Auditing, Assurance and Compliance Assignment

 

Auditing, Assurance and Compliance Assignment

Management Summary / Abstract / Introduction

From the last two decades, BSF Ltd. has been an ASX Listed research company into the research operations. The company has a plant with capital expenditure of around $360 million and therefore has been investing heavily on its feed research.  This feed research was based on the high value piscavorian fish. But the project failed to be executed and at the same time it failed to thrive. Therefore, efforts were put for working towards conversion of a 30 kg plant into a 1 kg high value fish feed. Further one third of the fish were found to be dead which was strongly disproved by various environmentalists and the CBC (2016). 
The diversion of the human quality food crops directly into the growing fishes was seen to be as critical issue as diversion of low values fishes into the production. This issues was seen to be critical as it affects the well-being of the poor population and in turn proves to be beneficial for the rich ones. (Enduta, A., Jusoh, A., Ali, N., & Wan Nik, W. B., 2011). Due to this issue, the cases of starvation and malnutrition are seen to increase. 
Most of the issues have openly being accepted by the company and now the company is working on the uses of bacteria for the production of fish feeds from recaptured methane gas, sugar cane residues and wood chips. Although the company is believed to have gained some success but the project is coming out to be highly capital intensive. In order to comprehend the same, $160 million AUD in research and $200 million AUD on development cost have been invested by the Company if the Company official reports have to be believed. Furthermore, in order to spend at least $100 million AUD on aquaculture feeds annually, CommonwealthScientific and Industrial Research Organization, Federal Government Australia has granted the organization a whopping $500 million AUD.
In 2013, a total of $500 million AUD investment was done on the research and development department and a further $200 million AUD were committed for the alternate aquaculture feeds development cost.Further it was seen that a market value of patents were expected in the company and generated around $700 million 
Company expects a market value of patent so generated at $700 millionif sold in next two years or $200 million AUD for ten years if produced and sold at a discounting rate of 8%.  

Steps to undertake before accepting to do an audit and apply them to BSF Ltd:

A thorough knowledge of all the business operations must be known by the statutory auditor so as to make sure that all the audit procedures involved in the must be known by him due to knowledge of being in the frame of reference and this would be beneficial in exercising his professional judgement (Cortez and Hay, 2014). This will be beneficial in educating the auditor in various operations like: 
a.    Assessment of all the risks and identification of the problems
b.    Audit should be planned and performed effectively and efficiently
c.    Evaluation of the audit evidence. 
Without the commensurate benefit a lot of time will be taken in order to produce a conventional audit procedure. All the vital parts of the BSF Ltd must be understood by the auditor of the company. The understanding of all the businesses requires that all the promoters and their intention must be clear and in accordance with the business. 
It is the auditor’s responsibility so as to interactwith the operation managers which will be helpful in the working patterns. When all the internal control systems are evaluated it would be helpful for all the auditors to make sure that substantive procedures can be determine along with the nature, extent and its timings. In this particular case, the previous audit reports must be referred regularly. All the ideas and concepts must be referred with the previous auditors which would play a critical role and will be helpful in development of a basic idea regarding all the gaps in the company. 
Inherent risk of BSF estimated at 90%, control risk at 5% and detection risk at 80%, should your audit firm accept the audit assignment of BSF Ltd
The audit risk of any assignment is seen to a multiplicative factor of control risk, inherent risk and the detection risk.  For assessing the inherent risk, a professional judgement must be used by the auditor for evaluation of the many factors like unusual pressure on the management, lowering quality of the accounting systems etc. with respect to the experience of the audits as compared to the audit engagements and all the changes taking place in the since last project. In this organization, there is a need for the auditor to assess all the risks so as to make sure the integrity of the management, managerial personnel and their turnover, experiences and their knowledge along with this the motivational situations in the management are seen to misstate all the financial statement leading to unsatisfactory financial performances. Furthermore the technological upgradation is also prone to the nature of the entity of the business.  It has been estimated that the inherent risk is estimated to be around 90% implying the simple fact that the decision making of the company is not satisfactory in nature and requires a lot of attention. Furthermore various risks are seen to be involved in the top managerial decisions. All these facts have been quite evident from the result of the failure of projects in the 2013 session. Additionally the limitation of the mind set was seen in the company due to making short profits making it one of the biggest set for the organization. All the operations of the company were associated with the control risks. 
With the absence of all the important and vital controls of the entity the quantum of all material misstatements were seen leading to the risk. The case study already stated that the control risks were around 5% implying that assignments done in the second as well as bottom level are done in a reliable manner. All these facts have made it clear that the risks cannot be controlled.  
The risks which cannot be detected by the auditor in the financial statements are termed as detection risks. The detection risks are further increased during the period where voluminous transactions are performed and the auditor is not able to vouch for the bills and supportive.  In the present case, it can be seen that the transactions are being done almost daily making it complicated for all the auditors to rely on the financial statements of whole organization. Therefore the auditors are left with the option of relying on independent auditors or the joint auditor. It is always observed that the detection risks are extremely high and are simply not acceptable in any organization leading to disappointment amongst the stakeholders.  
The assignments must be taken or not depends on the inherent risks but due to various qualifications and the disclaimers the auditors are able to incorporate their audit reports for justifying all the assumed responsibilities.  The auditor has the capability of assuming the company’s responsibility in case he is able to manage the inherent risk therefore we can say that the progress of the company is in accordance with the progress of the auditor leading to high efficiency in decision-making process and the working of the management.  In case of any confusion and the risk of inherent controls the auditor should not accept the assignment. 

List of items to be included in Audit program for BSF Ltd. General Coverage plus specific items

Audit program usually involved the factors like audit documentation, plan, scope of work along with the usage of techniques (Stoel et al, 2012). The BSF Ltd requires Stock Exchange compliances and various other reporting requirements. These compliances and all their files and information need to be verified and reviewed from time to time. Along with this there is a necessity for checking the Memorandum of Association so as to make clear the object clause. In case this object clause is associated with the research and development department there is a need for the auditor to assess the adequacy of the human resource along with their compatibility. Internal control system must be checked on the timely basis along with which all the qualification parameters must be validated and verified. The management needs to identify with the control measure and auditor’s approval on prevention of the leakage of information is highly critical. Therefore the research must be performed with high level of confidentiality and a service level agreement must be documented. ISO audits must be checked for high quality and safety purpose along with checking the safety measures for the employees working in the laboratories. 
Concerns which the Auditor should have for full set of Journal Entries of the Research and Development transactions from 2013 and 2016 including grant from CSIRO. How CSIRO grant should be accounted. Allocation of Research and Development costs between expenses and patents / capital
With a grant of over $500 million AUD from the Commonwealth Safety and Industrial Risk Organization in 2013, there is a need of accounting in a proper manner.  All the important and higher levels risks and problems while accounting, can be solved by the request letter. In case the prime motive of this grant was availing of the capital investment then it must be done for reducing the cost of procuring also. Furthermore, there is a need of a long discussion with the management regarding the deferred benefit of the grant, then this can be taken as an income deferred in the annual accounts. First of all the grant must be added to the reserve in the revenue statements and then later on, in the coming years it can be booked as the income in the same. The revenue items for the organization involve the research expenditure and development expenditure. The research expenditure is to be added in the year of accrual / payment and any expenditure so as to avail benefits in future needs to be amortized as well as capitalized to life. 
In addition to company’s GPFS, describe their research to be socially responsible and environment friendly. Is the statement true and fair?
The company was not able to conduct a better and thorough research for their plant based on the fish feed. Furthermore the failed to take into account all the risks and concerns which were prone to be raised by the CBC and the environmentalists as the research was primarily on profit based. The management failed to understand that the reports had to be sustainable in nature and should have covered almost all the target people and population. Moreover, the policies were not seen to be sustained for long if they were specifically for a target group and it had to be balanced in its manner. All the assignments and projects relating to the environment and the living organisms should be reported with utmost case. The responsibility of the auditor is to focus on the finance part and the activities impacting the revenues. Social acceptance, human beings and environment are not the criteria for which he is responsible. The Director is responsible for taking care of all these things and the auditor is not to be mentioned in these scenarios. The prime responsibility of the auditor is to take care of the risks, revenue leakages and finally to make sure that no material mis-statements are present.  (Limperg, T. ,1985).
The company is finding out various ways for surviving and increasing its revenues like researches on the bacteria based feed for the aquatic life. Furthermore the organization has prepared projections and has been seen to forecast profitability on the execution of this idea. Hence there is a need to patent such innovative ideas. Therefore the promoter is responsible for justifying its work to the stakeholders and the Stock Exchange bodies and auditor is not even included in the scenario. The management has used this prospectus so as to solicit funds from the fund providers in the public. In order to market this product and further to procure fund the idea must be incorporated in at least a 20 sheet page book. This book must be lucrative and should contain all the relevant ideas of the project. The only responsibility of the auditor will be to sign true and accurate financial statements.  
 

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References

Enduta, A., Jusoh, A., Ali, N., & Wan Nik, W. B. (2011). Nutrient removal from aquaculture wastewater by vegetable production in aquaponics recirculation system. Desalination and water treatment, 32(1-3), 422-430..
Cortez, P., & Hay, D. (2014). Privacy Disclosure and Auditing: An Exploratory Study. Available at SSRN 2271871.
Stoel, D., Havelka, D., &Merhout, J. W. (2012). An analysis of attributes that impact information technology audit quality: A study of IT and financial audit practitioners. International Journal of Accounting Information Systems, 13(1), 60-79.
Limperg, T. (1985). The social responsibility of the auditor. Limperg Instituut.

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