Auditing and Ethics Assignment - Auditing Report

You must submit your work on MS Word document. The report is to have a maximum length of 2,000 words.

You have been allocated an individual company for your assignment. You MUST only use the annual report of the company that you have been allocated. You can find the annual report online on either the company’s website or the ASX website at:

https://www.asx.com.au/asx/research/listedCompanies.do 

Click on the company code you have been allocated. You should use the group annual report.

The allocated company is Bluescope steel Ltd(BSL).

Assignment Questions

There are three sections to this assignment. Each section is worth 10 marks. Each section includes a component for communication skills. Communication with clients is an imperative necessity for auditors and excellent writing skills are expected from professional accountants, therefore please write your answers carefully and clearly. You will lose marks for poor presentation, spelling mistakes or grammatical errors. 

SECTION 1

Section 1 - Part A

Determine the level of materiality to be used for the audit of the group accounts for the year ending in 2021. Your answer should include a discussion of the nature of materiality, and a description of what materiality represents in terms of the audit of a set of financial statements and should discuss the different bases and considerations employed in arriving at materiality. Explain the rationale behind your choice of a certain level of materiality. You must also provide a quantitative estimate of materiality for your company.

Some Guidance to help answer Section 1 - Part A

This part asks you to define and discuss the use of materiality in auditing. Please refer to Chapter 7 of the text and Lecture 5 (and 9). You are pretending to be the auditor of your designated company. The materiality figure has to be set by you as a dollar amount. It is not in the Auditor's Report. You have to justify why you set this amount.

Section 1 - Part B

Review the various draft notes and disclosures accompanying the draft annual report. Highlight at least 3 disclosures that may have significance to the audit, e.g., Contingencies, and outline the audit procedures that you will need to perform.

Some Guidance to help answer Section 1 - Part B

Review the notes of the company, looking for interesting issues that may require the auditor to examine carefully. Contingencies (Chapter 17, Lecture 11), related parties, subsequent events, valuation issues, are good examples of what might be interesting issues. Explain the auditor's responsibilities in relation to these issues, and how can these responsibilities be addressed.

SECTION 2

Section 2 – Part A

The partner has requested you to prepare a preliminary analytical review on the information provided by your company. The partner suggests that, as a minimum, you address key balance sheet and profit and loss horizontal analysis, vertical analysis and ratios over the period 2018 to 2021. Based on these results and the nature of your company’s business and its markets, outline the apparent trends and changes in these ratios, the key risk areas for the audit and the matters that will have to be addressed in the audit plan. Give examples of relevant assertions and at least one audit procedure for each assertion.

Some Guidance to help answer Section 2

Do your own calculations and show all workings, do not just use ratios that may be provided in the financial reports.

This question is not just about calculations of comparative horizontal and vertical analyses, and ratios. Interpretation is required. What are the trends? Are these positive or negative from a financial management perspective? Are any movements consistent with the over-statement of profit and assets, or the under-statement of expense and liabilities? Summarise the main risks. What audit objectives (e.g. occurrence/existence) are relevant? What audit procedures are useful? Refer to Lecture 7.

SECTION 3

Section 3 – Part A

Review the statement of cash flows. Which category of cash flows provided the majority of cash inflows? Which category had the greatest outflows? Identify the primary cash receipts and cash payments during the year. What were the main non-cash financial and investing activities?  Using the results of your review of the cash flows, analytical review and other public information, evaluate the going concern risk of this company. What audit procedures would you recommend to address any such risk?

Some Guidance to help answer Section 3 - Part A

The first part of Section 3- Part A  can be obtained from the cash flow statement.

The second part of Section 3 – Part A wants you to consider if the company is trending towards problems with short-term or long-term solvency? Is operating cash flows positive? Is the company investing in its non-current assets? What does your analytic review tell you about the company's prospects? Is anything else impacting on the company (COVID?)? See Chapter 18 of the text on the auditor's responsibilities (e.g. mitigating factors, management plans).

Section 3 – Part B

Now review the audit report of the 2021 financial report. State what type of opinion was expressed? Are there any additional sections or paragraphs indicating any audit issues? What key audit matters have been addressed and how? Describe the nature of these issues in detail.

Some Guidance to help answer Section 3 - Part B

Section 3 – Part B can be answered by referring to the Auditor's Report.