Report On Audit Planning And Approach Of Qld Fits

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REPORT ON AUDIT PLANNING AND

APPROACH OF QLD FITS

Report On Audit Planning And Approach Of Qld Fits

Contents

Introduction.........................................................................................................2
Key risks in the company...................................................................................3
Determining materiality......................................................................................4
Risk of material misstatement and impact on materiality and risk.....................5
1. Inherent risk,.................................................................................................6
2. Control risk,..................................................................................................6
3. Detection risk................................................................................................6
Conclusion..........................................................................................................7

Introduction

The following report has been prepared on Qld FITS Company in relation to the audit being

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Report On Audit Planning And Approach Of Qld Fits

performed for the company. The key features of the report highlight the fundamental concepts in
planning an audit and design the audit approach. The description of relating auditing standards
has been provided to the users so that required basic knowledge can be combined and applied to
Qld FITS Company.
Firstly the report highlights the key risks in the company that an auditor will take in
account when having an understanding of the business entity and its operations.The risks
identified then will be discussed in detail to show what impact it has on the financial statements
and planning and materiality of the company.
Along with this the factors which impact on determining the materiality for the audit of the
Company will be discussed and linkage between audit risk and materiality and planning will be
highlighted.
This report promises to develop a better understanding of the company Qld FITS through an
auditors point of view and will provide a comprehensive review over what factors to look upon
to generate a review by the audit partner on the client's company.

Key risks in the company

Firstly when the auditor starts the audit of the company a handful of planning and evaluation
is done upon the company in order to plan and perform audit procedures. This requires an in
depth analysis of the companies key operations and activities and thorough knowledge and
understanding of Company operation is required. Using Auditing Standard ASA 315 Identifying
and Assessing the Risks of Material Misstatement through Understanding the Entity and its
environments 315 (Anon, 2015) requires that the auditor to have a full depth knowledge of the

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Report On Audit Planning And Approach Of Qld Fits

entities operation by :
To identify the business risks linked to financial reporting objectives; (b) to estimate the
impact of the risks; (c) analyzing the likelihood of their occurrence; and (d) deciding on how to
address those risks.
Taking the company Qld FILTS key risk are:

Inherent risk,

business risk,

control risk and

Detection risk.
Firstly the company is not public listed company earlier alongside its the first year of audit

with client and previously it had not been audited .public listed companies are inherently less
risky as shares are available for trade and investors confidence is guaranteed hence from now on
wards company is being listed hence company seems to be inherently risky as previously no
record of being in the market exists and in depth analysis of financial status and concerns will be
required.as previously no audit had been taken place hence makes it more concerning for
auditors to apply procedures and analytics to determine the level of assurance in the company.
Secondly power is not distributed equally in the company Robert and Eunice own the
majority of shareholding in this company and also leather wood group the un distributed power
among-st the shareholders can lead to control risk in the company as risk prevails that there
might be a self-interest threat and proper control procedures are not being applied in the
Company
Robert and Eunice apply a very relax management style and they are depended upon few
people in the company ,adopting a relax management style with less procedure and reviews

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Report On Audit Planning And Approach Of Qld Fits

makes the company mire applicable to fraud hence makes it inherently risky for the auditors and
a control risk prevails on the procedures and way company is being managed.
The accounts Department consist of 3 people and appropriate designation of work is not
being done .Mary designated her work to Kate and gorge she plans to leave the company and
handling and recording of data is done by same personnels this is a high control risk that
prevails can lead to manipulation and fraud in data.
The recent report in environment has highlighted great concern to the environment of great
barrier reef and it is assumed that climate will be distorted by global warming, the management
seems to take no action or planning upon it hence an inherent risk of operating and going
concern issues in the upcoming year prevails for the company and such an impact is to be taken
for upcoming risks that the company is about to face.

Determining materiality
ASA 320 Materiality in Planning and Performing an Audit (Ifac.org, 2015) this is the relevant
auditing standard to define materiality. It states that auditors should have (a) Have a reasonable
knowledge of business and economic activities and accounting and a knowledge to go through
the information in the financial report with care and diligence; (b) gain an understanding of how
the financial report is prepared, presented and audited to levels of materiality; (c)evaluate the
uncertainties present in the measurement of amounts which are based on the use of estimates,
judgment and the upcoming of future events; and (d) Make useful economic decisions on the f
the information available in the financial report.
The main concept of materiality is applied to the auditor both in planning and performing
the audit, and analyzing the impact of identified misstatements on the audit and of unverified
misstatements, In planning the audit, the auditor makes a reasonable judgment about the size of

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misstatements that will be required as material. These judgments provide a basis for: (a)
evaluating the nature, timing and extent of risk assessment procedures; (b) recognizing and
evaluating the risks of material misstatement; and (c) to determine the nature, timing and extent
of further audit procedures.
The materiality (Ifac.org, 2015) usually is not limited to just an amount or figurative value
sometimes the auditor may use his own Judgment and evaluation and use a figure below the
amount set to check for materiality. The auditor's consideration of materiality is purely a matter
of professional judgment and has an impact by his or her perception and takes in account the
needs of a reasonable person who's assurance will be based on the financial statements.

Risk of material misstatement and impact on materiality and risk

The auditor shall analyze and assess the risks of material misstatement of the financial report (b)
check the assertion level for classes of transactions, account balances, and disclosures to provide
a basis for designing and evaluating further audit procedures. An integral part of evaluating the
risk of material misstatement is that the risks identified should be analyzed on priority basis as
ASA 315 determines that (Asic.gov.au, 2015) risks which are highlighted as being significant risks
require special audit consideration and recommendation. It is a matter of analysis as to whether a
risk contributes to an important matters refers to complexity of the transaction, or whether the
risk is a fraud and it requires the evolvement of related parties, and either the transaction is
outside the normal course of business activities.
To check the impact of of risk of material misstatement the auditor can review the
Auditing Standard ASA 330 The Auditor's Responses to Assessed Risks as this Standard uses
and puts light on the requirements and gathers explanatory material reviewing the auditors
responsibility to design and evaluate responses to the assessed risks of material misstatement

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(Felix, Jr., Gramling and Maletta, 2001) in a financial report audit. This Auditing Standard
requires the auditor to: (a) evaluate overall responses to analyze the evaluated risks of material
misstatement at the financial report level; (b) integrate and perform further more audit
procedures to evaluate to the assessed risks of material misstatement at the assertion level; (c)
perform test controls if the auditors assessment of risk verify an expectation that controls are
operating efficiently; and use of substantive procedures are itself are not sufficient appropriate
audit evidence; (d) design and perform substantive procedures for: each material class of
transaction, account balance and disclosure and any highlight the significant risks(f) analyze the
sufficiency and appropriateness of audit evidence obtained; and (g) document certain matters in
respect of procedures analyzed in response to assessed risks. ASA 330 - 5 - AUDITING
Auditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit
The objective of the auditor is to evaluate: (a) The effect of identified misstatements on the audit;
and (b) The effect of uncorrected misstatements, if any, on the financial report.
Risk of material misstatement consists of the following at the assertion level following:

1. Inherent risk,
Which consists of the probability of an assertion to a misstatement, which could be due to
error or fraud, and could be material.

2. Control risk,
Which is the risk that occurs due to the misstatement or fraud that could take place in an
assertion and that could be material, in either being individual or related with other
misstatements. Control risk defines the effectiveness of the design and monitoring of internal
control.

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Report On Audit Planning And Approach Of Qld Fits

3. Detection risk
Is the risk that prevails if the auditor is unable to detect a misstatement that exists and that
could be material, either individually or combined with other classes of transactions?
Detection risk can be affected by (1) the effectiveness of the substantive procedures and (2)
their implementation by the auditor, to ensure that the procedures are being performed with
due professional care.
Looking up in the scenario for Qld FILTS the factors that would impact on risk of material
misstatement and materiality on the audit will be as follow :
Firstly looking upon the relevant auditing standards ASA315,ASA 330,ASA 450 the
above scenario will be taken upon and analyzed by the auditor as real-vant guidelines are listed .
Auditor will analyze the key risk identified and will check upon how many control procedures
will be required to the scenario.
The internal audit function and team analysis of risks and identified and performance will
be evaluated and working paper are to be shared with them.
The auditor will have to determine procedures to evaluate and analyze the control risk and
inherent risk that prevails in the Company and analytic al procedures and valid evaluation and
comparisons are to be done.
The nature and extent of riskiness in the company will determine the level of materiality
to be tested upon the procedures. Inherent risk prevails in the company as it has not been audited
before hence level of materiality set in testing on documents and procedures will be set low so
that extensive testing on procedures could be done.
Secondly the control procedures (Australian Accounting Association, 2015)which appear to
be weak in the company will determine the level of materiality to be set by the auditor. Control
risk prevails because of mishandling and suspect ion of fraud and the power focused on few

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hands.
As previously no audit procedures had been performed hence no history to review for the
trends and fore casted position hence the level of materiality set by auditor for Qld will be the
first time hence will be kept low to minimize risk.
The company in next few years is suspected to be targeted by climatic changes and global
warming hence most probably making area less attractive for tourists hence a going concern risk
prevails for which the Company should record a contingent liability in its financial statements.
Hence if not recorded keeping the materiality level low.
Analysis of the financial statement and material transactions is required to detect and review
the risks which prevail the company and this will determine the level of materiality to be decided
for each class of transactions and balances.

Conclusion
Looking upon the above report will enhance the understanding of the user and audit partner for
the company Qld FILTS and will eventually help in the planning and evaluation of final audit to
take place as it focuses upon key risk and materiality.

References

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Report On Audit Planning And Approach Of Qld Fits

1. Anon, (2015). .
2. Asic.gov.au, (2015). ASIC Home | ASIC - Australian Securities and Investments Commission.
[online] Available at: http://www.asic.gov.au/ [Accessed 2 May 2015].

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3. Iasplus.com, (2015). Conceptual Framework for Financial Reporting 2010. [online]

Available at: http://www.iasplus.com/en/standards/other/framework [Accessed 1 May 2015].
4. Ifac.org,

(2015).

Auditing

&

Assurance

IFAC.

[online]

Available

at:

http://www.ifac.org/auditing-assurance [Accessed 2 May 2015].

5. Felix, Jr., W., Gramling, A. and Maletta, M. (2001). The Contribution of Internal Audit as a
Determinant of External Audit Fees and Factors Influencing This Contribution. Journal of
Accounting Research, 39(3), pp.513-534.
6. Australian Accounting Association, (2015). Inherent Risk and Control Risk Assessments:
Evidence on the Effect of Pervasive and Specific Risk Factors. [online] Available at:
http://aaajournals.org/doi/abs/10.2308/aud.2000.19.2.119 [Accessed 3 May 2015].