations of the company. The outflow in this sort of activities is related to the payment that has to be made to the shareholders in the form of dividend and the interest that has to be paid by the company to the financial institutions that have given the money to the company as a loan. The significant source of funds in the case of company is the borrowings that are being acquired by the company for its financial purposes. From the cash flow, statement of the company it can be ascertained that the amount of loan or borrowing that has been arranged by the company amounted to $368000 and 893000 (McGainet al. 2015). It can be seen that the company has increased its borrowing over the period of last on year. The company has incurred significant amount of finance expenditure, the reason can be attributed to the fact that the entity has nearly doubled its expenditure in respect of acquiring plant and equipment for its operations.
Financial reporting practices:
The Directors of the company have been made responsible for the purpose of preparation and presentation of a financial report that gives a true and fair view of the company’s performance and the position for the relevant period of time. For the purpose of reflecting a true and fair view of the entity’s financial performance and position, the financial statements of the company must be prepared in accordance with the Australian Accounting Standards and the Corporation Act 2001 (Appuhami and Bhuyan 2015). The management also ensures that the for the purpose of monitoring the process of preparation of the financial statements the requisite internal control system are being put in place within the entity. The main purpose of this is to ensure that the preparation of the reports take place without the presence of any material misstatement and error.
In the process of preparing the reports of the entity, the management of the company has ensured that proper assessment is done regarding the group’s ability to continue as a going concern.
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Analytic procedures for the financial performance and the financial position of the company:
For the purpose of conducting the analytic procedures of the information that are being given out in the statement of position and the performance of the company detailed ratio analysis will be undertaken. The ratio analysis of the company’s financial statement will give a deeper insight into the actual trend that the company is following over the period of last three years (Moroney and Trotman 2016). For the purpose of conducting the analysis of the financial performance and the position of the company, the ratios that have been selected are as follows:
Net Profit margin:
The net profit margin of the company establishes the relationship between the net profit earned by the company and the total sales that is being transacted by the company (Fergusonet al. 2016). The results that are being received from the ratios suggest the amount of profit or what percentage of the total revenue is being constituted by the net profit of the company.
Ascertainment of the materiality of the accounts of the company:
The accounts that have been chosen for the purpose audit as material along with the reasons that contributed to this judgement are as follows:
Inventory: This account has been considered as material due to the fact that there is huge possibility that the amount that has been entered into by the company in terms of the amount of inventory that is held by it in the stock can be misleading. In addition to that the method that has been adopted by the company for the purpose of valuation of the inventory is correct and as per the requirements of the accounting standards and the guidelines that are being stated out in the corporations act 2001.
Receivables: The account has been selected as material because the same is concerned with the primary revenue generating operations of the company and results in the creation of a pool of asset on which the company has no physical possession (Liuet al. 2016). The reason being that the debtors of the company are comprised of third parties that may or may not ultimately make the payment of the amount due to the company in respect of the amount of purchases that have been made by them of the products that is being sold by the company. it is necessary to establish the correctness of the time at which the company records the revenue in its books.
Plant and equipment: It is considered to be one of the most material accounts because of the huge amount that is involved with their acquisition by the company. there are other factors too that are going to be addressed by the auditor like the depreciation method that has been chosen by the company and the presence of any circumstance that requires the impairment of the assets that are held by the company or not.
Trade and other payables: The account has been chosen as material as it is important to establish how the company determines the liability in respect of the amount of purchases that have been made by it from the suppliers. The trade payables form an important part of the financial statements of the company.
Cash and cash equivalents: It is very important to consider the cash and cash equivalent as material. The reason for this is that all the expenses that are going to be incurred by the company will have to be incurred with the help of cash and cash equivalent. Due to its highly liquid nature it is very much possible that the employees of the entity will siphon off some money of the entity.
Intangible assets: These assets become material because of the presence of immense judgement and assumptions on the part of the management. it is important for the auditor to establish that the judgements that are being made by the management are in accordance with the accounting standards and the guidelines that are being stated in the corporation act 2001.
Other financial liabilities: The other financial liabilities of the company is constituted by the finance that has been arranged by the company using the debtors. It is important to ascertain that what constitute the other finance liabilities of the entity.
Provisions: This is considered to be material because of the involvement of the estimates that are to be conducted by the management of the company. Due to the high amount of subjectivity and estimates in the amount that is being disclosed corresponding to it becomes an important item (Bemelmans-Videc 2017).
Deferred tax liabilities: The deferred tax liabilities of the entity is considered as material because the same contains a huge amount of subjectivity and this can be easily manipulated.
Deferred tax assets: Deferred tax assets is considered to be material because of the fact that there is immense amount of subjectivity and estimate involved in the amount of the deferred tax assets that are being recorded by the company.
It is very important for the auditor to ascertain the materiality of the various items that are present within the financial statements of the entity and this helps in ascertaining the focus areas of the audit. In the present case the profitability of the company is very low as it is unable to generate positive profits over the period of last three years.
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