Hi Tutors !!!!! need help with my Auditing assignment.

For question 1, I already attempted part (a) so its just part (b) , (c) & (d) need answers.

For question 2,I want to discuss the options available before starting.

Prescribed textbook and handbook for this question are:

• Gay, G. E. & Simnett, R. (2015). Auditing and assurance services in Australia (6th ed). Roseville: McGraw Hill.
• Handbook: Chartered Accountants Australia and New Zealand. (2016). Auditing, assurance and ethics handbook. Brisbane: John Wiley & Sons Australia. Or Chartered Accountants Australia and New Zealand. (2017). Auditing, assurance and ethics handbook. Brisbane: John Wiley & Sons Australia.

Please use standards as reference in answering the questions where required, especially when coming to a conclusions or forming opinions.

Thanks in advancefor your help.

Question 1 (35 marks) Your firm has just been appointed auditor of Gravel Manufacturing Ltd. and you are planning for your first audit - the year ending 30 June 2016. Gravel Manufacturing is a manufacturer of electronic smoke alarms and electronic security systems and is part of the broader electronics industry. Their operations consist of a head office and factory in the Sydney suburb of Alexandria. They have distribution outlets in each major Australian city and sales agents throughout South East Asia, the UK and USA. There has been a large amount of capital expenditure on the Sydney factory over the past two years. Your research shows that the smoke alarm and security industry is highly volatile and competitive, with heavy discounting by competitors and a prevalence of lower quality products. The industry is also affected by changes in technology, government regulations and health and safety legislation in each of the different areas in which the company operates. In discussions with the Sydney productions manager, Mr Ye, you discover he has a difficult job ascertaining production levels in a volatile market and he is often concerned at inventory fluctuations caused by over or under production of alarm and security systems. Gravel Manufacturing operates a senior management incentive scheme where senior executives are allocated a percentage of net profit after tax. Gravel also has a long term mortgage loan with a foreign bank that requires them to maintain certain financial ratios. Breach of any of the loans will result in the bank calling in the loan within 24 hours. The requirements are that the current asset ratio must be greater that 1.5:1 and the quick asset ratio must be greater than 0.8:1. Income Statement 30/6/2016 30/6/2015 30/6/2014 $(000) $(000) $(000) Sales 27,740 25,280 22,936 Less: Cost of goods sold 20,104 20,800 18,200 Gross Profit 7,636 4,480 4,736 Interest expense 500 260 240 Other expenses 460 1,580 2,040 Profit Before Tax 6,676 2,640 2,456 Income tax expense 1,520 1,100 800 Profit After Tax 5,156 1,540 1,656 Balance Sheet Current Assets Cash 100 0 1,600 Receivables 3,890 2,960 1,920 Inventory 3,720 2,680 1,724 Other assets 1,160 0 0 Total Current Assets 8,870 5,640 5,244 Property Plant & Equipment 5,780 5,200 3,812 Total Assets 14,650 10,840 9,056 Overdraft 0 400 0 Payables 1,910 3,100 3,580 Other Creditors 278 224 100 Provisions 510 1,720 1,520 Total Current Liabilities 2,698 5,444 5,200 Loans 3,000 1,600 1,600 Total liabilities 5,698 7,044 6,800 Net Assets 8,952 3,796 2,256 Issued capital 200 200 200 Retained profits 3,596 2,056 400 Profit/loss for year 5,156 1,540 1,656 Shareholders equity 8,952 3,796 2,256 Non Current Assets Current Liabilities Non Current Liabilities Shareholders Equity Required: a) Calculate the following ratios for 2016, 2015 and 2014: Gross profit ratio Return on total assets Net profit ratio (before tax) Inventory turnover Receivables turnover Current ratio Quick ratio Times interest earned (before tax) Note: assume inventory and receivables balances for 2013 are the same as for 2014 (12 marks) (b) Identify and explain any going concern issues you have identified. (2 marks) (c) Identify the four accounts that you consider most at risk of misstatement. Use the background information, financial statements and analytical results to justify your choices. (12 marks) (d) For the accounts identified in (c) explain if the accounts are likely to be overstated or understated and identify the key assertions that would be the focal point for the audit. Justify your choice of assertion. (9 marks) You can using the following format to present the ratios for part (a) Ratio Ratio Formula 2016 2015 2014 The following table format can be used to answer parts (c) and (d). Account at risk of misstatement and justification Overstated or understated Assertion(s) at Justification risk Answer for Part A Ratio Ratio Formula 2016 2015 2014 Gross profit ratio = Gross profit/Net sales 27.53 17.72 20.65 Return on total assets ratio =Net profit before interest and taxes/total assets 0.49 0.27 0.30 Net profit ratio (before tax) =Net profit/Net sales 0.24 0.10 0.11 Inventory turnover =costs of goods sold/average inventory 6.28 9.45 10.56 Receivables turnover =Net credit sales/Average accounts receivable 8.10 10.36 11.95 Current ratio =current assets/current liabilities 3.29 1.04 1.01 Quick ratio =liquid assets/current liabilities 1.48 0.54 0.68 Times interest earned (before tax) =Net profit before interest and taxes/interest expense 14.35times 11.15 times 11.23 times Marking Criteria Q 1. Appraisal of the client's business environment and application to the audit risk model (LO3) (35 marks) - All analytical calculations completed without flaws. Well supported and coherent explanation regarding going concern and for the identification of four (4) accounts at risk of misstatement. Response demonstrates an insightful understanding of the relationship between analytical procedures, areas of risk and key assertions. Question 2 (15 marks) \"Today the world's largest companies in all sectors and regions disclose their sustainability performance and impacts to some degree. The KPMG Survey of Corporate Responsibility Reporting 2013 concluded that \"Almost all of the world's largest 250 companies report on Corporate Responsibility (CR)\" and that \"Reporting is now the norm across all these sectors, with at least 62% of companies in every sector producing a (CR) report\" Source: (Global Reporting Initiative, 2015, Sustainability and Reporting Trends in 2025 - Preparing for the Future) https://www.globalreporting.org/resourcelibrary/Sustainability-and-Reporting-Trends-in-20251.pdf Required: Conduct an internet search for one (1) ASX listed company that issues a sustainability report and: (a) provide a summary of the structure and contents of the company's disclosures, including the guidelines used by the company in preparing their report. (4 marks) (b) indicate if the report has been audited or reviewed by an auditor and the type of assurance they have provided. (3 marks) (c) Identify four (4) areas in addition to sustainability reporting where auditors now provide assurance. (4 marks) (d) Briefly describe two (2) of the areas identified in c) and the auditors role in these areas. Include any issues or difficulties faced by the auditor in your response. (4 marks) Marking Criteria Q2. Appraisal of the expanded role of auditors into providing assurance for sustainability statements (LO1, LO5) (15 marks) - The components of the sustainability statements for the selected Australian company separately identified and succinctly summarised with a very clear articulation of concepts and link to relative guidelines used by the company in preparing the report. The type of audit opinion provided is correctly identified. Four additional areas where auditors provide assurance correctly identified. Description of roles and identification of issues indicates insightful understanding of the expanding nature of assurance services. Evaluating going concern b. All the companies prepare their financial statements with the assumption that the business will remain a going concern. The company is expected to continue to generate a positive return on the assets of the company and that the company will continue to meet its maturing obligations. However there are times that conditions put the assumption into question. The going concern issues include the use of huge capital expenditure for the past two years. The company seems to invest a lot in the operations of the company and the results are not that significant. The other going concern issue is the inventory fluctuation in the company. This means that the company's going concern is at risk because the company may not be able to make more revenue. c. Account at risk of Overstated misstatement and understated justification Inventory Overstated Cost of goods sold. Property equipment Payables d. overstated and Overstated Overstated or Assertions at risk Justification Continued increase The company in the inventory management raised an alarm on the fluctuations in inventory Getting the real The company production levels management cannot ascertain the levels of production Investing too much It can risk being in property and overstated because equipment the management may overstate the amount to cover up losses. Overstating so that The company the liabilities management might amount seem unpaid misstate the to the debtors amounts of accounts payables so that the net assets of the company will be reduced. Account at risk of Overstated misstatement and understated justification Inventory Overstated Cost of goods sold. Property equipment Payables overstated and Overstated Overstated or Assertions at risk Justification Continued increase The company in the inventory management raised an alarm on the fluctuations in inventory Getting the real The company production levels management cannot ascertain the levels of production Investing too much It can risk being in property and overstated because equipment the management may overstate the amount to cover up losses. Overstating so that The company the liabilities management might amount seem unpaid misstate the to the debtors amounts of accounts payables so that the net assets of the company will be reduced. Question two a. The company is the Vocus Group limited. The sustainability report was prepared to review the performance of the company from 1 July 2015 to June 30 2016. The report was prepared in accordance with the Care option of the global reporting initiative's G4 Sustainability Reporting Guidelines. The contents of the report touch on the environment, social labor practices, social product responsibility and economics reports. The environmental sustainability report touches on energy consumption, products and services and transport. The social labor practices included employment reports, labor/management relations, workplace health and safety, and training and education. Social product responsibility includes customer satisfaction, marketing communications and customer privacy. b. The sustainability report produced by Vocus Group limited was not audited by the auditors c. The other areas that the auditor can provide assurance in corporate social responsibility report, financial statements, sustainability reports and the corporate governance report. d. Financial statements need to be ascertaining if the reports represents the true picture of the company financial position. The auditors may get difficulties in identifying the true representation of the amounts in the accounts. The auditors may not get the required cooperation with the management of the company. Sustainability report presents difficulties to the auditor. This is because there are no specific guidelines and standards that the auditor is required to adhere to when carrying audit report on the company. References http://vocusgroup.com.au/media/1064/2016-sustainability-report.pdf Langer, M. (n.d.). Comparability of Sustainability Reports. A Comparative Content Analysis of Austrian Sustainability Reports. Sustainability Accounting and Reporting, 581602. doi:10.1007/978-1-4020-4974-3_26 United States, & United States. (2011). Management advisory comments identified in the engagement to audit the consolidated financial statements for the year ended September 30, 2010