Audit Strategies and Planning Memorandum

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Requirement

1- Write a repot on "Audit Strategies and Planning Memorandum" in 3000 words

Solution

1)Executive summary

  • a. Purpose of the report: The purpose of this report is to analyse the historical performance of ABC learning. The financial year that has been taken into consideration is 2000-2007. The paper will analyse the changes in the audit approach of the company. on the basis of this planning memorandum and audit, strategies will be prepared.

  • b. Materiality: The materiality of the company lies in the misstatement of the financial statements.  It used to disclose all the mattes related to the risk of the misstatement of the financial information. The materiality of the company determines the extent and nature of the audit procedures.

  • c. The team members: The team of the company includes three major people in the audit committee. Marcus Henry is the audit engagement partner. Stuart Mutch is the independent partner and Ahmed Sofe is the manager if the task. Sophie Monteath- the bell is the senior auditor of the company.( helpdesk, 2019)

  • d. Independence: The independence of the company lies in two major areas. These are the independence in mind and independence in appearance. The company follows the independence rulers provided byOAG. The company does not also provide prohibited services. It always tends to bring changes in the opinion of committee and management.

  • e. Engagement execution and reporting: The company is determined towards this process and is indulged in the continuous communication process with the management. There are meeting with the risk subcommittee and the audit, and meeting with the council and management also take place.  It also aims to achieve a transparent relationship with the way of being effective.  

  • f.Audit fees details: The proposed fee for the code audit works was 28887. On the otherhand, the audit fee for the group accounts is 3800. This was the fee for 2007. The fee in the year 2006 was the same as mentioned for the year 2007.  This fee structure is set by the PSAA. The company is not planning to change this fee structure recently. (helpdesk, 2019)

2) Description of the client and business

The company ABC learning was the largest company in delivering early education. It was the highest grosser revenue in its industry. It used to provide early education to the children of Australia.  It was also listed in the ASX Australian securities exchange. It has reached 2.5 billion Australian dollars in the month of March 2006.  It has acquired the second largest company in the field of care to children. This company was la petite academy fur the amount if 330 million in US dollars (Cripps, 2017). It has also acquired the 5th largest company belonging from the UK in the same industry. The name of the company was busy bees group ltd.  After this acquisition, the company has expanded its feathers to the UK market also.  the company was significantly profitable in the year 20004-20005. The net profit of the company after tax was 52.3 million AUD dollars.   The overall revenue if the company was 292.7 million dollars.  This company was the signature sponsor of the “Adelaide 636ers.”

Under the year 2008, the company has decided to sell the 60 percentof the company to the US operatorMorgan Stanley. This was done by the company topay off the debt. Under the same year, there was voluntary liquidationdisclosed by the company. The liquidation process followed a replacement if the three board members of the company also. The liquidation was done in 2008 and the further in 2009 the company was acquired by the GoodStart childcare. This was being acquitted in the month of December.  This is a charity that is registered and is owned by the social ventures of Australia (Null et al. 2019).  It was also owned by Brotherhood of St Laurence, the benevolent society and Mission Australia. The liquidation of the company was occulted due to the repayment of debt. It was not able to provide a proper mortgage for the debt taken by the company.  the criticism that was followed by the company is based in the company used to cut off the salary in order to increase the profit. The money of the Australian taxpayers was being used by the company to subsidize the childcare activities.  

3)Recent business developments

Under the recent business developments of the company, it is owned as a charity by the Brotherhood of St Laurence, the benevolent society and Mission Australia. It is owned by the social ventures of Australia. Under the recent developments if the company. it could be said that it has maintained the areas which have resulted in the liquidation of the company. major areas that were focused on the company in their recent development are related to the approach toward the better auditing process (Norman and Gurran, 2017). This was a vital reason for the liquidation of the company. Therefore, the company used to manage cases of materiality and risk disclosures. It also induces the key audit matters in their financial reporting. All the required information about the risks is discussed by the company.

The company has also increased its response to fraudulent activities.  Those persons who are charged with governance have the responsibility towards the fraudulent activities according to the company's audit practices. The company is also confined towards the use of the experts and the internal auditors for the company. revenue recognition and pension estimation are some of the major areas that are assessed significantly by the company. It has used the proper judgments towards the assessing activities which are mentioned above. Reporting and engagement execution are now the core activity of the business (Podger, 2018). There is continuous meeting with the management and council for taking out the audit process precisely. Risk assessment is followed by the company and the results are discussed with the stakeholders. There is a proper audit approach that is followed by the company during each year of reporting. The company used to assure that there is proper independence in the auditor's report of the company. EY is being followed by the company fur the assurance in the transaction, advisory services, and tax. The company used to deliver quality service which helps to build trust in the capital markets. Outstanding leaders are being developed by the company who used to team up to provide the promises that were made to the company's stakeholders.

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4)Results from the overall analytical review

  1. Common size - It allows the company to make the analysis from one period to the next period. It evaluates the information under the same company and the companies competing with it. This evaluation shows the increase in the decrease in the financial items during each period of the company.Under the common size statement of ABC learning, it could be seen that the operating revenue of the company is decreasing year by year (Wood et al. 2017). The percentage for 2000, 01, 02. 03, 04 are shown as 100, 98, 99,87, 97 percent respectively. It was the lowest in the year 2005. It considers the working capital account of the business which is risky account if there not proper working capital to manage day to day activities. [Referred to appendix 2]

  2. Trend analysis - Under the rent analysis, the financial statement or more than two periods are taken to analyse horizontally.  It shows the changes in the amount of the financial items reported under the financial statements of the company. under the trend analysis of the ABC learning it could be seen that the trend in the pre-tax profit of the company is downward (Trotman et al. 2015). Under the initial year of 2000, the profit percentage was 23 percent. The pre-tax account has found risky as it has the potential to reflect the revenue of the company which is vital for growth and development.  Expense accounts are risky as it decrease the profit to a great margin. Cash account could be considered as risky one as shortage in this account could affect the operating activities of the firm. [Referred to appendix 3]

  3. Beneish M-score - It is a statistical model that uses the financial information of the company. It used to calculate certain ratios in order to know whether the higher profitability showed by the company exists or not. It uses this analysis to check the manipulation done by the company in its financial performance for the given period. It has been found that there has been some manipulation done by the company in the accounting ratios (Jackson et al. 2017). The gross profit ratio was manipulated by the percentage of 1.14. Again, it was found that the operating profit margin ratio has also been manipulated by the percentage of 1.25. The free cash flow margin was manipulated to the extent of 1.61. ROA was manipulated to extend of 1.077.ROE was found tobe manipulated with the extent of 1.044.[Referred to appendix 4]

5)Audit scope and approach

  • a. Audit planning process: The planning process of the audit follows that the risk of the material misstatement is present in the financial statement or not. This is required for checking whether audit consideration in a special manner is required for the financial statements or not.

  • b. Scope of work: The responsibilities and powers of the company are extracted from the accountability and local audit act of 2014. The elaborate work scope id set in the NAO national audit office code of audit practice.  It follows the financial statement opinions, conclusion for money value, WGA whole of Governments account and electors right (DeCourcy and Burkot, 2016). 

  • c. Control environment assessment: Under this approach of the company, it will review operating activities and design of KCDC's in compliance with auditor general auditing standards. In case of any deficiencies that have been covered under the reviewing process if the company will be communicated to the management and the committee. The time period will be taken into consideration.

  • d. IT general controls assessment: Under the year 2014-2015 the company has performed a review of the ITGS information technology general controls.  It has been performed because it was significant for financial reporting. On the analysis of this feedback has been given to the management. Management is also confined to diagnosing the problems (Jackson and Douglas, 2015). 

  • e. Responsibilities in relation to frauds: The responsibility of the detection and prevention of the frauds is charged with the management and the council first. They are the person responsible for taking the major activities for the business. Council also covers an active program for the detection and prevention of fraud.

  • f. Working with internal audit and use of experts/specialists: Internal auditors are confined to reviewing the audit process. The experts which are available for the company are actuary – Aon Hewitt, internal valuer which was from the Hartlepool borough council, capita who is the adviser for treasury management. There is service management that helps the company in completing financial reporting obligations.

  • g. Confirmation of independence: The confirmation of independence is required from the financial reporting council.  It is required to confirm in writing that the company is going with the ethical standards which are followed under the auditing practices accepted by the company. at the end of each year, there is an independence declaration required from all staff and partners.  

6)Materiality

Materialityrefers to the expressing of the relative importance or significance of the particularmatter in relation to the wholefinancial statement. Any misstatement in the financial statement will be considered as materiality when the changes in the economic figures influence the decision of the users. This is one of the greatest disclosures in the financial statement. It is required for the users in order to seek proper information from the financial statement served by the company (Hanrahan, 2018). this is required by each and every stakeholder to take their decisions. The company has managed to maintain the quality of the material statement and has assumed that users have knowledge of economic activities, business, and accounts. Apart from this, it is also assumed that they have also willingness in order to study the information reported in the financial statements.  The materiality of the company lies in the misstatement of the financial statements.  It used to disclose all the mattes related to the risk of the misstatement of the financial information. The materiality of the company determines the extent and nature of the audit procedures.
Materiality is being considered by the company in the planning stage. However, it not always provides the required information about the material. Under the planning stage is considered that which size of the misstatement needs to be considered as the material misstatement. There is a discussion with the management about the misstatement and the council also takes part in this discussion. There is a significant approach to this process (Payantet al. 2017). It is related to the review of the audit performance of the company.

7)Risk assessment and areas of audit

The risk assessment areas of the company follow the NAO guidance.  It used to consider the areas of the issues related to each sector. The operational and business risk of the company is also analysed. The knowledge that is required for the audit works is also checked by the company. This all is done in order to mitigate the risk arising out of these issues. It is determinantal by the company activities in following the audit work precisely. There has been a consideration for the management and the council for the mitigation of the risk. The risk assessment areas are the management controls for override and recognition of revenue by the fraudulent activities (Stewart and Crossley, 2015). Other areas that have been focused on the audit are pension deficit and pension triennial. Apart from this, the focused areas are vehicles and new housing stick accounting. this is required by each and every stakeholder to take their decisions. The company has managed to maintain the quality of the material statement and has assumed that users have knowledge of economic activities, business, and accounts.
The audit works are done in the areas of pension deficit and pension triennial, accounting for vehicles and new housing stock, tax, incorporation of the new system of finance. These are the major audit areas of the company. it used to configure the areas which are highly required for the audit based on communication with the others.

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8)Audit engagement and reporting

The engagement with the management on a timely basis is done by the company. communicating with the council is also maintained by the company. Meetings like audit planning are done by the company. control testing and procedures for interim audit is being followed up by the ABC learning.  The company is determined towards this process and is indulged in the continuous communication process with the management. There are meeting with the risk subcommittee and the audit, and meeting with the council and management also take place.  It also aims to achieve a transparent relationship with by the way of being effective (Johnston and Jeffryes, 2017). 

Service quality of the team and continuous communicating are the major processes that is being followed up. There are four major stages that are determined to be followed up under the KCDC approach. The first stage towards this process is increasing the information about KCDC and the risks involved in it. Designing the audit in a manner that is related to the approached auditing activities is the second stage in this process. Apart from this, it is related to design and testing if the operating activities included the IT control. The fourth stage is the entire review of the financial statement by the process of audit differences and deficiencies of internal control. An engagement letter is being used as a reference for the confirmation of engagement terms by the committee. young and Ernst for providing the engagement letter copy is the part of the engagement and reporting of the company. there has been a significant impact of all these activities over the reporting of the company (Payantet al. 2017). The reporting activity has become sounder as it provides an opportunity for the users to extract real and exact information about the financial position of the company.

9) The team

There are several team members who monitor the activities of the audit work of the company. They take control over the starting and completion of the audit work of the company. There have been many involved in this task for the successful completion of the team of the company includes three major people in the audit committee. Marcus Henry is the audit engagement partner. Stuart Mutch is the independent partner and Ahmed Sofe is the manager if the task. Sophie Monteath- the bell is the senior auditor of the company. apart from this, there is specialist involved in the team. The name of the specialists is SabryMacher who is the executive director of the company. he is also involved in the services if the IT advisory. Another name in the list of specialists is Lara Truman. Lara Truman is responsible for technical accounting. it is related to the recording the transactions using the new and advanced techniques of bookkeeping which involves automatic generation of the results for the company. (Helpdesk, 2019)

10) Referencing: Reference list 

  • Book 

  • Cripps, S., 2017. Further Education, Government's Discourse Policy and Practice: Killing a Paradigm Softly: Killing a Paradigm Softly. UK: Routledge.

  •  Journals 

  • DeCourcy, V. and Burkot, C., 2016. Gone Backwards: Findings of the 2016 Australian Aid Transparency Audit. The Development Policy Centre, Canberra, 30 (16), p.21.

  • Hanrahan, P.A.M.E.L.A., 2018. Legal framework governing aspects of the Australian superannuation system. Background Paper, 25(2), p.39

  • Jackson, C., Nicholson, C., Doust, J., O’Donnell, J. and Cheung, L., 2017. Integration, co-ordination and multidisciplinary care in Australia: growth via optimal governance arrangements, 3 (9), p.28.

  • Jackson, S.E. and Douglas, M., 2015. Indigenous engagement in tropical river research in Australia: the TRaCK program. The International Indigenous Policy Journal, 6(2), p.3.

  • Norman, B. and Gurran, N., 2017. Regional Solutions for Multi-level Governance Challenges in Australian Coastal and Climate Change Planning. MULTI-LEVEL GOVERNANCE, 30 (2), p.281.

  • Null, C.H., Adduru, V., Amman, O.C., Cardoza, C.T., Stewart, M.J., Avrekh, I., Matthews, B.L., Holbrook, J.B., Prinzel, L.J. and Smith, B.E., 2019. Human Performance Contributions to Safety in Commercial Aviation,5 (2), p.31

  • Podger, A., 2018. Making ‘accountability for results’ really work?. VALUE FOR MONEY, 9 (2), p.95.

  • Trotman, K.T., Bauer, T.D. and Humphreys, K.A., 2015. Group judgment and decision making in auditing: Past and future research. Accounting, Organizations and Society, 47 (3), pp.56-72.

  • Wood, D., McLeod, M., Viragh, K., Devlin, M., Hill, A., Harvey, A. and Nelson, K., 2017. A comparative study of the equity strategies employed by Australian universities, 3 (21), p.281.

  •  Online articles 

  • Johnston, L.R. and Jeffryes, J., 2017. Steal this idea: a library instructors’ guide to educating students in data management skills, 11(2), pp.11-15.

  • Payant, A., Rozum, B. and Woolcott, L., 2017. Mitigating the Risk: Identifying Strategic University Partnerships for Compliance Tracking of Research Data and Publications, 6(4), pp.21-36.

  • Stewart, J. and Crossley, J., 2015. Library readiness for research data management. ALISS Quarterly, 8(4), pp.13-16.

  • Websites 

  • Helpdesk, (2019), ERNST & YOUNG AUDIT PLAN FOR THE YEAR ENDED 30 JUNE 2016 available at: https://helpdesk.digitalshadowpartners.com/storage/attachment/6/4/1/ASM-Example---EY.pdf, [accessed on 11.06.2019]

  • helpdesk, (2019),Auditing Standard ASA 300 Planning an Audit of a Financial Report, available at: https://helpdesk.digitalshadowpartners.com/storage/attachment/5/8/1/ASA_300_Compiled_2015---Planning-an-Audit-of-a-Financial-Report.pdf, [accessed on 12.06.2019]

  • helpdesk, (2019), ABC Learning Centres Limited –did the annual reports give enough warning? available at:  https://helpdesk.digitalshadowpartners.com/storage/attachment/4/1/1/ABC-Learning-Centres-Ltd---did-the-annual-reports-given-enough-warning.pdf, [accessed on 13.06.2019]

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