Our firm has been allotted been allotted the audit of final accounts of A2B Australia Ltd., a public listed company (ASX Code-A2B). The company deals mainly in payment solutions and communication platforms for transportation sector. The company also deals in courier services. This report is prepared to gather the background information about the company to be presented at the meeting with Audit seniors. This is the first year, our firm is conducting audit of the group.
Table of Contents
The areas in which A2B conducts its operations:
Events or conditions that may cast significant doubt on the A2B’s ability to continue as a going concern:
Accounts that could be risk of misstatements.
Appropriate base and set planning materiality for Audit:
Acquisition of a New Business and its Impact on Audit Plan.
A2B Australia Ltd. conducts its operations in the following areas.
Due to the spread of COVID 19, public health emergency was declared . There has been an unprecedented global response by governments , regulators and industry sectors. (A2B Australia Ltd., 2020). COVID 19 has impacted the group in following ways
Significant decrease in revenue due to decline in taxi fares. Total revenue decreased by $ 27 million which is the reduction of 13.7% over the previous year(A2B Australia Ltd., 2020)
The working capital of the group as on 30th June’2020 is $ 7.7 million. The group’s cash and cash equivalents as of 30th June’2020 are $ 25.8 million
The forecasts related to cash are prepared assuming probable downside to the business due to the effects of COVID 19. These forecasts indicate that group has sufficient cash and undrawn finance facility which would enable the group to meet its obligations when they fall due. Hence, the management believes that it is appropriate to prepare the financial statements on a going concern basis
Despite the above, there are many conditions that cast significant doubt on the A2B’s ability to continue as going concern mainly because of COVID 19 pandemic. These factors are as follows
The three accounts which are likely to be misstated are Revenue, Inventories, and cash and cash equivalents.
In case of Revenue, key assertion which is likely to be risk is cut off as there is a risk that some revenue transactions around the year end of prior year are recorded in this financial year.
In case of other Inventories, the key assertion which is likely to be risk is completeness as there is a possibility of wrong valuation of Inventory
In case of Cash and Cash equivalents, the key assertion which is likely to be at risk is Accuracy as there is a risk that all transactions pertaining to this period are not included.
Misstatements and omissions are considered to be material if the amounts of misstatements individually or in aggregate are likely to influence the economic decisions of users taken on basis of financial statements (Australian Government, 2009). At the planning stage of any audit, determining the threshold level is very important. For determining the threshold level of materiality, an appropriate base level and percentage has to be decided (Materiality Tracker). Materiality is a matter of professional judgment (AASB 1031). Decision about setting the materiality level is influenced by entity’s characteristics and the likely users of financial statements and their information needs. Different types of accounting variables can be used as benchmarks such as revenue, total assets, and liabilities, Debt or Equity. A specified percentage of that base is termed as materiality threshold. The most common used percentages are in the range of 5-10 percent. The most common used bases in net profit before tax but in case the figure for net profit before tax is volatile, other benchmarks may be used. Considering the financial statements of A2B Australia Ltd, most appropriate base for setting materiality level would be value of total assets as it has least amount of fluctuation as compared to prior year. The percentage level may be set at 10% of value of total assets.
In July’2019, the company acquired an additional business ‘Gold Coast Cabs’ which had a fleet of 400 taxis with the purpose of providing quality services nationally. In today’s world there is an increasing trend of mergers and acquisitions. The acquisition of new business impacts the audit of an entity for a financial year significantly. A2B has invested
$ 3.4 million in acquisition related to Gold Coast Cabs. The goodwill of an amount of $ 1.8 million was recognized following the acquisition of Gold Coast Cabs. The acquisition of Gold coast would affect audit plan for 2020 significantly. The four factors which would be involved are as follows
The examination of the financial statements of the group indicates that there is a significant fall in the revenue of the group from $42,074,000 to $ 32,806,000 which is attributable to the impacts of COVID 19 pandemic. The profit after tax has also decreased substantially. In 2020, there is a loss of $ 23.7 million as compared to $ 11.9 million profit in financial year 2020. There were asset impairments of $ 15 million and $ 2.1 million of asset write offs and accelerated depreciation. In our opinion, the financial statements of the group give a true and fair view of the Group’s financial position as at 30th June 2020.
A2B Australia Ltd. (2020, August 25). a2b. Retrieved September 18, 2020, from www.a2baustralia.com: https://www.a2baustralia.com/investor-center/asx/
Australian Government. (2009, October). Australian Government-Federal Register of Legislation. Retrieved September 18, 2020, from www.legislation.gov.au: https://www.legislation.gov.au/Details/F2016C00029
Bloomberg. (n.d., n.d. n.d). Bloomberg. Retrieved September 18, 2020, from www.bloomberg.com: https://www.bloomberg.com/profile/company/A2B:AU
Materiality Tracker. (n.d.). Materiality Tracker. Retrieved September 18, 2020, from www.materiarlitytracker.net: http://www.materialitytracker.net/standards/financial-thresholds/
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