Acc6030 Auditing And Assurance Services Assessment Answers
ASA 320 - Materiality in Planning and Performing an Audit
ASA 330 – The Auditor’s Responses to Assessed Risks
ASA 560 - Subsequent Events
ASA 570 - Going Concern
ASA 700 - Forming an Opinion and Reporting on a Financial Report
ASA 705 - Modifications to the Opinion in the Independent Auditor’s Report
ASA 706 – Emphasis of Matter Paragraph and Other Matter Paragraphs in the Independent Auditor’s Report
APES 110-Code of Ethics for Professional Accountants
Answer:
Introduction
The audit of a business is conducted with the intention of ensuring that the financial statement which is prepared by a business is showing accurate view of the financial position of the business. The financial statement of the business is the main source of information about the company which is presented to the investors on the basis of which the investors have to judge how the company is performing (Knechel & Salterio, 2016). Audit is conducted for the benefit of the investors so that the financial information which is presented in the annual reports are accurate and realistic in nature. In others words audit is a vital process which is mandatory in most of the business and also on listed companies. The audit considers certain established standards which acts as a guideline for the process of audit and also ensures that there is transparency and accountability in the process of reporting (Cohen & Simnett, 2014). The standards of auditing are prepared and regulated by International Standard of Auditing Board which covers different aspects and also the consideration which the auditor need to consider before forming an opinion on the annual reports which is prepared by the business (DeFond & Zhang, 2014). In this assessment the business of Mayne Pharma ltd is to be consider from the perspective of audit and also it is to be assessed whether the annual reports comply with the relevant standards of auditing which is applicable to the business.
Mayne Pharma is one of the companies which is engaged in the business of Pharmaceutical companies which is engaged the business of supply of genetic and specialized drug delivery services to pharmacies and also clients. The company is also known for manufacturing and developing drugs for clients on a special delivery basis. The company has a base which are huge in Australia and has facilities such as product development and even clinical trial stage as well gto check out the products of the business.
The assessment considers the annual report of Mayne Pharma for 2018 on the basis of which the 5research is to be conducted. The assessment considers various items which are shown in the annual report of the business and assess such items to ensure that the same are showing true and fair view of the financial information of the business. The assessment considers certain auditing standards which are considered to be significant and are relevant to the business. The assessment would also be including recommendations and findings with relation to the various disclosures provided by Mayne Pharma during the period and how the reporting framework can be further improved.
Methodology
The assessment considers the annual report of Mayne Pharma for the year 2018 and analyze the various treatment and disclosures which are provided and ensure whether the same are shown true and fair view. This section considers various auditing standards on the basis of which the analysis is to be conducted and the same auditing standards also must be relevant and applicable to the business.
ASA 315
As per the provisions of ASA 315, an auditor is required to obtain an appropriate understanding of nature of the business and also the control environment of the business on which the audit is being conducted. As per para 5 of ASA 315, the auditor shall obtain an understanding of the entity’s business and its environment along with the internal control established by the business and also needs to assess the risks which are faced by the business and any possible fraud or errors which can be identified by the auditor. As per para 11 of ASA 315, the following risks assessment procedures are to be followed by the auditor for obtaining an understanding of the entities nature and its internal control
- Enquiries of the management and others in the business to obtain an understanding of the internal control and also the nature of the operations.
- Analytical Procedures
- Observation and Inspection.
In addition to this, the auditor is also required to have an appropriate understanding of different types of risks which are applicable on the business. This is an important standard which the auditor needs to follow in order to assess the risks and nature of the business on which the audit is being conducted.
ASA 320
Another significant standard which needs to be adhered to is ASA 320 which is related to concept of materiality in audit. The concept states that the auditor should consider items which are material in nature and misstatement of the same would affect the financial statement of the business. As per the standard, the auditor needs to determine the materiality of different items which are presented in the annual reports of the business and how misstatement of the same would result in inaccurate presentation of the financial information of the business. The auditor as per this standard is required to set a planning materiality on the basis of which performance materiality for different items presented in the financial statement is to be judged. The materiality of a business determines how much audit procedures is to be applied on a particular item in order to ensure that the sane is free from material misstatement.
ASA 330
The standard is related with the response of the auditor to the assessed risks of the business and the standards states how an auditor should respond to material misstatements of the business. As per para 8 of ASA 330, an auditor shall appropriately respond to material misstatement which is there at reporting level. This is done by the auditor by ensuring that the audit team maintains a level of professional Skeptism and also by ensuring that appropriate skills and expertise is applied by the audit team. As per para 12, the auditor shall design such audit procedures which confirm with nature, timing and extent of the business in response to the assessed risks of the business which is determined by the auditor of the business (Louwers et al., 2015). The auditor as the standard decides to perform substantive and test of control procedures depending upon the nature, timing and extent of the risks which is associated with the items which are presented in the annual reports of the business (Ye & Simunic, 2013). The auditor performs substantive audit procedures in order to reduce the assessed risks of the business to acceptable levels. This standard is important as the standard guides the auditor regarding the audit procedures which are to be undertaken by the auditor during the course of audit.
ASA 560
This standard is related to subsequent events which occur after the balance sheet date of the business. In some cases, the financial statement of the business is affected by events which occur after the reporting date and therefore needs to be considered by the auditor during the course of audit. As per the provisions which are stated in the standard, the auditor would apply appropriate audit procedure for the purpose of collecting sufficient audit evidences for the business for the purpose of forming appropriate audit opinion for the purpose of audit. The auditor needs to take a session with the management regarding any events which might affect the financial statement of the business. The auditor might also decide that the management needs to make appropriate changes in the financial statements depending on the event.
ASA 570
As per this standard, the auditor needs to evaluate the going concern principle of a business during the course of audit in order to ensure that the fundamental principle of going concern is not affected in any way. The standard specifies that the auditor needs to assess the management findings regarding the ability of the business to continue the operation of the business (Xu et al., 2013). The auditor needs to consider the various indicators which suggest that the going concern principle of a business might be affected. In case the going concern principle of a business is affected the auditor needs to report material uncertainty regarding the going concern principle of the business and also include an emphasis of matter paragraph in the annual reports of the business.
ASA 700
The auditor shall also consider the financial statement of the company and also check whether all relevant accounting standards and policies are followed for the purpose of reporting the financial performance of the business. The auditor needs to check whether the management has appropriately followed accounting framework for the purpose of preparation and presentation of the financial statement of the business. The standard makes the auditor responsible for the purpose of forming an opinion on the financial statement whether the same is showing true and fair view or not.
ASA 705
The standards define the various types of audit opinions which the auditor can give an organization in case of material misstatement in the financial statement. In addition to this, the auditor can also issue adverse, qualified and disclaimer of opinion reports in case, there is material misstatement or there is certain restriction on the auditor for the purpose of collecting audit evidences. This provides guidance to the auditor regarding how to form an opinion for the business.
ASA 706
As per this standard, the auditor can include in the auditor’s report an emphasis on matter paragraph or any other paragraph for the purpose of drawing the attention of the users of the financial statements on matters which are significantly important for the users to appropriately interpret the financial information which are included in the annual report of the business.
APES 110
This is a standard on ethics and principles which every professional should follow in a work place environment. The standard specifies that the fundamental ethical standards which every professional should follow in order ensure that the quality of the audit is appropriate so that the financial reports are appropriately presented.
The above standards are useful as they are considered to be the basis on which the whole audit process is to be based on and the same is to be considered as a guideline for the purpose of conducting the audit for the business.
Findings
The findings from the study suggest that the Mayne Pharma complies with the Australian Accounting Standards and the Corporate regulations. With respect to ASA 315 the audit of Mayne Pharma includes the performance process that is created to respond with the risk assessment of material misstatement of the financial report (Baldauf et al., 2015). The results of the audit process include the material estimates to underlying the supporting documentation particularly the sales, settlements and reclassification between the elements of the gross to net sales adjustments.
The company maintains the register of risk and material residual business risk are constantly reported in accordance with the ASA 320 materiality planning that are discussed with the audit and risk committee (Knechel & Salterio, 2016). The auditor’s response on the Mayne Pharma annual report states that the group has capitalized the development expense model and assessed the vital assumptions and methodologies that are used by the group. The audit has assessed the nature and appropriateness of the costs that are incurred have been assessed by the group that are directly attributable to the activities of development relating to the relevant projects.
The findings from the Audit report suggest that the opinion of the financial report does take into the account the other information and would not express any kind of assurance conclusion with the related assurance opinion (Lakis & Masiulevi?ius, 2017). In association with the audit of financial statement, the responsibility of the auditor is to read out the information and take into the account whether the information is materially inconsistent with the financial report and the knowledge obtained during audit.
With respect to the audit responsibility of the auditor the purpose of the audit is to obtain the reasonable assurance regarding financial report as the whole is free from the material misstatement because of the fraud and error and issuing an auditor report that comprises of auditor opinion. The auditor’s assessment suggest that the reasonable assurance is greater of assertion but does not provide the guarantee that the audit is performed in compliance with the Australian Auditing Standards and would regularly detect the material misstatement when it exists (Arens et al., 2015). Misstatement may arise from the fraud or error and are treated as material if individually they can have anticipated to create an influence on the economic decision of the users.
The findings obtained suggest that the auditors at Mayne Pharma exercise the professional judgement and maintain the professional scepticism all through the audit. According to the ASA 705 the auditors has in its key audit matters for Mayne Pharma addressed the contract management system that would generate the underlying source of data (Beck et al., 2016). The modified opinion of auditor suggest that they agree to the sample of singed and contracts that are authorised in detail in managing the system in order to confirm the integrity and the accuracy of the data.
The key audit matters suggest that the auditors have analysed and assessed the actual claims that are made during the earlier period to assess the Mayne Pharma historical accuracy while estimating the gross net sales adjustment (Hayes et al., 2014). This could be considered as the noteworthy area in estimating the procedure that comprises of larger volume of data processing through the system of contract management and it is greatly judgemental as the auditors are focused on the process of disclosing the accounting estimates.
The key audit matter is referred as those matters that in their professional judgement were of greater significance in the audit matters of the financial report during the current year (Louwers et al., 2015). As per the findings of Mayne Pharma the matters that are addressed in context of the audit of financial report as the whole and forming an opinion thereon, the auditors does not offer any separate opinion on these matters. The Mayne Pharma complies with the ethical requirement of the accounting professional and ethical standard of APES 110 that is relevant with the audit of the financial report in Australia. The accompanying financial report of Mayne Pharma complies with the corporation act 2001, that provides the true and fair view of the consolidated financial statement by adhering with the corporation regulation act of 2001.
The key accounting judgements and estimations are provided in the cash flows that is prepared by the group with reference to the available supporting computations and external data together with the revenue growth of Mayne Pharma (Kumar & Sharma, 2015). Based on the findings that is performed above it can be concluded by stating that there prevails a material misstatement of the information and Mayne Pharma is required to report regarding that fact.
Implications of the findings
The implications of the findings suggest that Mayne Pharma possess residual business risks. These risks include the internal product development risks as the product development projects might not be commercialised (Kumar & Mohan, 2018). The nature of business risk is such that the development of the intellectual property and products require longer time and may more expensive than anticipated.
The Mayne Pharma also faces the in-market pricing and competitive intensity risks. The competitive dynamics for Mayne Pharma products become unfavourable and the sales of its products might become adversely impacted by the continuous consolidation of the customer base. The findings from the implications suggest that Mayne Pharma faces new competitors that might enter into the market or increase the market share.
Correspondingly, Mayne Pharma follows the ASX 3rd edition corporate governance principles and recommendations. The implications of such findings is that the recommendations enable the company to include the information regarding the corporate governance statement and board charter (Levy, 2016). The board of directors of Mayne Pharma are responsible to the shareholders to identify the anticipations of the shareholders along with the other regulatory and ethical anticipations that strives to meet those obligations. The corporate governance principles identify the areas of significant business risk and making sure that the arrangements are in place to sufficiently manage those risks. The implications of the corporate governance principles suggest that board makes sure that the strategic alliance are in direction with the company’s establishment goals in managing and monitoring the attainment of the goals.
The directors of Mayne Pharma are subjected to the company’s business code of conduct. The board of directors of Mayne Pharma has created an audit and risk committee that operates under the charter (Hayes et al., 2014). The committee is approved by the board by delegating the responsibilities for the establishment and maintaining the framework of the internal control and ethical standards. The duties and the responsibilities of the audit is to make sure that the appropriate accounting policies and process are defined, maintained and undertaken. The audit and the committee risks makes sure that the operating and the management process of reporting and the internal control system are of greater higher standards to offer the timely, relevant and accurate info as the basis for managing the business of group.
On reviewing the financial statements of Mayne Pharma the implications suggest that audited financial statement reflect a true and fair view prior to presentation to the board. The audit committee and the risk committee of Mayne Pharma ensures that the correct procedure are in place to make sure that all the legal requirements are impacting the group (Knechel & Salterio, 2016). The internal and the industry code of conduct and standards of the corporate behaviour are being complied with the internal audit functions that is specified in timely manner by adhering with the Mayne Pharma committee charter.
The board of directors of the Mayne Pharma is accountable for the company’s corporate governance and it is committed with the adopting the principles of good corporate governance with best practices and appropriate laws. The findings obtained suggest that effective internal control is existent inside the company together with the internal controls in order to deal with the effectiveness and the efficiency of the significant business procedure (Kumar & Sharma, 2015). The effective internal control comprises of protecting the assets, the maintenance of the appropriate accounting records and mitigating the business risks with the reliable financial information.
As per the findings of the implications the corporate governance principles and policies reviews the scope of work together with the approval of the strategic and yearly audit plans as well as the effectiveness of the external and internal audit functions inside the company. The audit committee on a regular basis reviews the organization risk management framework by approving and monitoring the Mayne Pharma risk management strategy. The implications of the findings suggest that the auditors reviews the information that is brought into their attention so that they can determine if there are any matters that can be disclosed and whether any rules for listing is applicable relating to the non-disclosure. The key audit matters provide the professional judgement that are significant in performing the audit of the financial statement for the present year. The findings suggest that the audit matters are addressed in context with the audit of the financial reports as the whole.
Conclusion
The above discussion shows that the management of Mayne Pharma has appropriately presented the financial information in the annual reports of the business for the year 2018. The auditor of the company is Ernest & Young which is one of the big four audit firms and they are of the opinion that the financial statements are showing true and fair view and also the financial statement are prepared appropriately. The annual report of the business shows that the auditors of the business has clearly identified that there are certain key audit matters which can affect the interpretation process by the users of the financial statements of the business. The management of the company has also effectively managed the risks of the business and has appropriately shown all the information of the business. The management can however, improve the disclosure requirements of the business and further improve the financial reporting framework of the business.
Reference
Arens, A. A., Elder, R. J., Beasley, M. S., & Jones, J. (2015). Auditing: The Art and Science of Assurance Engagements. Pearson Canada.
Baldauf, J., Steller, M., & Steckel, R. (2015). The Influence of Audit Risk and Materiality Guidelines on Auditors’ Planning Materiality Assessment. Accounting and Finance Research, 4(4), 97.
Beck, M. J., Glendening, M., & Hogan, C. E. (2016). Financial Statement Disaggregation, Auditor Effort and Financial Reporting Quality. working paper, Michigan State University.
Cohen, J. R., & Simnett, R. (2014). CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), 59-74.
DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2-3), 275-326.
Hayes, R. S., Gortemaker, H., & Wallage, P. (2014). Principles of auditing: an introduction to international standards on auditing. Prentice Hall, Financial Times.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge.
Kumar, E. P., & Mohan, B. (2018). AUDITING STANDARDS AND ADVANTAGES. INDIAN JOURNAL OF APPLIED RESEARCH, 7(6).
Kumar, R., & Sharma, V. (2015). Auditing: Principles and practice. PHI Learning Pvt. Ltd..
Lakis, V., & Masiulevi?ius, A. (2017). ACCEPTABLE AUDIT MATERIALITY FOR USERS OF FINANCIAL STATEMENTS. Journal of Management, 2(31).
Levy, H. B. (2016). Unsolved Problems in Auditing. The CPA Journal, 86(2), 24.
Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services. McGraw-Hill Education.
Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services. McGraw-Hill Education.
Xu, Y., Carson, E., Fargher, N., & Jiang, L. (2013). Responses by Australian auditors to the global financial crisis. Accounting & Finance, 53(1), 301-338.
Ye, M., & Simunic, D. A. (2013). The economics of setting auditing standards. Contemporary Accounting Research, 30(3), 1191-1215.
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