Role of Education in Minimizing Audit Expectation - Free Samples

Question: Discuss about the Role of Education in Minimizing Audit Expectation. Answer: Introduction The key role of this paper is to evaluate the risks that are related to any company that functions in the economy. This paper has therefore looked to concentrate on Telstra Corporations Ltd. Telstra is the new company that has appointed us in order to assess their risks and their financials that are associated with them. The examination and the evaluation of the annual report of Telstra Corporations Ltd is helpful in explaining and addressing the risks of the organization and the actions that can be recommended to them according to the results obtained from the assessment. Inherent Risks and Assertions Risks Details Assertions and Impacted Accounts of Business Audit procedure The company has outlaid their operational activities that is beyond their financial capability Telstra has their operational activities way over their financial capacity and they have been undertaking strategies with the help of which the company can expand their business (Telstra.com.au 2018). The revenue of the company has not been increasing significantly but the actions that have been taken can lead to risks and bankruptcy for the company. The assertions are inclusive of: Accuracy Reliability Precision Operational activities of the company. Impact on Accounting books Cash Account Account Receivables Bad Debts Account Revenue Account The audit process of the company will assess the financial activities of the company and thereby understand the losses that have been taking place in various accounts and thereby keep a record about it so that it can be evaluated. The fall in the level of profits due to a rise in the collective losses The annual report has indicated that there has been a fall in the profit of the organization in the year 2017 in accordance to the previous year and the level of collective losses has been significantly higher. Assertions Relevance Materiality Impact on the books of accounts Bad Debt Account Profit Account The process of auditing is inclusive of an explained assessment of the losses that have been incurred which have been recorded. The accuracy and the effectiveness of the management will even be reviewed. Investigation of the commitments towards the expenditure Telstra has a huge amount of expense that is associated with the establishment of the towers with the help of which there can be an improvement of their networks (Telstra.com.au 2018). This amount has not been addressed in the financial statement. The amount that has been invested on the development of the network towers is not highlighted in the annual report and this recorded in the notes to the account. Assertions Materiality Accountability Relevance Impact on the Books of Accounts Expenditure Account Account Receivable Sales Account Statement of Profit and Loss The process of auditing will include the evaluation of the costs of the firm on these activities and the characteristics and contracts of the activities will even be ensured (Kend et al., 2014). The figure that is addressed in the annual report has importance and hence the value is of the network development amount and therefore this amount has to be recorded (William Jr et al., 2016). The auditor even needs to make sure that these activities are in nature authentic. Deferred Tax According to the annual report, the company deferred tax assets are utilized in order to write off for the deferred tax liabilities (Telstra.com.au 2018). Assertions Write off Timing Accuracy Segmentation Impact on the Books of Account Balance Sheet Income Statement There has been estimation that the judgment that has been confronted by the management that is associated to the projection of the taxable profit of the firm along with assessment of the processes and the mechanisms that is utilized by the management for the estimation of the computation. Ratio Analysis Particulars Ratio kind 2017 2016 Difference Risk Financial Ratio Current Ratio 0.86 1.02 -0.16 Low Quick Ratio 0.70 0.91 -0.21 Low Profitability Ratio Return on Equity 25.59 38.57 -12.98 High Solvency Ratio Debt to Equity Ratio 1.02 0.92 0.1 Low Current Ratio The current ratio of Telstra Corporations Ltd for the current year indicates that it has not been able to take care of the liquidity needs effectively. The fall in the current ratio indicates that the company has been unable to reduce their current liability and the fall in the quick ratio addresses the same thing. The current ratio in certain cases becomes the quick ratio if there is unavailability of stock in the balance sheet of the organization. The quick ratio of Telstra addresses that the firm has been unable to satisfy the requirement of liquidity and has even been unable to handle their operating costs and operations effectively. The suitable current ratio for any organization is 1:1 which indicates that there exists an equivalency in the current asset and liabilities (Kend, Basioudis 2017). Return on Equity The figures of return on equity have indicated that Telstra has been able to pay their dividends to the shareholders during the year 2016 and 2017. However, the amount of dividend has fallen in the year 2017 in accordance to the previous year. The organization has faced losses in 2017, which has been reflected in the balance sheet of the organization. The loss of Telstra has increased from the last year and this is the main cause for the return on falling by a significant margin. The issue cannot be developed from the mindset of the firm as in such cases the company would be facing problems in the coming time. The risk factor for the organization is high if the return on equity is regarded as a standard of performance with the aspect of the shareholders (Waldron, 2016). Debt to Equity Ratio The risk factor for debt to equity is low and the figure has increased in 2017 from 2016. It indicates that the capital framework of Telstra is more debt based than equity. This indicates that the company is reliant on leverage. The capital structure of Telstra comprises mainly of debts and this has been indicated in the balance sheet of the firm in the annual report. Areas of Problem for Telstra Identified areas of concern Explanations Impacts on the books of accounts Audit Procedure Current Ratio The current ratio of Telstra is not too effective even though the company has a proper liquidity scenario and Telstra has the ability to satisfy the need for liquidity. The key factor has been due to the fact that the company has been able to minimize their current liabilities from the last year. It is known that the effective current ratio of a firm is 1:1. Cash and its equivalent Prepaid expenses Accounts Receivable Accounts Payable Interest payable Income Tax that is payable The company records need to be examined in order record any kind of discrepancies from the management (Knechel, Salterio 2016). The cash records are required to be assessed effectively. Return on Equity The amount of dividend the company has paid has fallen with respect to the previous year and therefore has not been able to satisfy the outlook of the shareholders with respect to the amount of dividends. Telstra has been incurring losses and this is indicated in the balance sheet. Sales Account Asset Balance Sheet It is the duty of the auditor is to examine the timings and the dates of each and every transaction of the firm and making sure that effective examinations have been made (Shah et al., 2017). Debt to equity ratio The debt to equity has increased in this year from the previous year and this is indicates that the capital structure of Telstra is more debt based that equity. This explains that the company does rely on the leverage. Revenue Payables Provisions It is the duty of the auditor to examine the records of the provisions and payables and the relevancy of the same. Recommendations The suggestions that can be given to Telstra Corporations Ltd in order to develop their business framework include constructing an effective internal control mechanism so that the management can monitor and manage the internal processes of the business. Telstra even needs to maintain a record of the costs for the development of the network towers in the books of accounts as this can have an influence on the decisions of the investors. Telstra can even undertake a frequent assessment of the inventories and even the tower construction sites so that the operations can be examined (Ihendinihu, Robert 2014). Telstra even has to undertake an effective knowledge about the framework of the deferred tax and the process with the help of which it can be written off and needs to be declared in the annual report. Conclusion The discussions that have been made in this paper addresses that the key audit issues of Telstra is dependent on the decisions of the auditor. The audit committee has less amount of obligations and the selection of a skilled external auditor who will look into the perspective of the company in accordance to fairness that is seen in the audit report. 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