re write this: 

 

 

Executive Summary: This report evaluates Calix Limited, a leading firm in environmental solutions, focusing on the potential for an audit engagement. The assessment includes financial trends, risk analysis, and a comparative industry overview using data from Appendices I through V.

Company Overview and Industry Comparison: Calix Limited specializes in advanced carbon capture technology and energy solutions, distinguishing itself with significant investments in sustainability projects. The company has shown robust revenue growth, from AUD 41.7 million in 2018 to AUD 203.6 million in 2023, outpacing many peers in the environmental solutions sector. However, this growth has been accompanied by increased debt and operational expenses, reflecting its aggressive expansion strategy. The broader industry is experiencing a surge in technology-driven investments, supported by governmental policies promoting environmental sustainability. Compared to its peers, Calix Limited is well-positioned in terms of innovation but faces higher financial risks due to its rapid scale-up and capital expenditures.

Risk Assessment Analysis (Appendix IV):

• Dividend Inconsistency: The recent omission of dividend payments could indicate underlying cash flow issues, affecting the assertion of accuracy in financial statements.
• International Market Expansion: This exposes the company to foreign currency and compliance risks, impacting the completeness and valuation assertions in financial reporting.
• Government Grant Dependency: High reliance on grants necessitates rigorous verification of compliance and cutoff assertions, ensuring all conditions for revenue recognition are met.
• Technology Scalability Risks: With rapid technological investments, the valuation and existence of intangible assets become critical areas requiring detailed audit focus.

Analytical Procedures (Appendix V): The financial analysis reveals a growing reliance on debt, with the debt-to-equity ratio slightly increasing. The profit margins are under pressure, indicating potential inefficiencies or increased costs that could impact profitability. These trends necessitate a focused audit on the assertions of existence and valuation of assets and obligations. Graphs and plots from Tableau (to be attached in the final appendix) show trends in revenue growth, profitability metrics, and debt levels, providing a visual understanding of financial health and areas of concern.

Comparative Summary: Compared to other companies analyzed by the audit team, Calix Limited exhibits stronger growth but also higher operational and financial risks. The company's innovative edge in technology positions it favorably for future opportunities, yet the financial strategy requires careful monitoring and management.

Recommendations:

1. Accept Calix Limited as a Client: The firm's innovative market position and growth potential make it a valuable client. However, the engagement should come with a higher audit fee to account for additional risks and the in-depth procedures required.
2. Focused Audit Areas: Given the financial complexities and expansion risks, the audit should specifically focus on revenue recognition, compliance with grant conditions, and the valuation of newly acquired intangible assets.
3. Ongoing Monitoring: Recommend establishing a framework for continuous monitoring of the company's financial health and compliance, especially concerning its international operations and technological investments.

Conclusion: Calix Limited presents a promising but challenging audit prospect. While its financial growth and strategic market position are impressive, the associated risks require an audit approach that is both rigorous and adaptable. The firm's commitment to sustainability aligns with global regulatory trends, adding to its attractiveness as a client. Our engagement would need to align with AUASB standards, emphasizing thorough risk assessment and integrity in financial reporting.

Appendices:

• Financial data visualizations from Tableau.
• Detailed risk assessment matrix.
• Comparative industry analysis.

This structured approach ensures a comprehensive evaluation of Calix Limited, highlighting areas of potential audit focus and providing a balanced view of the opportunities and risks involved in the engagement.

 

1

ASX Announcement; Company Press Release

ASX Announcements

The grant supports the company's carbon capture technology which is pivotal in reducing emissions from cement and lime production. Important for audit work as it impacts financial stability and project viability.

Ca

lix   Limited  received  a   grant  of  AUD   30  million  from   the  Australian

Government   for    their   LEILAC   (Low    Emissions   Intensity   Lime    and

Cement) project

.

2

 

ASX Announcement; Company Press Release

ASX Announcements

This agreement can potentially open new revenue streams and markets, affecting future earnings and valuation. Relevant for assessing market expansion and technology adoption risks.

Ca

lix   secures  a  commercial   agreement  with  Pilbara   Minerals  to  supply

technology for reducing CO2 emissions in lithium production.

3

Partnership with SaltX Technology to improve energy storage solutions.

ASX Announcement; Company Press Release

ASX Announcements

Calix's product portfolio is enhanced, which may result in significant R&D expenses in the near term but potential long-term income. Important for auditing R&D expenses and capitalisation.

6

ASX Announcement; Company Press Release

ASX Announcements

Expansion necessitates considerable capital expenditures and has ramifications for asset valuation and depreciation techniques. It is critical to verify fixed assets during the audit.

Announcement   of    a   new   production   facility    in   Belgium   to    increase

capacity for their Biotech products.

4

ASX Announcement; Company News Article

ASX Announcements

Progress in trials can have a substantial impact on the company's worth and investor sentiment. Trial outcomes may have an influence on impairment testing and going concern assumptions.

Ca

lix   entered  into  a   new  phase  of   trials  with  HeidelbergCement  for

carbon capture technology

.

5

Release  of   2022  Sustainability  Report   highlighting  achievements  in reducing net emissions and improving waste management.

Sustainability Report 2022; Company Website

Sustainability Report 2022

Reflects the company's commitment to ESG (Environmental, Social, and Governance) aspects, which are increasingly influencing investor decisions and can have an impact on audit areas such as liability provisions and asset retirement duties.

APPENDIX II - BACKGROUND INFORMATION ON UPPER MANAGEMENT

Qualitativ e data

Data Source

Reference/links

Notes

Tenure

Data source

Reference/links

Notes (any relevance to audit work?)

E.g.

CEO

New appointment to CEO;
Previously CEO at XXX Ltd, in the same industry;
Associated with members of the

DatAnalysis;
Sydney Morning Herald; Courier Mail

Include relevant webpage links or references - not required for databases

CEO Peter J. Shirtliff

Peter has been at the company since its lisiting on the ASX in July 2018.

Worked   for    various   organisations   and
held   significant  roles,  he   has  served  at Energex Limited as the GM

Calix Limited - Board of Directors

https://www.leaguemanagers.com/man
agers/peter-shirtliff/ https://calix.global/?s=board+of+directo

His tenure since the company's listing suggests stability and continuity in leadership, which may be favorable for the control environment.

Phil Hodgson (CEO)

Phil   Hodgson    brings   engineering   and
commercial   expertise  to  Calix   Limited, having  previously  worked   at  Shell.  He

Prior work experience, Shell.

Calix Limited - Board of Directors

https://www.austechcomp.com/philh
odgson
ht^ttps^::^//^//^cc^aa^llⁱi^xx^..^gg^llob^aa^ll^//^s?^us^s=^tb^aoⁱⁿa^ard^bl+^eo^-f+direc

Engineering and commercial experience, combined with a PhD in Chemical Engineering,
indicate strong technical leadership and strategic decision-making ability relevant to the company's operations

Mark Sceats (Chief Scientist)

Mark  Sceats   is  the  co-founder   of  Calix
Limited   and  holds  a   strong  background in physical chemistry. He has numerous

Australian Photonics CRC: From 1991 to
2004,   he  led  the   Australian   Photonics Cooperative Research Centre (CRC).

Calix Limited - Board of Directors

tors

As a co-founder with an extensive background in physical chemistry and numerous patents, his involvement foster innovation, potentially impacting operational and strategic risk profiles.

Alison        Deans        (Non-Executive Director)

Alison   Deans    brings   a   strong    tech-
business   background  to  Calix   Limited and   has   held    leadership   positions   at

Alison  served   as  the  first   CEO  of  eBay
Australia.   Her  leadership  contributed   to the    growth    and     success    of    the     e-

Calix Limited - Board of Directors

https://^wca^wlix^w.g^.mlo^ab^ra^kl^e/?^tisⁿ=^db^eo^xa^.crd^o+^mo^.f^a+^ud^/i^are^sxc
tors https://^wca^oli^mx.^eglⁿo^sb^aa^gl^e/?ⁿs^d=^ab^.co^oa^mrd^.+^ao^uf^/+^lad^ti^ere^stc

Her tech-business background and leadership roles, especially in eBay Australia,  provide
valuable insights into e-commerce and digital strategies, which can be relevant in evaluating strategic risks and opportunities.

Helen Fisher (Non-Executive Director)

Helen Fisher specialises in life sciences and finance, with a legal background.

Helen  was   a  partner  at   Deloitte  for  over
10    years.   During   her    tenure,   she   led Deloitte's  Life   Sciences  industry  practice

Calix Limited - Board of Directors

tors https://seekingalpha.com/article/4056

sciences and finance, along with a legal background, suggests a well-rounded perspective on
compliance and financial oversight, which could enhance the board's risk management capabilities.

APPENDIX III - OBSERVATIONS FROM PREVIOUS AUDIT WORK

2023

2022

2021

2020

2019

Notes (any relevance to audit work?)

Name of Audit firm

Ernst & Young

Ernst & Young

Ernst & Young

Ernst & Young

Ernst & Young

Consistency     in      auditors     may     indicate familiarity and efficiency in the audit process.

Name of Audit partner

Not    disclosed    in
public reports

Not    disclosed    in
public reports

Not    disclosed    in
public reports

Not    disclosed    in
public reports

Not    disclosed    in
public reports

The identity of the audit partner is usually not
mentioned in public papers.

Type of audit firm (Big 4, mid-tier etc.)

Big 4

Big 4

Big 4

Big 4

Big 4

Calix Limited CXL Co. is a mid-tier firm noted
for its personalised approach when compared to the Big 4.

Type of audit opinion

Unmodified

Unmodified

Unmodified

Unmodified

Unmodified

Consistently unmodified opinions suggest
financial statements present a true and fair view.

Issues requiring a modified opinion

NIL

NIL

NIL

NIL

NIL

No changed opinions imply that no substantial
misstatements were discovered.

Any EOM, OM or MU paragraphs? Explain

NIL

NIL

MU (COVID-19)

MU (COVID-19)

NIL

In 2020 and 2021, there were disclosures
related to material uncertainty regarding going concern due to the challenges posed by COVID-19, highlighting the potential impacts on the company's financial stability. There were no emphasis of matter (EOM) or other matter (OM) paragraphs that impacted the audit opinions.

What are the KAMs addressed?

Similar   KAMs    as 2023.             Asset impairments, valuation              of financial instruments

Valuation             of inventory, impairment assessments
under COVID-19

Revenue recognition, impairment          of assets

Focus                 on
impairments       and valuations    reflects response             to economic conditions         and financial risks.

- 2019: Significant KAMs included revenue recognition and impairment of assets.
- 2020: Key matters included the valuation of inventory and impairment assessments under the uncertainty of COVID-19
- 2021-2023: The focus shifted slightly with continual emphasis on asset impairments and the valuation of financial instruments.

As

set  impairments,

valuation

of

financial

instruments | Asset

impairments,

valuation

of

financial

instruments

Notes (any relevance to audit work?)

From      2019      to
2023, Calix Limited was     audited     by

APPENDIX IV - RISK ASSESSMENT MATRIX

No.
(1)

Risk Event
(2)

Effect on Inherent
Risk
(3)

Effect on Control
Risk
(4)

Effect on Detection
Risk
(5)

Impact on audit
effort (Five is high)
(6)

E.g.

Company has regularly declared
dividends but failed to do so in previous year.

+

N/A

-

5

1

Expansion into new international markets
increases operational and regulatory complexity

+

+

=

5

2

High dependency on government grants and regulatory incentives for project financing.

+

=

+

4

3

Rapid scaling of technology might not meet commercial expectations, impacting profitability.

+

-

+

4

4

Innovations in carbon capture technology

+

+

-

5

ail to comply with new environmental

regulations

.

5

+

-

+

3

Potential financial instabilities if projected

capital expenditures exceed cash flows.

6

+

=

-

4

Changes in global trade policies could

es.

impact supply chain and cost structur

Table of Contents
=                                    ^{No change in risk}
+                                 Indicated increase risk
-                                  indicates decrease risk

APPENDIX V - DATA FOR ANALYTICAL PROCEDURES

Company name

Calix Limited CXL

Millions

2023

2022

2021

2020

2019

2018

Income Statement Data

Net Sales revenue

18.6

18.5

19.2

14.1

3.3

4.1

Cost of goods sold

12.6

13.3

14.2

10.7

2.0

2.7

Gross Profit

6.0

5.2

5.0

3.4

1.3

1.4

Operating expenses

46.9

33.3

31.9

24.4

17.1

10.5

Interest expense

0.33

0.08

0.11

0.16

0.14

0.4

Net Inc before tax & interest

-23.47

-16.69

-5.24

-2.67

-5.11

-0.04

Net Income before tax

-23.5

-16.7

-5.3

-2.8

-5.2

-0.4

Net Income (after tax)

-23.4

-16.5

-5.3

-2.8

-5.2

-0.4

Balance Sheet Data

Total Assets

127.5

61.2

51.6

42.8

25.3

23.2

Total Debt

22.55

16.4

13.5

16.5

8.5

8.4

Total Shareholders'Equity

105.0

44.8

38.2

26.2

16.8

14.9

2023

2022

2021

2020

2019

2018

Profitability ratios

Gross profit margin %

Gross profit/Revenue

32.26%

28.11%

26.04%

24.11%

39.39%

34.15%

Net profit Margin

Net profit/Revenue

-125.81%

-89.19%

-27.60%

-19.86%

-157.58%

-9.76%

Return on assets

Net profit after tax/Total
assets

-18.35%

-26.96%

-10.27%

-6.54%

-20.55%

1.72%

Return on equity

Net profit after tax/Average
equity

-22.29%

-36.83%

-13.87%

-10.69%

-30.95%

-2.68%

Solvency Ratios

Times interest earned
(interest coverage)

Net inc bef tax & int/Interest
exp

-71.1

-208.6

-47.6

-16.7

-36.5

-0.1

Debt to Equity Ratio

Total debt/Total equity

21.50%

36.60%

35.30%

63.00%

50.60%

56.38%

Debt to Assets ratio

Total debt/Total Assets

0.18%

0.27%

0.26%

0.39%

0.34%

36.21%

Selected accounts for
analysis

Profitability

Net Profit

Return on Assets

Return on Equity

Solvency

Time Interest Earned

Debt to Equity Ratio

Debt to Assets Ratio

At a minimum, you should collect the data for yor company for rows 4-25. You will then need to select at least one account that is a component of your profitability ratios and one account that is a component of your solvency ratios to analyse these accounts specifically. The purpose is to perform a limited evaluation of the profitability and solvency of the company, whilst demonstrating an understanding of at least one account (for each of profitability and solvency) that will require audit attention if any unexpected trends are detected.