ACC300 Auditing and Assurance Major Assignment

PART A

AUDITING AND ASSURANCE

Australia is a worldwide agricultural pioneer, creating high yields under extreme conditions with products kept to an excellent quality, operation and manufacturing standard. The Abundant Produce Limited (APL) slogan is ‘Better growth for Australian Farmers’ (APL, n.d). APL is the only ASX listed hybrid plant breeder in Australia committed to turning world-class agri-science research into professionally useful property rights. ABL reached out to promote change and raise new seeds, increasing tomatoes twice as sweet as generally offered and good-tasting and nutrition vegetables (APL, n.d). APL concentrated on the growth and marketing of latest breeds of high-value food crops with wide focus on selection breeding in order prevent several human diseases through healthy green food (APL, n.d).

Figure 1. APL Businesses

Five important facts about the Abundant Produce Limited, its management and previous auditors

1. Abundant Natural Health (ANH) is one of the prominent business division in the pharmacy sector with diverse range of product offering for pain relief.
2. ANH has used innovative ways to counter the headaches and migraines issues.

• The management of Abundant Seeds (AS) is moving 10 tomato varieties toward commercial production and growth in Australia and overseas.

1. Growth and development of the APL mainly depends upon the quality of its key management personnel.
2. Directors’ report of APL is gratified that the provision of non-audit services are in accordance with the standard format for auditors enforced by the Corporations Act 2001.

Abundant Natural Health (ANH) is one business unit of APL and in the year 2019, it has shown a significant presence in the Australian pharmacy market. In addition, many new products and remarkable offering are rolled out in the niche market to counter the pain and give relief all over the Australia, Asia and the USA. Moreover, ANH has produced an advanced and 100% organic opioid-free nasal spray for the relief of headaches, migraines and related pains and is going to conduct public trials in several different places all around the world. The management of Abundant Seeds (AS), another APL’s business unit, is heading 10 tomato varieties to mass level manufacture with contract cultivators in place, prepared to supply parental tomato seeds, promoting the growth of these newly hybrid tomato seeds to trade in Australia and worldwide. Key management personnel of APL, i.e. APL directors and group managers, are responsible for designing, managing and monitoring the Group’s activities. The Group’s success relies upon the productivity of its key management personnel. Furthermore, it is reported in the report of the Directors of Abundant Produce Limited and Controlled entities that, in compliance with the guidance of the audit committee, the Executive board is convinced that the procurement of non-audit services throughout the year is consistent with the accepted standard of autonomy for auditors laid down by the Corporations Act 2001.

APL’s history on five main aspects of performance and financial position

APL has a diversified financial background. Any company’s financial performance and financial position is evaluated by means of various financial statements. The financial statements are simply summaries of a company’s operating, financing and investment operations. Financial statements can give investors and creditors meaningful information when considering credit, development and other management decisions. APL’s history is review on following five main categories of performance and financial position i.e.

• Income statement.
• Balance sheet.
• Statement of change in equity.
• Statement of cash flow
• Noted (disclosure) to financial statements.

Based on the history of Abundant Produce Limited and its annual reports, it is noted that APL is facing loss while talking about statement of profit and loss. The revenues of the APL have increased in last 5 years but with drastic increased in expenses which generates total comprehensive loss for the APL (ASX, 2020; APL, 2020). Balance sheet, the statement of financial position, and statement of change in equity of APL for last few years shows that there is a fluctuations in terms of assets, liabilities and owners’ equity. The value of APL’s assets decreased from 2016 to 2017, then increased in 2018 and again decreased in 2019. Similarly, liabilities decreased from 2016 to 2017, then increased in 2018 and again decreased in 2019. Owners’ equity also follows the same trend as of assets and liabilities. Statement of cash flow of APL for the last 5 years have shown that cash and cash equivalents have followed the same trend of assets, liabilities and owners’ equity which means cash and cash equivalents are large in year 2016 then decreased in 2017, followed by increased in 2018 and then decreased in 2019. Noted (disclosure) to financial statements is another type of financial tools that tells the details of the financial performance of the any company. Noted (disclosure) to financial statements of APL shown the change in accounting policies, key details of the items used in other financial statements and address the key management personnel remunerations etc.

In terms of business and extension, Abundant Produce Limited is working so progressively but while considering the digits and statistics of APL in terms of financial performance and financial position, company faced some serious issues that need to be resolved in the year 2020 because several items of APL show decreased trend in the year 2019.

Five main matters that are required to be addressed for planning the audit for the year ending 30 June 2020

The whole auditing process can generally be divided into three different phases i.e. audit planning, performing and reporting phase. Here the first phase is under consideration that is planning the audit. In planning an APL audit, auditors need to address a broad set of factors that may affect the financial statements of the APL and resolve those risks immediately in order to perform their duty of care for and depend on users who request it. In the year ended 30 June 20219, Bentleys NSW Audit Pty Ltd was the APL’s Auditor. No doubt, Bentleys done a great job in terms of auditing but still there are some matters that need serious attention. Being a manager of AWC Chartered Accountants, it is my duty to address all the concerns that I feel may occur to APL due to any act of previous auditor or auditing firm. Hence, there are the five main matters that need to be addressed for planning audit of APL for the year ending 30 June 2020:

1. Risk management for material misstatements need to put under considerations.
2. Proper audit procedures designs need to be planned to avoid risk and obtain sufficient appropriate evidence

• Audit costs need to be reasonable

1. Misunderstandings with the APL need to be avoided.
2. Audit procedures need to be

Planning an audit requires more than gaining an understanding of the business and doing risk assessment. Planning is a dynamic process that may grow throughout the audit process, and therefore should play a significant role in the audited entity’s conditions. Moreover, the auditor’s letter generally follows a standard format i.e. generally accepted auditing standards (GAAS) and audit report comprises of three paragraphs. These paragraphs comprises of:

1. the responsibilities of the auditor and directors,
2. the scope based on the standard accounting practices, and

• the opinion of the auditor.

There may be an additional paragraph that focuses on the investors’ need and highlights the details of another specific audit for the investors.

PART B

IT and technology disruptions on financial report audit around the world

The recent technological developments assure distinct advantages for the audit profession, with a number of significant drivers signaling the need for audit technological progress. These drivers provide the dramatic rise in data volume, improvements in business models, the transfer to mechanisation and the need for a proactive with a forward-looking audit method. The audit of the financial statements is an impartial auditor reviewing the financial statements of an individual and related reports. The report by the auditor will complement the financial information when it is released to the recipient. The key recipients are the shareholders and investors, mainly those of publicly traded companies in which the audited financial results are linked to the company’s annual report (Ratnatunga, 2016). In today’s economy, either big shareholder investment groups or common (retail) shareholders, they both rely on the information presented in the audited financial statements to control their holdings. If on the one hand, globalization has increased opportunities for all of us while on the other hand, it also has raised several disruptions and threats for world. Similarly, the auditing and assurance profession has now dealing with several technology and regulatory disruptions and interventions such as:

• Role of blockchain to the disrupt business process and Financial Reporting
• Advanced Continuous Audit
• Increase in volume of data
• Changes in business models
• Shift towards automation

Blockchain is one of the key disruptive technological force in the enterprise system sectors. The blockchain, whose chain core is considered very safe, exhibits numerous concerns about it being used in accounting and auditing. Blockchains used as a chain of auditors to archive audits, transfer audit data or use the natural block closure to obtain data and conduct continuous audit functions (Dai & Vasarhelyi, 2017).

An advanced continuous audit may be considered as a disruptive technology because most of the current external audit providers have not even adopted continuous auditing. Whereas, several internal audit departments are moving in that direction, with the Big 4 companies offering consultancy facilities to them (Cong, Du & Vasarhelyi, 2018).

Technological advancement has increased process speed and results in increasing the volume of business transactions since 2016, and is projected to continue to rise in the future. It is reported that more than 90% of the world’s data have been produced since 2016, and substantial amounts of this are financial data (Marr, 2018). This rapid growth in data volume involves auditors to be configured with the recent technological instruments in their audits to analyze a much larger volume of data than was earlier the case.

Businesses  all over the world faces different technological disruptions that also affects the auditors. Disruptive change needs to be distinguished from innovation and technology, the key to disruption is that it creates innovation in business models, new ways of working in markets and new sources of value. Technology can facilitate disruption but it need not require technological advancements: it can entail merely putting together existing technologies in a creative way. These technological developments in ventures and their business practices entail auditors of any size such as small and medium-sized practices to pay close attention. For instance, startups now appear to have business practices depending on sophisticated technology. Hence, complicated audit challenges could also come from smaller firms.

Following are five main challenges and opportunities these technology and/or regulatory disruptions and interventions has been causing to the main players in audit and assurance profession:

1. The first thing that technology has done is to make system automatic and reduce manual and routine work. This move is speeded up since it has several drivers.
2. The transformation towards cloud-based accounting systems and the associated process standardization created data better and more readily available, easier to carry between structures, easier to influence and analyze, and less subject to manipulation and inconsistency.

• Appetite for ‘human-free’ audit seems to be low. As automation can minimize errors and spot patterns, but this only gives people the opportunity to demonstrate their thinking and reasoning and bring other skills like communication, critical analysis and compassion into practice..

1. Auditors may consider that they are questioned to examine fewer anomalies but these will be the ones that count (Salehi, 2016).
2. It would appear that the auditor’s role as filter, narrator and autonomous demanding voice continues to remain safe and secure.

The role of technological development such as artificial intelligence (AI) and machine learning (ML), blockchain and data analytics has greatly contributed to the changing role of the audit profession, transforming auditing from a reactive and retrospective practice into a proactive, significant source of forward-looking perspectives that can be used all the time, with the auditor as the bookkeeper and translator of the underpinning company’s strictures. Moreover, technology simply enhance the capacity of high quality audits that fulfills the purpose in better way.

References

APL. (n.d) ‘Our company’. Retrieved on [31 January 2020]. Retrieved from https://abundantproduce.com/our-company/

APL. (2020). 2018 annual report of the Abundant Produce Limited. Retrieved from https://abundantproduce.com/wp-content/uploads/2019/01/ABT_Annual_Report_2018-1.pdf

ASX. (2020). 2019 annual report of the Abundant Produce Limited. Retrieved from https://www.asx.com.au/asxpdf/20190830/pdf/4482k7w44d8vvc.pdf

Cong, Y., Du, H., & Vasarhelyi, M. A. (2018). Technological disruption in accounting and auditing.

Dai, J., & Vasarhelyi, M. A. (2017). Toward blockchain-based accounting and assurance. Journal of Information Systems, 31(3), 5-21.

Marr, B. (2018). How much data do we create every day. The Mind-Blowing Stats Everyone Should Read.

Ratnatunga, J. (2016). Applying Disruptive Technologies to Audited Financial Statements. Journal of Applied Management Accounting Research, 14(2), 1.

Salehi, M. (2016). Quantifying Audit Expectation Gap: A New approach to Measuring Expectation Gap. Zagreb International Review of Economics and Business, 19(1), 25–44. doi: 10.1515/zireb-2016-0002.