Purpose:
The aim of this assignment is to provide you with an opportunity to design a “risk- based” audit program for a real-world company and focus on the “Substantive tests of balances”, which involves substantiating the ending balance of an account(s), which is comprised of multiple transactions, as at a certain year-end date.
Assignment Requirements and Structure
Prepare a detailed audit program Report [3,000 words] for the ADVANCED BRAKING TECHNOLOGY LTD. Students must use a Report Format with an Executive Summary and Table of Contents.
1. Gain an understanding of the nature of the entity of ADVANCED BRAKING TECHNOLOGY LTD and then identify key business risks. After this is completed, assess where the risks of material misstatements could be in the financial report. Consider the factors affecting both Inherent Risk and Control Risk. Finally, apply the Audit Risk Model [AR = f (IR, CR, DR)] to the selected company. Which risk rating would you apply (Low, Medium or High) to the company’s inherent risk assessment and control risk assessment? How does this affect your assessment of Detection Risk and Audit Risk?
2. Perform analytical procedures of the Statement of Financial Position and of Financial Performance over the last three years using appropriate ratios and/or metrics. Select four key ratios and provide a brief explanation in the report. This should be presented in a table format.
3. Discuss which account balances are considered “material”. Explain how you calculated materiality for planning purposes and provide appropriate justification for your decision-making.
(Note - Use a table format to structure your answers to questions 5, 6, 7 & 8)
4. Select up to ten different material account balances, at least five assets and five liabilities.
5. For each material account balance selected, list the relevant financial report assertions and explain why the selected assertions are applicable to each account.
6. Design a comprehensive set of audit work steps for each material account balance, which addresses the selected assertions and which will result in sufficient and appropriate audit evidence being collected for your selected client company.
(Assume that a predominantly substantive approach is being adopted)
7. Include a sampling plan, which details how you will use sampling for each material account balance to be tested. How many items will be tested for each test?
8. Refer to some or all of the following websites for further information and research processes: http://www.auasb.gov.au/Home, http://www.asic.gov.au/, www.cpaaustralia.com.au, http://www.ifrs.org,
MARKING CRITERIA marks
Key business risk identification 4
Audit Risk Model – Assessment of Inherent risk, control risk, Detection risk 4
Analytical Review of the selected company, including ratio analysis in a table 4
Material Account Balance Identification (Minimum 5 x Assets and 5 x Liabilities) 10
Assertions identified – Correct Assertions are stated and explanations are noted 4
Audit Program – Audit work steps / procedures are clearly stated and listed. 10
Sampling Plan for each material account balance with samples sizes. 4
Total 40