Assignment of accounting Essay Example

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29Audit Assignment

Auditing Assignment

Executive Summary

For decision makers in organization to make good use of the available information, it is important for such information to be relevant, reliable and accurate to help in enhancing the decision making process. Auditing ensures that there is accuracy, reliable and relevant information provided by accounting information. The company Tassal was opened in 1986 and has expanded and is currently trading in the ASX since 2003. For over the past 25 years of the company operation, it has been able to bring the delicious and some of the most new and sound Tasmanian of the Atlantic salmon from our flawless waters to the table. Tassal B2B is an electronic correspondence channel amongst Tassal and different elements like accomplice or providers. The potential advantages of this program are enhancing general store network deceivabilitym and productivity. This likewise help provider to receipt to Tassal speedier in term of enhancing installment. Different zones of talk incorporate audit review risk and review appraisal technique explained in this paper

Table of Contents

Executive Summary 2

1.0 Introduction 4

2.0 Company Background 5

3.0 Assessment of business risk 5

4.0 Initial analytical procedures 6

4.1 Trend Analysis 6

4.2 The Tassal financial ratio analysis 8

5.0 Audit process and procedure 21

6.0 Internal control process 22

7.0 Audit Strategy 25

8.0 Importance of audit process 26

9.0 Benefits of review technique and procedures 26

10.0 Conclusion 27

Reference 29

1.0 Introduction

With the increase in technology and globalization which has facilitated the expansion of the business activities, the information on business has also increased with equal measure. For decision makers in the organization to make good use of the available information, it is important for such information to be relevant, reliable and accurate to help in enhancing the decision making process. Auditing ensures that there is accuracy, reliable and relevant information provided by accounting information (Bilinelli 2016).

More focus has been given to auditing and assurance on auditing practices in identification of the type of audit risk which can either be intentional or unintentional which will ensure that reliability and credibility of the audited information given by financial statements which are used by various stakeholders for the purpose of decision making process (Holbrook and Brooker 2013). The process of identification and assessing the audit risk is very important for any auditor. The IAASB discuss the content of audit risk and define the term as that particular risk which can be expressed in the form of any inappropriate opinion of financial misstatement recorded in financial statements. The audit risk arouses as a result of misstatement of material fact and the inability of auditors to detect the same misstatement recorded in the financial statement (Lima, Taylor and Cook 2016).

In this report, it presents an analysis of some of the significant audit risk areas which exist within the Tassal group of company. The report aims at identifying the audit risk which the organization may experience. Also, it is currently exposed to, some of the major implication which the risk may cause in the process of identification. In the financial statements and some of the major procedures which are existing in the course of the verification of the risk and some of the techniques which can be used in ensuring accuracy and reliability in the process.

2.0 Company Background

The company Tassal was opened in 1986 and has expanded tremendously since its inception and currently carrying out businesses in stock exchange ASX since 2003. For over the past 25 years of the company operation, it has been able to bring the delicious and some of the freshest water fish like Salmon to delicious food on our table. The company has striven to achieve excellent operation through the production of the quality product, and it always pays much attention to consumer needs having the information assurance. This company has thrived well in ensuring that the product which they are giving their customers.

3.0 Assessment of business risk

Lima, Taylor and Cook (2016) Defines business risk as the probability or the unforeseen uncertainty that may cause loss of profit in the firm. There are several risks which business can be exposed to, and they have several classifications. Holbrook and Brooker (2013) describes audit risk as the probability of the financial statements not reflecting the fair picture of actual transactions in the company. Underlying factors of audit risk are some of the fundamental gateway to understanding the audit risk models. There are several audit risk areas which business are exposed to, and they include the following areas of classifications:-

Inherent risk: — This is the risk which arises as a result of material misstatement of the financial facts and figures as they are presented by accountants in the financial statements balances. This is detected before taking into consideration any control system that is implemented by the management hence showing that the system which has been implemented by the management is not being implemented properly by the management. Inherent audit risk normally presents when a company releases forward looking financial statement both for the internal and external investors which are majorly forward looking financial performance.

Control risk: — This is a risk which results from the material misstatement of facts and figures which are presented in the books of accounts arising from inadequate control and inefficient internal business control. Usually, the internal control system is designed to help and take care of the loss in the business of the unseen damages caused by poor management. The control risk can be easily managed by the auditors and the management in the organization like Tassal limited.

Detection risk: — Unlike inherent and control risk, detection risk is at the point of auditing where an auditor fails to detect material misstatement arising from the inaccurate figures presented in the financial statements. These risk occurs in financial statements due to the fact that the concerned people might ignore or negligence in their part or due to lack of integrity in part of the authority or individuals in power.

4.0 Initial analytical procedures

Before the performance and analysis of the risk like inherent or control risk assessment in the organization, it is important for an auditor to identify some other possible areas of risk. It is important to conduct preliminary analytical audit procedures to help in assessing the major audit risk areas which can be identified in Tassal Limited. The initial study will analyse the ration analysis and the trend analysis of the company.

4.1 Trend Analysis

The first step is to carry out four-year trend analysis of the Tassal limited. Over a given period of time, trend analysis depict how the company is performing and in this case, it is four years. Profitability and efficiency ratio are some of the analysis carried out in this trend and potential risk areas which might exist in the process. The first ratio is the profitability ratio

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Figure 1: Ratio Analysis

From figure 1 above shows trend performance for the past four years that from 2012 to 2015. The trend shows upward movement of the ratios or performance of the company hence need for the audit to focus on the overall performance and whether accounting principles are consistency applied over the period.

Efficiency ratio

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Figure 2: Efficiency ratios

From figure 2 above, it shows efficiency ratio analysis for Tassal limited. For the four years period, the efficiency ratio does not change much hence it is the auditor to identify potential risk in the efficiency ratios and how this can be controlled.

4.2 The Tassal financial ratio analysis

For every business, their aim is to ensure that company makes profit and efficiency are enhanced. A sensible business and mission require active planned and financial organization. Ratio analysis and examination are important for an organization like Tassal for it will improve the understanding of the organization performance. It will in improving the understanding of both the management and investors of financial related issues and examples after some time. The auditors will use both the financial ratios to analysis the materiality and consistency of accounting figures, and this will improve their judgments when writing the audit report.

Return on ordinary shareholders’ fund’s ratio

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From the calculation shareholders average has improved over the four year period the average return on ordinary shareholders funds is 23.265%, and the given variance from 2012 to 2015 is an increase of 13.28% which should be investigated whether there is material misstatement to this effect or not.

Return on capital employed

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From the calculation the return on capital employed is about 37.05% and the given small deviation of 16.18% from the previous year which also gives a wider variance which the auditor must interrogate how this can be reduced and what is a possible effect of the same.

Operating profit margin

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From the calculation, it is noted that the profit margin is give as 19.51% and which shows a change of 8.62% from the previous year. This should be subjected to audit test on the misstatement that might exist in Tassal limited books of account.

Gross profit margin

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From the calculation gross profit margin is given as 13.91% this indicate a change of 5.50% in the overall increase in profit margin.

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The figure above shows upward trend in both the liquidity ratio including current ratio among other ratios which is a good indicator of the overall performance in terms of company. Auditors must pay attention to materiality concept and whether the figures reflect true performance of the company or not. Risk involves in overall increase in gross profit is very high and the statement must be consistent throughout the year.

Current ratio

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From the results current ratio is given as 3.17:1 which indicates a variance of 1.19:1 from 2012 to 2015 as shown in the above calculation.

Acid test ratio

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The average acid ratio is 1.84:1

The variance from 2012 to 2015 is a decrease of 0.14:1

Efficiency ratios

The efficiency ratio shows the performance of the company in terms of inventory and other liquidity ratio. The turnover has improved over the four years period and the accounting for inventor must be audited to ensure consistency in the application of accounting principles over the period.

Average inventories turnover period

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The average inventories turn over period is 82.88 days

The variance from 2012 to 2015 has decreased by 2.70 days

Average settlement period for accounts receivable (debtors)

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The average settlement period for accounts receivable is 13.74 days. The average settlement period has increased from 2012 to 2015 by 0.82 days. The other on is the sales revenue to capital employed which is given by:-

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The average sales revenue on capital employed is 1.90. The variance from 2012 to 2015 is an insignificant decrease of 0.01. However, an increase of 0.05 occurred from 2012 to 2013, followed by a 0.10 decrease from 2013 to 2014. The efficiency ratio graph is shown below:-

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From the inventory management perspective, the Tassal does not have a lot of debt in the books. The debt to asset ratio was 41.7 per cent indicating that should it go under, the assets can be sold to repay the debt. The gearing ratio is also is at 42.43 per cent. However, the interest cover is somewhat high at 11.27 per cent.

Gearing ratio

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The average gearing ratio is 42.43%. The variance from 2012 to 2015 is an increase of 9.50%

Interest cover ratio (times interest earned)

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The average interest cover ratio is 9.84

The variance from 2012 to 2015 is an increase 9.32. The other factor is the investment performance ratios. The company posted high shareholder ratio. The dividend payout was 0.06 per cent with a cover of 2.9 per cent. The dividend yield was 4.7, which outperformed other investment options including the bonds market. The EPS and PE were 0.28 percent and 18.6 per cent respectively. This is another area which can be very much essential when it comes to audit investigation and materiality misstatement for publicly trading company like Tassal Limited.

Dividend per share

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The average dividend is 0.06 per share

The variance from 2012 to 2015 is an increase 0.03

Dividend yield ratio

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The average dividend yield ratio is 3.11%

The variation from 2012 to 2015 is a decrease of 1.30%

  1. Earnings per share

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The average earnings 0.26 per share is

The variance from 2012 to 2015 is an increase of 0.15 per share

  1. Price/earnings ratio

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The average price earnings ratio is 10.31. The variance from 2012 to 2015 is an increase 2.79.
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From the ratio analysis, we can conclude that the company shows a strong financial performance when it comes to the liquidity of the enterprise. The debt ratio is very strong compared with industry ratios. The liquidity ratio regarding inventory turnover also shows a promising trend as the company can convert it stock before the 90 day period. Earnings per share and the return on capital also shows a good trend from the year 2012 to 2015.

5.0 Audit process and procedure.

The starting point here is the main accounts in the inventory section. Checking at the assertions of the existence of the valuation of risk where the inventories were either undervalued or overvalued in the financial statements.

The likelihood of exaggerating inventories to 42% of net resources for fortify the budgetary explanation. The procedure of testing: The first approach is the substantive test to be carried out of the detail with outcome of the test whether it is relevant or not in the audit process.

  • Monitor the inventories and legitimize lapse date by confirming the entries

  • Check payables and other deliverables in the process

  • Should be able to verify the level of physical stock information

Contrast and earlier period data; Conduct proportion investigation. Like stock turnover proportion. Review confirms gathered through a substantive test to check the valuation of the stock. On the off chance that the valuation was not the same as the detailing measurements, the Group expected to improve the stock administration and revalue the inventories.

6.0 Internal control process

Inside controls are the essential part of the business which is incorporated money related techniques, organization strategies, and business prepare. Interior controls affect over the budgetary articulation of organizations that help to improve the exactness of bookkeeping passages, dependable money related and accounting report, guaranteeing the reports are agreeing to the laws and directions, diminishing the danger of accidental mix-ups, deliberate slip-ups, and deceptions. The essential thought of inside control over financial announcing and a territory that can be neglected with the present accentuation on financial revealing extortion and error. As the maker, the Tassal have confronted with the risks from control condition, control action, data and correspondence and observing of control.

Cash control: As the producer Tassal has most organizations get with money, card installment or checks. They have been confronted with the danger of helpless against burglary by deceptive workers. Money control is including gathering system, security, and transport of money receipt which is assurance of money proposed as hostile to burglary avoidance (Bilinelli 2016).

Impact on financial record principle Account: Cash, consumption.

Statement of the occurrence and accuracy

Substantive Test of Detail:

  • Check cash receipt and record area related

  • Check cash step by step report

  • All the checks be expeditiously put away to association money related adjust

  • Check Cash, Sales and step by step stock bargain report

Tassal obliged singular resource methodologies: Tassal set up standards for contracting and progression including establishment examination of all information, also have the focal points for agents, for instance, cash adjust, yearly leave.

Impact on resource report standard Account: Cash, specialist utilization.

Confirmation: Occurrence/Accuracy

Assurance Test of Detail:

  • The doubt of laborer benefits

  • Review sensible and the nature gage for giving expected pay and wage level

  • Test laborer record, yearly leave.

  • Test the enlisting of reward program.

Self-protection arrangement: Tassal protection give specialist remuneration and clear obligation protection benefit for Tassal gathering. Due to in-house benefit, this strategy is driving the hazard for premium rate appraisal which regularly considers numbers, sums, the level of cases happens.

Impact on asset report fundamental Account: Cash, Expenditure, Revenue

Affirmation: Occurrence/Accuracy

Substantive Test of Detail:

  • Premium statistician for premium rate

  • Insurance strategy

  • Future swelling and speculation return

  • Claim happened date

The fundamental Control Activities: Information and Communication

This additionally helps provider to receipt to Tassal quicker in term of enhancing installment. In any case, some components ought to be tended to be the incorporation of innovation in administration’s extortion chance evaluation, successful IT security and controls, the sufficiency of misrepresentation discovery and observing devices, and capacity to examine PC abuse. Asset report key Account: Payable record

Statement: Occurrence/Accuracy

Substantive Test of Detail

Sample test the legitimate exchanges.

Check a convenient premise the exchanges and bookkeeping record

Double check receipt and conveyance docket

Checking of controls: Tassal consistence board oversight of Tassal consistence with organization arrangement and business rehearse directions

The danger of this control is the absence of correcting in new guidelines embraced by the Group, Financial Instruments, and Australian Accounting Standards as changed in

Monetary record fundamental Account: All the record related

Declaration: Occurrence/Accuracy

Substantive Test of Detail:

Sample test exchanges identified with the revising. Check an opportune premise the exchanges and bookkeeping record respects the time compelling of new directions. Check the interior rule of new revised.

7.0 Audit Strategy

A definite review system should be concocted to address the hazard profile of the Tassal and afterward design the review in detail. The sound needs to set the planning and extent of the entire review. Since, Tassal, is a direct to high-hazard level customer, in this manner, no or extremely constrained trial of controls would be performed, and expanded dependence ought to be put on the substantive trial of the record adjusts and the exchanges.

The examiner would pick up a more vital learning about the inside control frameworks of the customer. Point by point substantive testing would be performed for the year-end account adjusts and exchanges directed by the business consistently. An inspector can never depend on the inner controls of the customers, and the review technique would need to direct a few trial of controls on these inside controls.

For each of the recognized risks, the initial step of the reviewer is evaluating whether an inward control would have decreased the probability of a material error or exclusion, which may happen because of that hazard. On the off chance that the customer has compelling controls set up, at that point the reviewer should first test those controls and after that perform substantive testing.

8.0 Importance of audit process

The outer review may utilize the work of the inward inspectors when he would be playing out the trial of controls on the interior controls of the inner examiners. A fortified relationship should be made for a compelling exchange with the inner and the outside. At long last, when the outer evaluator would be playing out the substantive, systematic methods, for example, to decide the cut-off for the business, he would again need to make utilization of the past outside inspector. The present examiner should guarantee that whether the past inspector learns that every one of the incomes and costs is finished and rectify, the use of the gathering bookkeeping approaches is right, and there is adequate exposure of the money related data distributed by the carrier organization.

9.0 Benefits of review technique and procedures

In review handle, review risks can emerge as it is unthinkable for examiners to check every last exchange directed by the business element. All things considered, a hazard based approach is taken while examining the budgetary explanations. Hence, surveying and decreasing review risks are the fundamental worry of the inspectors to lessen it to limit it however much as could reasonably be expected. Reviewers have customarily utilized a hazard based way to deal with a guarantee that a fitting and dependable conclusion is issued in regards to the organization being inspected; also, they utilize for the most part acknowledged strategies to recognize any such issues. Nonetheless, it is important to comprehend that while these traditional methodologies are valuable to call attention to the hazard zones; one needs to tweak it to reach to real purposes of material misquotes. Like this, they need to devise a thorough and best review system by concentrating their consideration on the most critical hazard zones where the odds of error and extortion are doubtless.

The ID of principal risks depends exclusively on the judgment and examination of the inspectors. Also, it is normal that the examiner would practice proficient experience and basic intuition to adjust the review approach according to the need instead of utilizing a traditional approach. This won’t just guarantee a better outcome, however, will likewise prompt recognizable proof of material errors woven in the money related explanations and records (Zarkasi, et al., 2014).

10.0 Conclusion

From the ratio analysis, we can conclude that the company shows a strong financial performance when it comes to the liquidity of the company. The debt ratio is very strong compared with industry ratios. The liquidity ratio in terms of inventory turnover also shows a promising trend as the company is able to convert it stock before the 90 day period. Evaluators have customarily utilized hazard based way to deal with guarantee that a fitting and solid sentiment is issued in regards to the organization being reviewed; in addition, they utilize for the most part acknowledged techniques to recognize any such issues (Arens, et al., 2016). Interior controls affect over the money related articulation of organizations that help to upgrade the exactness of bookkeeping sections, dependable budgetary and bookkeeping report, guaranteeing the reports are agreeing to the laws and directions, decreasing the danger of unexpected missteps, purposeful slip-ups, and deceptions. The essential thought of inner control over financial announcing and a zone that can conceivably be disregarded with the present accentuation on financial detailing misrepresentation and error.


Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance services. Pearson.

Bilinelli, L., 2016. Valuing the use of Corporate Social Responsibility in Australian food industry (Bachelor’s thesis, Università Ca’Foscari Venezia).

Holbrook, N.J. and Brooker, C., 2013. Building Adaptive Capacity to Climate Change: Contributions from Australia’s Marine Adaptation Network 2009-2013.

Lima, P.C., Taylor, R.S. and Cook, M., 2016. Involvement of contractile vacuoles in the osmoregulation process of the marine parasitic amoeba Neoparamoeba perurans. Journal of fish diseases, 39(5), pp.629-633.

William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic approach. McGraw-Hill Education.

Zarkasi, K.Z., Abell, G.C., Taylor, R.S., Neuman, C., Hatje, E., Tamplin, M.L., Katouli, M. and Bowman, J.P., 2014. Pyrosequencing‐based characterization of gastrointestinal bacteria of Atlantic salmon (Salmo salar L.) within a commercial mariculture system. Journal of applied microbiology, 117(1), pp.18-27.