Auditing : Waterco Limited Assessment Answers

Identify various audit risk prevailing in the business enterprise of Waterco Limited?

Answer:

Executive Summary

The main purpose of the assignment is to identify various audit risk prevailing in the business enterprise. Waterco Limited is a public listed company in Australian Stock Exchange. Key findings of the particular assignment include audit risk assessment and planned materiality in an overall manner. In this study, audit risk model is explained with proper justification. It includes control, inherent as well as detection risk for the same. Product offerings of Waterco Limited include water treatment, spa and swimming pool.

Introduction

This particular study deals with company named Waterco Limited. This particular deals its business operations in steel and mining sector. This company has its listings in Australian Stock Exchange. In this study, key information on Waterco Limited is stated with proper justification. Nature and products offerings of Waterco Limited include water treatment, spa treatment, swimming pool and many more (Brigham and Daves 2012). Waterco Limited faces stiff competition from Middlesex Water Company and Ostara. They operate in the same sector and contributes large market share for the same. Audit plan will help the company for understanding various audit risk and make materiality plan for the misstated accounts in an overall manner.

Key Information

Our understanding of the client

Nature of the business

Waterco is an Australian-based public listed company. This particular company operates its business operations in manufacturing as well as distribution:

Industry Competition

Waterco Limited Company faces stiff competition from the nearest competitors. Some of main competitors are as follows:

• Middlesex Water Company
• Ostara
• Cyber-Rain
• Avantech
• APT water

Major customers and suppliers

Waterco Limited Company believes in manufacturing as well as distributing wide range of products especially for the International swimming pool, water treatment as well as spa treatment. Franchisor of Waterco Limited Company includes Swimart, New Zealand and Australia. It has the largest distribution channels for pool of spa retail outlets for providing heating solution in the Australian Dealerships (Cammack 2014). This particular company deals and maintain network with the Watershoppes. This particular store sells extensive range of Waterco products that includes water filters as well as drinking water purifiers for the same.

Waterco Limited Company has achieved success from the pioneering fibreglasses as well as various plastic moulding techniques. These techniques help in the final manufacturing process in an overall manner. This company believes in delivering high quality as well as innovative products at affordable value for 40 countries worldwide (Cummins 2015). Various products of Waterco Limited Company include water treatment equipment and range of swimming pool and chemicals for the same.

Regulations

Waterco Limited Company believes in indulging in appropriate corporate governance for ensuring creation, protection as well as protection of values of shareholders. It maintains as well as ensuring of Waterco management for enhancing highest level of corporate ethics (Guthrie and Pang 2012). It relates with Australian Securities Exchange Limited and corporate governance principles as well as recommendations. This company discloses the corporate governance principles and recommendations for laying the solid foundations in the management system in an overall manner.

Industry risk and entity risks

Waterco Limited Company faces various industry and entity risk that needs urgent attention by the management of the business enterprise. Management design ways in risk management internal control system for managing the business risk in an effective manner (Guthrie and Pang 2013). Audit Committee should engage in viewing at the effectiveness of the risk management system of the company. Identification of risk and reporting to the audit committee will help in immediate course of action. Risk management framework ensures meeting the operational requirements of Waterco Limited Company (He, He and Evans 2012).

Our assessment of significant accounts

Financial Highlights of Waterco Limited

• Net Income

Net Income was distributed among the shareholders in the year 2014. It helps in project development expenses for the proposed plan in Mexico. Waterco Limited needs to exceed in recurring legal expenses for conduction of negotiation for enhancing the retail license in the near future. It needs to check on the net impairment charge for recording of further investment and various earnings on investment in an overall manner. Retail segment of Waterco Limited needs proper attention and recording of further income from operations for the year 2013 and 2014.

• Trade Receivables

Waterco Limited needs to keep check on the trade receivables for smooth functioning of business activities. Sundry debtors help in addressing the current assets and short-term obligations in an overall manner. It fails to address significant matters from the audit report of Waterco Limited Company.

• Trade Payables

Waterco Limited should identify the significant accounts like account payables. It is necessary to reduce in the trade payables for smooth functioning of business organization. Trade payables increased considerably.

Equity is the ownership capital of Waterco Limited. Prepayment and acquisition of equity shares will help the business for attaining future goals as well as objectives. It is identified that issuing unqualified audit report leads to misleading of information from the financial statements of Waterco Limited Company (Laing and Perrin 2014).

• Property, Plant and Equipment

These fixed assets need acquisition by the Waterco Limited for smooth functioning of business activities. Waterco Limited deals its business operations in steel and mining industry. This company needs assistance from the auditors for identifying various risks pertaining in the business enterprise (Kober, Lee and Ng 2013). Some of the issues prevailing in Waterco Limited and inappropriate audit opinions that need urgent consideration.

As far as inherent risk is concerned, it reveals the material misstated especially in the financial statements for the error omission and various factors governing failure to controls. It requires various lapse controls and separation from the related control risk in an overall manner (Lion 2012). Higher inherent risk implies high degree of judgement for estimating in the transactions of Waterco Limited Company. For Instance, Waterco Limited Company involves inherent risk in the significant trade as well as exposure for the various complex derivative instruments in an overall manner. The main objective of auditors is to compare between the operating terms and established manufacturing concern for sustainable competitive environment in an overall manner (Madura 2012).

In case of control risk, Waterco Limited Company needs to evaluate the material misstated reports especially in the financial statements. It mainly arises because of absence as well as failure for the operational activity of an entity in an overall manner. Waterco Limited Company needs sufficient level of internal controls for preventing the detected instances like fraud and error for the same (Malone, Tarca and Wee 2015). High control risk affects the audit entity for proper adequate internal controls for detection of various errors in the financial statements in an overall manner. Control risk assessment helps in preventing segregation of duties prevailing in small sized entity in the most appropriate way (McKinney 2015). It ensures preparation of individuals and necessary technical knowledge for the concept on accounting as well as finance in an overall manner.

Detection risk is one of the audit risks for detecting in the material misstatement especially in the financial statements. It is important to understand the fact that auditors should apply various audit procedures in detecting in the material misstatements for viewing at the errors as well as fraud in Waterco Limited Company (Michalski 2012). Reduction in the detection risk involves increasing in the number of available sampled transactions especially for detailed testing in an overall manner.

Our planning materiality

Financial Reporting Frameworks will discuss the concept on materiality and provides fair presentation for the financial statements.

Calculation on materiality level

0.25% of total revenue

Operating Revenue

= $77.97 million*0.0025

= $ 194,928

Audit Fee= $170000

It is important to consider the fact audit fees are given to the auditor for the financial services. It includes preparation of audit report and maintains the authenticity of financial information of Waterco Limited Company (Stevenson 2012). From the annual report of Waterco Limited Company, It is revealed that various audit risk are identified and needs immediate attention by an external auditors.

Auditors easily proceed with the aspect on inherent as well as control risks pertaining in the audit engagement. It helps in understanding the entity as well as environment of Waterco Limited Company. Detection risk helps in assessing the residual risk prevailing in Waterco Limited Company (Bebbington, Unerman and O'Dwyer 2014.). It is important to understand the fact that assessment of auditors needs urgent attention on inherent as well as control risk prevailing in the business enterprise. It is advisable for keeping low level of detection risk for achieving in the increased sample size in case of audit testing in an overall manner (Brown 2014). Auditors need to show engagement in the inherent and control risks for assessing higher level of risk deduction in the near future.

From the above calculation, it is easy to assess the planning for materiality for misstatements. Discussion materiality concepts include:

• Misstatements mainly include omissions and the various economic decisions for undertaking the financial statements in an overall manner.
• Entire judgement of materiality concepts varies in the surrounding circumstances in affecting in the size of the misstated financial statements in an overall manner.
• Matters are purely based for the users of financial statements for considering the information especially on individual basis and make necessary recommendations for the same.

Application of financial reporting framework provides reference to the auditors for determining in the audit materiality in an overall manner. Materiality relates with the professional judgement and affects perception of an auditor (Datar et al. 2014). Auditor required reasonable knowledge of business as well as economic activities. It implies willingness of an auditor for providing information in the financial statement. Auditors require understanding the financial statements for preparation for the audited levels of materiality in an overall manner (Deegan 2012). Audit Risk Model helps auditors for managing in the overall risk as well as various audit engagement for the same.

Planning of material misstated performance requires establishment of audit strategy by the external auditors. Auditors should determine in the materiality concepts in the financial statements for execution of various transactions in an overall manner (DRURY 2013). Specific circumstances include account balances for the disclosure activities especially in the financial statement of Waterco Limited Company. It includes various economic decisions undertaken by the auditors in dealing the financial information of Waterco Limited Company. Addition to that, auditor needs to evaluate in the level of performance of materiality in assessment of risk and determination of various audit procedures for the same (Edwards 2013).

The main objective of auditors is to revise in the audit statement from time to time. It includes revision of materiality aspect especially in the financial statements of Waterco Limited Company (Kaplan and Atkinson 2015). In order to conduct the audit report, various documentation are required by the auditor. This includes:

Materiality for the financial statements of Waterco Limited Company

Application of materiality for particular transactions that includes account balances as well as disclosures for the same

Performance materiality

Audit Progress

Our assessment of what can go wrong

Auditors of Waterco Limited Company fails to consider various audit procedures. Assessment of risk misstatement is necessary in the financial statement level in an overall manner. Assertion level needs proper consideration by all classes of transactions including account balances and the related procedures for the same (Scott 2014).

In order to mitigate the risk prevailing in Waterco Limited Company, it is necessary for the auditors for identification of risk in the near future (Brigham and Daves 2012). Auditors need to obtain brief understanding of the entity as well as environment for enhancing in the internal controls. It mainly includes various account balances as well as various disclosures in the financial statements in an overall manner (Moyer, McGuigan and Rao 2014). This is in the form of trade receivables and trade payables. There is a significant amount of differences in the given amount.

Assertion level risk went wrong while main implication on operational activities of Waterco Limited Company (Brigham and Ehrhardt 2013). It relates with potential misstatements in relation with the sense of magnitude in the financial statements in an overall manner.

Risks that requires Special Audit Consideration for Waterco Limited Company

• Auditors should identify the risk and determine in the judgement of an auditors in responding with the significant risk in an overall manner.
• Auditors needs to differentiate between risk and fraud activities prevailing in the business activities
• It is required to ascertain risk associated with accounting, economic as well as other developmental activities enquiring special attention by an auditors
• Auditors needs to evaluate with the complexity in the level of transactions
• It is essential to ascertain enhancing various transactions with the relevant parties in an overall manner.
• As far as degree of subjectivity is concerned, it is essential for measuring in the financial information in respect with risk association (. It helps in measuring the uncertainty prevailing in the business enterprise in an overall manner.

Auditors need to evaluate the audit evidence in response with the substantive procedures prevailing in the business enterprise in an overall manner (Cammack 2014). It should permit automated processing for manual intervention and understand the perspective of management of Waterco Limited Company.

In preparing an audit report on the financial statements, it is required to understand the overall objectives of Waterco Limited Company (Michalski 2012). It includes reasonable assurance especially in the financial statements and acts free from the material misstatements in an overall manner. Auditors need to express appropriate opinion and prepare financial reporting framework (Cummins 2015). This will help in communicating the required GAAD and the findings by the auditors in the near future. Audit risk is one of the functions in the material misstatement as well as detection of overall risk prevailing in Waterco Limited (McKinney 2015).

Analytical procedures help in ascertaining in the risk assessment for the material misstated statements. It relates in designing in the assessed risks and including the financial as well as non-financial information of Waterco Limited Company (Guthrie and Pang 2012). It mainly builds cordial relationship between sales as well as selling space in respect to volume of goods sold in an overall manner. It includes identification of unusual transactions and indicating in the audit implications in an overall manner. Unexpected relationships assist an auditor for identification of risks and material misstatements in an overall manner (Guthrie and Pang 2013).

Observation as well as Inspection mainly support the inquiries of management activities and provide information on financial position of Waterco Limited Company. It involves operations f an entity as well as business plans and strategies in an overall manner (Huang and Vlady 2012). Preparation of reports by the management involves meetings with the Board of Directors in the most appropriate way.

Auditors identify information from the prior periods in the final decision-making process. It enhances in the previous experience and various audit procedures. It involves past misstatements and correction on timely manner (Laing and Perrin 2014). Nature of the entity involves various internal control measures and deficiencies prevailing in Waterco Limited Company. It is necessary to conduct discussion among the engagement team for viewing at the financial statements of Waterco Limited Company. It mainly provides an opportunity for experienced engagement team members (Lasher, 2013). It engages in engagement partner and various insights on knowledge on equity in an overall manner. It helps in allowing the engagement team members for exchange of information especially on business risks pertaining in Waterco Limited Company. It helps in assisting engagement team members and gain better understanding of potential material misstatement especially in the financial statements of Waterco Limited Company (Lion 2012). Audit results involve decisions on nature and extent of timing for the audit procedures in an overall manner. Most of the small audits and carries out engagement collaborate in case of sole proprietorships. It considers the financial statements of entity for the material misstatement. Communication plan will help in understanding proper discussion on engagement team members and various factors for the same (Madura, 2012). It requires brief understanding on the entity and its environment. It mainly includes internal control of an entity. Various industry factors of Waterco Limited Company help in understanding the competitive environment, building supplier, and customer relationships in an overall manner. Technological developments help in maintaining regulatory as well as external factors in the most appropriate way (Malone, Tarca and Wee 2015). Market and competition includes demand, price competition as well as capacity for the same.

Conclusion

At the end of the study, it is noticed that Waterco Limited Company faces various audit risk. It is essential for conducting audit report for the next financial year. Audit report will give brief introduction on the financial information of Waterco Limited. This particular company deals with the steel and mining industry in the most appropriate way. This company offers various products and this includes water treatment, pool and spa treatment in an overall manner. This study covers the significant accounts and the planed materiality for the rest of the operational activities of Waterco Limited Company.

Reference List

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