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Include a pdf of the Balance Sheet. Income Statement, and Statement of Comprehensive Income for each of the three years. Prepare an excel spreadsheet covering the years from 2021 to 2023 from the figures supplied in the annual reports. Use the formula function within excel to prepare the financial statement and to calculate the trends and relevant ratios. Do your own calculations and show all workings, do not just use ratios that may already be provided in the financial reports.
Auditing assignment
Introduction
The objective of Assessment is to assist students to develop critical analysis skills in relation to
materiality used for the audit, analytical review, audit procedures and forming an opinion.
A marking rubric is provided at the end of this document to assist you with the marking scheme for this
assessment task. The assessment task is broken into two parts:
•
Part A has a maximum length of 1,000 words.
•
Part B has a maximum length of 1,000 words.
(a maximum only of 10% under this limit will be allowed but not exceed 2000 words in total). Please
provide your word count in your document, and do not include references within your word count.
General Information for Assessment
Assume you are part of the audit engagement team for Iluka Resources Ltd company in Australia. The
most recent annual report is the draft annual report for your company.
You are required to answer the following questions in this context.
This must be your own work and if questioned you should be able to explain your answers without
your assignment in front of you. Please read and comply with University’s plagiarism and
academic misconduct guidelines.
Plagiarism is strictly treated.
Importantly, students should be aware that: You cannot submit for assessment content generated by AI.
Referencing requirements: Students must include citations and a reference list using APA 7ed style.
You have been allocated the same individual company for both tasks. 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 (just google the annual report for the relevant year) 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.
Assignment questions on next page
knowledge of the mining industry. He is also concerned about the effect of a proposal to change
the tax on iron ore production from 25 cents to $5 per ton.6 The audit partner is aware of the
requirement of ASA 315.11(a), which states that the auditor shall obtain an understanding of:
Relevant industry, regulatory, and other external factors and the applicable financial reporting
framework.
Required
(a) Prepare a list of all useful sources that you can use to obtain the required knowledge.
(b) Prepare a memo to the audit partner on the ‘state of the mining industry’ and associated risk
factors.
(c) Outline the possible direct effect that the proposed tax increase might have on the audit of
mining companies.
APPENDIX 7A: KEY FINANCIAL RATIOS USED IN
ANALYTICAL PROCEDURES
Users of general purpose financial reports can obtain valuable insights into a company’s financial condition and performance through analysis of key financial ratios. The same analysis performed by auditors
provides them with a better understanding of the entity.
Given that auditors already have some knowledge of the entity from other planning procedures, analytical procedures can play a different role in the audit. Using prior knowledge, auditors can gauge whether
current-year ratios are expected to differ from those in previous years or from industry norms. When
comparisons reveal unexpected fluctuations, or when expected fluctuations do not occur, the auditor will
generally investigate whether the aberration is due to the misstatement of one or more variables used in
calculating the ratio.
This appendix explains the calculation of ten common ratios and their purpose, and how they
are interpreted. The comments on interpretation are general in nature and should be tailored according to a particular entity’s circumstances, such as its recent experience and the industry in which it
operates.
Ratio
Solvency
Quick ratio
Calculation
Purpose and interpretation
(Cash + Accounts receivable +
Current asset investments)
To reveal protection afforded by cash or near-cash
assets to short-term creditors. The larger the ratio, the
greater the liquidity.
Copyright © 2018. Wiley. All rights reserved.
Current ratio
Current liabilities
Total current assets
Total current libilities
To measure the degree to which current liabilities are
covered by current assets. The higher the ratio, the
greater the assurance that current liabilities can be paid
in a timely manner.
Debt to equity
Total liabilities
Shareholders equity
To measure the extent to which a company is using its
debt financing capacity. In general, this ratio should not
exceed 100% because, in such cases, creditors will
have more at stake than owners will.
Times interest
earned
Opening profit before
interest and tax
Interest expense
To measure the number of times a company can meet
its fixed interest charges with earnings.
276
Audit and assurance
Leung, P. (2018). Audit and assurance, 1st edition. Wiley.
Created from ballarat on 2022-03-22 05:58:32.
Ratio
Calculation
Purpose and interpretation
Efficiency
Accounts
receivable
turnover
Sales
Accounts receivable
To measure the number of times receivables are
collected during the period. When used in analytical
procedures, some auditors prefer to use the ending
receivables balance rather than average receivables,
which would make a misstatement more difficult to
detect. A variation, the collection period, is found by
dividing the turnover ratio by 365. This ratio may be
useful in evaluating the adequacy of the allowance for
doubtful debts.
Inventory
turnover
Cost of sales
Inventory
To indicate how rapidly inventory turns over. When using
this calculation in analytical procedures, some auditors
prefer to use the ending inventory balance rather than
average inventories, which would make a misstatement
more difficult to detect. Although the ratio varies widely
among industries, low values may indicate excessively
high inventories and slow-moving items; conversely,
extremely high values may reflect insufficient inventories
to meet customer demand, resulting in lost sales.
Asset turnover
Sales
Total assets
To measure the efficiency with which a company uses
its assets to generate sales. For the reasons noted
previously, some auditors prefer using ending rather
than average assets to calculate this ratio.
Operating profit
Sales
To reveal profits earned per dollar of sales. This ratio
indicates ability to earn satisfactory profits for owners,
as well as the entity’s ability to withstand adverse
conditions such as falling prices, rising costs and
declining sales.
Operating profit
Total assets
To indicate profitability based on total assets available.
Companies efficiently using assets will have a high ratio;
less efficient companies will have a low ratio.
Profitability
Return on sales
Return on
assets
Return on
shareholders’
equity
Operating profit after tax
Ordinary shareholders equity
To reveal management’s ability to earn an adequate
return on capital invested by owners. Generally, a
minimum of 10% is considered desirable to provide
funds for dividends and growth.
Copyright © 2018. Wiley. All rights reserved.
ENDNOTES
1. Richardson, C 2006, ‘Risk: business or audit?’, Student Accountant, September, p. 46.
2. Healy, P & Wahlen, J 1999, ‘A review of the earnings management literature and its implications for standard setting’,
Accounting Horizons, 13(4), pp. 365–83.
3. Dechow, P & Skinner, D 2000, ‘Earnings management: Reconciling the views of accounting academics, practitioners, and
regulators’, Accounting Horizons, 14(2), June, pp. 235–50
4. Association of Certified Fraud Examiners, 2016 Report to the Nations on Occupational Fraud and Abuse, 2016 Global Fraud
Study, www.acfe.com, viewed 28 September 2017.
5. Adapted from Professional Year Programme of the Institute of Chartered Accountants in Australia (ICAA), 1999, Advanced
Audit Module.
6. Chen, D & Mintz, J 2016, ‘Effective tax rates on Australian mining and an evaluation of proposed increases in taxation of
iron ore’, Minerals Council of Australia policy paper, September, www.minerals.org.au, viewed 29 September 2017.
CHAPTER 7 Client evaluation and planning the audit 277
Leung, P. (2018). Audit and assurance, 1st edition. Wiley.
Created from ballarat on 2022-03-22 05:58:32.
Auditing assignment
Introduction
The objective of Assessment is to assist students to develop critical analysis skills in relation to
materiality used for the audit, analytical review, audit procedures and forming an opinion.
A marking rubric is provided at the end of this document to assist you with the marking scheme for this
assessment task. The assessment task is broken into two parts:
•
Part A has a maximum length of 1,000 words.
•
Part B has a maximum length of 1,000 words.
(a maximum only of 10% under this limit will be allowed but not exceed 2000 words in total). Please
provide your word count in your document, and do not include references within your word count.
General Information for Assessment
Assume you are part of the audit engagement team for Iluka Resources Ltd company in Australia. The
most recent annual report is the draft annual report for your company.
You are required to answer the following questions in this context.
This must be your own work and if questioned you should be able to explain your answers without
your assignment in front of you. Please read and comply with University’s plagiarism and
academic misconduct guidelines.
Plagiarism is strictly treated.
Importantly, students should be aware that: You cannot submit for assessment content generated by AI.
Referencing requirements: Students must include citations and a reference list using APA 7ed style.
You have been allocated the same individual company for both tasks. 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 (just google the annual report for the relevant year) 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.
Assignment questions on next page
