HI6026 Audit Assurance and Compliance Assignment

HI6026 Audit Assurance and Compliance Assignment

HI6026 Audit Assurance and Compliance Assignment


This report is detailed study of all the important aspects in audit, assurance and compliance of any organization. This report is a study of a scenario given in a case study where given an Australian company Bio- sustainable Feeds (BSF) Ltd., which is bio research firm and listed in the Australian Stock Exchange (ASX). There are provided all the transactions and expenses made by company and different programs research and development which are executed by company. Different aspects in the Audit, assurance and compliance program are analysed and evaluated in this report with taking help of scenario of BSF Ltd.

HI6026 Audit Assurance and Compliance Assignment(1) Discuss the steps that you need to consider before accepting to do an audit and apply them to BSF Ltd.

Auditor is an independent person who can select firms and companies to conduct their audit and compliance. To appoint an auditor in a company there are defined some steps to be taken before accepting the proposal of a firm and company to conduct its audit. Auditor considers all these aspects and information before selecting the organisation to be audited (CBC. 2016). The following are procedure which is considered to be followed or considered by auditor.

Process of accepting Audit engagement-  

In this process there are defined different steps and actions which are taken by an Auditor while selecting any firm or organisation to provide its audit and compliance services. There are included six steps in this process which should be considered.

Ability or competence to execute audit

It is analysed that there is required services of consultants and specialists for effectively conduct audit of a company. There should be effective analyses which can define that what the required abilities are should be there in an auditor to audit BSF’s financial statements.

Analyses of Independence of Auditor  

For evaluating auditors independence there should be considered second general standards of GAAS which defines the field work and all the related reporting standards. There are also defined codes of conduct requirements to be considered in which rule 101 should be considered while evaluating the independence of auditors (Lothe, 2013).

Evaluate or determine Auditor’s ability

While selecting any organisation or company for auditing, there should be considered capacity of auditor for due care by auditor. Capability of auditor is important to analyse that he can handle and evaluate all the transaction of the specific organisation or not. There are defined third general standard of generally accepted auditing standards (GAAS) and there are also defined two important factors which should be considered while determining the capacity of auditor which can audit financial statements of BSF Ltd.

Appointment timing- The Auditor should be appointed on early stage in organisation as in it helps in providing more time to plan audit in organisation.
Effective scheduling-appropriate scheduling and audit plan and its effectiveness also defines capability of Auditor to execute audit in efficient manner (Lothe, 2013).

Executing engagement letter

In this step engagement letter is prepared which is a contract between the auditor and client which can be company or firm. This contract includes all the terms and condition on which both the parties agreed. In the given scenario there should be a contract between auditor and BSF Ltd. Terms of engagement letter are as follows.

1. Detail of financial statements to be audited
2. Requirement and expectation of this audit
3. Details of professional and accounting standards which will be followed in the audit
4. Statement which is making it clears that the audit may not detect all the irregularities and errors.
5. Legal duties of accountants to define illegal acts of clients in financial statements
6. Defining role of management for internal control and preparation of financial statements
7. Description of fees and commission going to be charged (Sarker, et. Al 2016)

(2) If the inherent risk of the BSF Ltd. is estimated as 90% and the control risk and detection risk are estimated at, respectively, 5% and 80%, should your audit firm accept the role of doing an audit of BSF Ltd.?

An audit firm should select a company or firm for providing auditing services by considering different aspects and factors which can make it more effective. Risk is one of those factors which must be considered while selecting any company for auditing.

Control risk- Control risk can be defined as internal risk which is emerged due to ineffective management in the organisation and inappropriate financial statements. Control risk emerges by ineffective control in the organisation and its activities of financial accounting and statements which can lead to lack of control in the organisation’s internal activities. Incorrect accounting leads to inherent risk which is a serious concern for the auditing firm while selecting any company or firm. In BSF Ltd., Control risk is estimated as 5% which can make audit process ineffective because of inappropriate and irregular recording and execution of financial statements (Sarker, et. Al 2016).

Inherent risk-Inherent risk is an operational risk which emerges due to or as consequences of inappropriate financial statements and missing of any material information from these statements. This type of risk is high where there is high level of estimation and complex transactions in its activities. In BSF Ltd there exist 90% inherent risk which is a serious concern as in there exist high level of misstatement in company’s financial statements.   

Detection risk- detection risk is the risk or uncertainty which defines the ability and willingness of an auditor to identify inherent and control risk in company’s financial statements. In case assessment of inherent and control risk is effective then there will emerge low detection risk in the organisation. It depends on the capability of auditor to find out all the factors and defaults in financial statements of company. In BSF Ltd there exist 80% detection risk which is defining that there exist ineffective auditing program in company and there are various mistakes and ineffective control over financial statements of company.         

After analysing all these risk factors we can say that there is a huge mistakes and misstatements in the financial statements of BSG Ltd which are not even detecting by auditors as in there are high inherent and detection risk in the company and control risk is limited which can be improved. But overall after considering these risk factors an audit firm should not select accept the role of doing an audit of BSF Ltd (Rust, et al 2011).

(3) List and discuss what should be included in an audit program for the BSF Ltd. Your program should include general coverage plus the specific items covered above.

For making the audit process more effective an auditor adopts strategic management approach in which he makes effective audit plan for overall audit process and it provides a framework to be followed to effectively conduct entire auditing process. Time limits and cost which can be consumed in this process is also decided in this process which helps in making this process time and cost effective. Following are points which should be included in an audit program of BSF Ltd.

Analyses of company-there should be effective analyses of organisation and its activities which is important to identify type of organisation and makes impact on the auditing process. There should be done effective study of BSF Ltd which is a bio-research firm and making its research focusing on the quality of fishes and providing them food from different aspects. Company is executing different projects having different objectives and investments (Rust, et al 2011).

Due diligence of listed company-Auditor should identify that the company is listed on stock exchange or not. There should effective analyses or evaluation done on the appropriateness and completion of all due diligence which are defined for a listed company. BSF Ltd is listed on Australian Stock Exchange (ASX) and should fulfil required regulations and due diligence as in filling of statements, dividend distribution etc.

Details of financial statement-In auditing program there should define detailed information of all the activities and works defined to all the employees in which there are audit of cash book, purchase book and sales book which plays important role in audit program. The financial statements should be managed and collected by auditor of BSF Ltd.   

Segmentation and planning or work-In the planning process of audit there should be proper segmentation of work assigned to assistant and other people in the process of audit. In BSF Ltd there should segmented different works and projects to be audited by auditing team.

Determination of time and budget of audit program-Time and budget should be defined and estimated time and budget for overall budget program or different activities of budget program.

Auditing of patent and other intellectual property-BSF Ltd take patent for its researches which should be audited by the auditor. All the incomes and legal contracts related to this property should be audited in the audit program.

Audit of government grants-BSF Ltd is provided government grants for its research activities and all the activities and transactions which are executed by that grant should be audited to identify effective utilisation of that money (Candia, et. al 2011).

(4) Discuss any concerns the auditor should have for the full set of journal entries of the R&D transactions from 2013 to 2016 (include the grant from CSIRO) and explain your decisions—especially how the CSIRO grant is treated. Remember to check how the R&D costs are allocated between expenses and patent/capital?

Auditor is the independent person who has investigation over all the matters of the financial position of the company. In BFX engaged in developing new aqua-culture to protect the life of fishes and filling all the ingredients in the fish feeds. This is observed that company has developed an effective research and development and also made full capital expenditure to establish a new research program (Chavanne, et. Al., 2016).

Auditor’s concern on all the full set of journal entries of R & D transaction from 2013 o 2016

1. All the entries made in research and development department should be gone through the following checks

2. There should not be random testing and Expenditure made on the research and development department regard with establishment of project should be shown in the capital account and stock loss that occurred in the process development of the patent should be shown separately by doing credit to the purchase account as all the loss to the stock is deducted from the purchase account in systematic manner.

3. Entries posted by authorized person should be verified by the top management department in orderly manner

4. In accordance with the guidelines issued by the International Auditing and Assurance Standards Board there should be complete narration and folio number mentioned in the journal entries posted in accounts

5. Grants received from Commonwealth Scientific and Industrial Research Organization should be put in the separate account and posted in the journal entries with the specific name of the board.

6. Journal entries are the complete set of books dependent upon the transactions therefore Auditor should check proper invoice of all the transaction in orderly manner.

7. Journal entrees of the transactions of research nod development department have various attributes that must be assessed very effectively (Fischer& Leidinger, 2014).

8. Auditor needs to map the individual charts of account which will showcase the relevancy of the amount made in the capital account of the research and development department

9. Grants received from the government should be put in the capital account and auditor needs to check whether amount received is deployed for the particular purpose or not.

10. In the technical feeding of journal entries Enterprises resources functioning should be as per the consolidated system or from the semi-automated general system. 

11. On the data mining of journal entries of transactions auditor could easily establish the relevancy of the particular transactions in orderly manner and how amount of expenditure made in research and development department had link to the project or patent development for the betterment of fish.

12. Auditor needs to establish his report about how all the journal entries are used to prepare financial statement of the company and investigate whether company has control over unauthorized passing entries in the book of account maintained for the research and development department.

13. Auditor must identify indication of management in other phases of the integrated audit system and if any special indication is received then auditor should note down that point in his auditor report for the future references.

14. Auditor needs to check about the references of the transactions  and date of the Grant received from the institution and needs to put complete emphasis upon how  organization make entries in the following manner for recording and keeping records for the future references.

(5) In a triple-bottom line addendum (i.e. addition) to their GPFS, BSF Ltd. describe their research as being socially responsible and environmentally friendly. Are you willing to sign-off on that statement as being true and fair?

Triple bottom line is the accounting frameworks that is used to define the accounting imperativeness in regard with financial accounting, and socially. This accounting frameworks is used to consider the various factors of people plant and profit

Yes I am being ready to sign off this document on the belief that it is true and fair as per my own understanding on the subjective matter

BSF has developed an effective aqua-culture that helps company to come up with effective aqua-culture and that is useful to fulfill all the nutrient needs of the fish’s worldwide that will provide the great impact of life line of the fish throughout the world

BSF is selling its patent or process system to develop aqua-culture  on the basis of some defined it consideration to other required persons therefore this kind of attitude depicts the friendly nature and supporting behavior of the company throughout the time (Sánchez, et, Al., 2015).

This patent and developed aqua-culture eliminates all the issue concerned with fish that will not only provides an enhancement of fish industry but also it will help other organization to generate more profit in significant manner.

BSF is an Australian bio-research firm that helps economy to develop new patent and as engaged research on sustainable aqua-culture feeds for two decades. There consistent effort and creative steps ahead of present knowledge that is useful for the whole society and all the organization engaged in this fish industry.

While deciding any company to be taken for auditing or not, first step is to evaluate and examine management situation or position of a company and the way of managing all its activities and people in the company. Effectiveness of management of organisation makes its impact on the level of audit and its impact. Errors, irregularities, and fraud emerge when there exists dishonesty in management of firm or company and it influences the effectiveness of process of audit and its results. For BSF ltd we will identify the management and its effectiveness as in there exist any irregularities and fraud in activities of organisation.

(6) BSF Ltd. management asserted in a prospectus that the patent values were predicated on BSF Ltd. having exclusive control over the bacteria-based feeds technology. Are you willing to sign-off on that statement as being true and fair?

BSF Ltd included in its prospective that company is having its control over the bacteria- based feeds technology as in it is invented by the company and company is having patent on this invention and it is an intellectual property or asset for the company (Winer, 2015).

Intellectual property-A sovereign state provides a set of exclusive rights to investor of a new method or technology for a limited time period for disclosing his invention in front of world and it also restricts other people to use it without the permission of inventor. It is a type of intellectual property rights. A legal entity can claim for patent on its invention and it will be treated as its property or assets. A patent holder has its legal right on it and he can take decisions for sell or use it.

BSF limited is a bioresearch company and its researches are focused on improvement in the quality of fishes and to provide them food by using different factors. And it is company’s invention to make a technology of bacteria- based feeds. And take patents from government on these technologies. So it is asset for the company which can be included in its prospectus. After analysing the situation we will conclude that we can sign-off on that statement as a true statement that BSF Ltd is having exclusive right on bacteria- based feeds technology as in company have patent on it (Kamau, 2012).     

In the process of auditing risk factor and uncertainty is important to be considered and analysed. As in auditor focuses on identifying all the risk factors and special circumstances which can be arise by number of users of financial statements of company. Negligence of laws and ineffective due diligence in a company can lead to increase in uncertainty in the organisation and also increases risk factors which is important to be considered by auditor (CBC. 2016). Due diligence level of BSF ltd will be analysed by the auditor before approving it.

This report is a detailed study of the process and importance of auditing and compliance in a company. This report defines role of auditor and steps which are important to be considered by an auditor before accepting auditing proposal of a company. While selecting or engaging with a company or firm for auditing there should be considered the factor which defines that auditor is capable of auditing the firm or not and what are the required resources and process for executing audit in organisation (Kamau, 2012). Different operational risks are defined in this report which exists in BSF Ltd and making their impact on hiring an auditing firm. Different aspects of patent and intellectual property rights are defined in the report which is taking place in BSF Ltd.


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