MAA705 Corporate Auditing
Trimester 1 2020
Written Assignment
DUE DATE AND TIME: 8pm AEST 1 May 2020]
PERCENTAGE OF FINAL GRADE: 35%
Learning Outcome Details
Unit Learning Outcome (ULO) Graduate Learning Outcome (GLO)
ULO 1 Demonstrate knowledge of theories and regulation regarding audit and assurance services of both a financial and non-financial nature. 1
ULO 3: Evaluate appropriate audit and assurance procedures
and responses that should be applied to different contemporary business scenarios. 5
ULO4: Use professional and ethical judgment in applying relevant legal and professional pronouncements to all stages of a given assurance engagement 8
ULO5: Communicate and justify accounting and auditing ideas in contexts involving both accountants and nonaccountants. 2
Assessment Feedback:
Students who submit their work by the due date will receive their marks and feedback on CloudDeakin by 21 May 2020.
Description / Requirements
Part A (15 marks)
Part A requires you to research and form an opinion on a contemporary auditing issue.
Background
At present, the Australian Auditing Standards are mandated for all audits conducted under the Corporations Act (2001). The standards are a “one size fits all”. Recently, in many jurisdictions, there has been discussion on the value of applying the Auditing Standards in small and non-complex entity audits.
Required:
Write a Business Report addressed to the Australian Auditing Standards Board in which you:
• List the types of companies currently subject to an audit which require compliance with the
Australian Auditing Standards under the Corporations Act (2001)
• Discuss two advantages to society of all company audits being subject to the one set of Auditing Standards
• Discuss two disadvantages to society of all company audits being subject to the one set of
Auditing Standards
• Conclude by stating your informed opinion on whether all company audits should be subject to the one set of Australian Auditing Standards or whether a differential set of Auditing Standards should be prepared for use on audits of small and non-complex audits. Justify your argument by referring to evidence sourced from relevant academic and professional articles.
You must submit a properly referenced report that complies with Harvard referencing style.
Part A of your assignment is addressed to the Australian Auditing Standards Board, therefore it must be written in a professional tone.
Suggested words for Part A: 1,500 words
Part B (20 marks)
This task requires you to complete many of the audit procedures undertaken by the audit team in the planning stage of the audit. Your response to Part B will be marked by an audit practitioner from one of the Big 4 audit firms.
Required:
Based on the 30 June 2020 unaudited draft financial reports for Contessotto Agriculture Limited (attached in the appendix) prepare a planning memorandum for the audit partner which includes the following:
a. Identification of four (4) major business risks of the company and an explanation of why each factor identified is a risk to the business.
b. Results of analytical procedures. (Please include your workings in an appendix). You should prepare a horizontal analysis, a vertical analysis and calculate key ratios. Identify and explain which changes in the horizontal and vertical analyses and which ratio results would trigger further investigation in the audit.
c. Your identification and explanation of four (4) inherent risks that you identify from the business risks (part a) and analytical procedures (part b). (Note: inherent risks relate to risks to the financial statements). Four inherent risks in total are required.
d. Identification of the key account and the key related assertion at risk of material misstatement based on each of the inherent risks you identify in part (c). (Identify only the most relevant assertion, do not identify more than one).
e. An assessment of the overall inherent risk including an explanation of the factors that lead to this assessment.
f. Planning materiality in a $ amount. You must include a breakdown of your calculation and a justification of your choice of base, the percentage used and your assessment of detection risk.
Assume control risk is high. 4 marks
(12 + 20 + 12 + 8 + 4 + 4 = 60 marks which will be converted to a mark out of 20)
Suggested words Part B: 2,000 words. The calculation of the analytical procedures is not included in the word count.
Part B of your assignment is a planning memorandum for the audit partner and should be written in the appropriate format (refer to the pro forma in the assignment folder).
Appendix Financial Statements for Contessotto Agriculture Limited
Management Note:
Contessotto Agriculture Limited owns and operates two pastoral properties on which it breeds cattle and processes beef which is sold locally and internationally.
The company has an excellent quality reputation which is critical to success in international markets. The international market is competitive with beef from the U.S. offered at lower prices to the market than Australian beef due to government subsidies.
The financial year ended 30 June was a very challenging one. There was a severe drought across both properties that significantly affected the company’s ability to produce sufficient feed for its cattle. Dams on the properties dried up and water had to be purchased for stock use. As the drought across Australia continued, the cost of feed increased significantly. The company chose to significantly reduce its head of cattle in an effort to reduce feed and water costs. As stock numbers fell, the company retrenched a number of employees. In addition, due to the reduced work load all staff were required to take their annual leave during the year. This has significantly reduced the leave provisions outstanding at yearend. Building up the stock levels again will be challenging given the number of farmers who will need to increase stock levels.
As a result of the drought, the value of the properties fell, resulting in the company recognising an impairment expense. The properties are also at risk of bushfires given the dry conditions. Fortunately the company was not impacted by the recent bushfires.
During the year the Australian dollar fell against most foreign currencies. This had minimal impact on the financial statements as the company hedges all foreign currency transactions.
Subsequent event:
The drought broke in July 2020 with the onset of heavy rain. The properties received the equivalent of 6 months of normal rainfall on one day in early July. While the rain was welcome, it was extremely heavy and washed away the top soil on the feed pastures. This will reduce the ability of the land to produce high quality feed throughout the 2021 financial year. From early July 2020, there has been steady and normal rainfall.
Remuneration:
The Directors and CEO receive a fixed full time salary plus bonuses based on the company’s earnings per share.
Contessotto Agriculture Limited
Statement of Comprehensive Income for the year ended 30 June 2020
unaudited audited audited
2020 2019 2018
$ $ $
Revenue from sales of goods 12,689,125 15,689,256 14,985,678
Cost of goods sold - 8,697,852 - 10,236,578 - 9,356,874
Operating gross profit 3,991,273 5,452,678 5,628,804
Other income 12,600 14,500 13,256
Selling expenses - 1,365,987 - 1,456,896 - 1,402,000
Administration expenses - 658,963 - 547,896 - 525,047
Impairment of property, plant and equipment - 3,300,000 - -
Earnings before interest and tax - 1,321,077 3,462,386 3,715,013
Finance revenue - 102,147 145,600
Finance costs - 356,000 - 250,000 - 225,000
Net finance costs - 356,000 - 147,853 - 79,400
Profit before income tax - 1,677,077 3,314,533 3,635,613
Income tax expense - - 994,360 - 1,090,684
Profit for the period attributable to owners of
Contessotto Agriculture Limited - 1,677,077 2,320,173 2,544,929

Dividends paid 1,200,000 1,041,943 1,102,569
Number of employees at yearend 46 103 99
Earnings per share -$1.68 $2.32 $2.54
Contessotto Agriculture Company
Statement of Financial Position as at 30 June 2020
unaudited audited audited
2020 2019 2018
$ $ $
ASSETS
Current assets
Cash and cash equivalents 1,425,987 896,456 789,587
Trade and other receivable and prepayments 2,325,698 1,689,759 1,547,896
Inventories 6,256,325 9,245,931 9,847,569
Total current assets 10,008,010 11,832,146 12,185,052
Non-current assets
Propery, plant and equipment 19,836,789 22,698,574 21,247,986
Intangible assets 800,000 800,000 800,000
Deferred tax assets - 154,789 169,854
Derivative financial instruments 35,000 32,458 32,645
Other non-current assets 12,569 15,879 12,578
Total non-current assets 20,684,358 23,701,700 22,263,063
Total Assets 30,692,368 35,533,846 34,448,115
LIABILITIES
Current liabilities
Trade and other payables 25,983 132,587 147,892
Provisions 32,698 458,789 658,923
Current tax liabilities - 1,025,697 1,012,569
Derivative financial instruments 10,256 12,589 18,549
Other liabilites 14,256 18,965 14,759
Total current liabilities 83,193 1,648,627 1,852,692
Non-current liabilites
Borrowings 8,845,631 9,235,698 9,435,698
Provisions 123,698 132,598 145,788
Total non-current liabilities 8,969,329 9,368,296 9,581,486
Total Liabilites 9,052,522 11,016,923 11,434,178
Net Assets 21,639,846 24,516,923 23,013,937
EQUITY
Contributed capital 5,000,000 5,000,000 5,000,000
Retained Earnings 13,639,846 16,516,923 15,013,937
Reserves 3,000,000 3,000,000 3,000,000
Total equity 21,639,846 24,516,923 23,013,937

Submission Instructions
This assessment task consists of two parts. Each part is to be submitted to separate Dropboxes.
You must keep a backup copy of every assignment you submit, until the marked assignment has been returned to you. In the unlikely event that one of your assignments is misplaced, you will need to submit your backup copy.
Any work you submit may be checked by electronic or other means for the purposes of detecting collusion and/or plagiarism.
When you submit an assignment through your CloudDeakin unit site, you will receive an email to your Deakin email address confirming that it has been submitted. You should check that you can see your assignment in the Submissions view of the Assignment dropbox folder after upload, and check for, and keep, the email receipt for the submission.
Notes
• Penalties for late submission: The following marking penalties will apply if you submit an assessment task after the due date without an approved extension: 5% will be deducted from available marks for each day up to five days, and work that is submitted more than five days after the due date will not be marked. You will receive 0% for the task. 'Day' means working day for paper submissions and calendar day for electronic submissions. The Unit Chair may refuse to accept a late submission where it is unreasonable or impracticable to assess the task after the due date.
• For more information about academic misconduct, special consideration, extensions, and assessment feedback, please refer to the document Your rights and responsibilities as a student in this Unit in the first folder next to the Unit Guide of the Resources area in the CloudDeakin unit site.