Auditing

Introduction to Risk Assessment

Vita Group is an Australian brand that has been working successfully in the region. They have been providing one of the best facilities in Australia. Vita groups deals in the retail sector, which has been operated under the Telstra. Vita groups have multiple products that they have been selling. They have satisfied their customers by providing the best facilities. In this report, we will be doing a brief analysis of their audit report. They have been increasing in ICT results (Allen, 2020). Vita group have been focusing on different strategies to ensure that they have been providing the best products in Australia. Vita Group has been claiming a flexible and dynamic history over the period.

Products

Vita group has been working on multiple products. One of the leading products in which they deal is cosmetics with the name of artisans. Groups have been working hard to make this brand more productive; they have been claiming that they have the best skincare system over the country, which has been very promising to their clients. Vita Group has also been working in the housing industry. They offer a large verity of house accessories in the country. This brand works with the name of Sproul. Another product in which they have offered their services in the region is telecommunication services (Zikmund, D'Alessandro, Winzar, Lowe, & Babin, 2017). They have been providing a wide range of products and communication services in the country. One of the last products which they have been offering to the market is men's fitness wears. They have been promoting their accessories related to men's athletic wear.

Mission and vision of the company

Vita Group has been focusing on safety. The organization has been focusing on making the products safer and secure for their customer. The company needs to understand its mission. The company aims to make their customer right choices over its competitors. The company has the best policy on customer satisfaction (Adams, 2019). This shows the company's seriousness in satisfying their customer. The vision of the company is to deliver the best product, and it should cover the whole region in the retail industry. Vita Company has been very serious about making the company resourceful for their customer and their employees as well. 

A Summary of Client Operations:

In the assessment, the client is the Vita group, and I have to act as an auditor of the organization. So as an auditor, I have to focus on the operations of the company as well as compliance with the requirements. Income statement for the year, 2019 has revealed that the company has increased profits with the most of the increasing costs and expenses. Statement of profit or loss for the year ended on 30 June 2019 is given as follows:

The analysis of income statements can be done on the basis of a financial ratio related to the statement of the comprehensive income. The ratios that are related to the income statement are net profit margin, gross profit margin, the percentage increase in revenue and operating profit margin (Vita Group , 2019 ). The ratios are given as follows:

Ratios

2019

Percentage increase in revenue

10.10%

Net profit margin

3.22%

Gross profit margin

30.47%

Operating profit margin

4.60 %

(Kenton & James, 2020)

These ratios intimate that every year, the company increases a certain portion of the certain figures. For example, the company increases its revenue by 10.10% each year. So this increase shows a significant increase. The profit shows the increasing trend, so the company has greater profitability. Other than the profitability, the financial strength of the company is determined by the statement of financial position. The statement of financial position of the company is given as follows:

The related ratios are:

Ratios

2019

Increase in assets

10.25%

Current Ratio

0.7989

Quick ratio

0.5482

Increase in liability

8.77%

Increase in equity

11.75%

(Hayes, 2019 )

Five Accounts Materially Misstated:

Account Receivable:

The company has been facing some of the major problems in the sector of accounts. The account receivable shows how much money is to be taken from the market. Vita Group is a dealership and owes some credit to the parent group Telstra Corporation. Company has. Although the company considers the risk of account payable low, these loans are not clear; there is a chance that it can be increased according to the company's annual reports' current liabilities have been increased. Trade and other payable have been increased from 69,500 to 83,947. Although it shows that companies have been very low on accounts payable, but it is important to understand that these accountable, trade and other payable are always carried out on the original receipt, while at the end of year company amounts are unpaid which are serious concerns for the company finical growth (Johnson, 2017).

Inventory:

With every audit, there is always a chance that there has been some problem with inventory management. These risks rise when it has occurred that there has been some theft or miss calculation in counting the inventory. It is important to understand that companies may have developed some unnecessary inventory procedures due to which there is mismanagement in the inventory store. In auditing, it is often found that inventory has been mismanaging by some misunderstanding or by not following the right procedures for the inventory. In 2019 the company increased the asset of the inventory by 24,162. This has been a significant growth for the company in 2019. While auditing, it is important to discover that there has nothing extra gone to the client, and it has been not covered, by checking the past year of the client list will provide this information. Inventory management risks are considered one of the most important and crucial parts for the audit because it decides how inventory has been managed the whole year. 

Account Payable:

In an audit, it is important to make sure that no amount is left to be paid to the customer. This topic can be discussed under the topic of the accounts payable. This is one of the most prime accounts in an audit to be investigated. When a company order some goods and receive it on the basics of the credit, this credit lies under the account receivable by the supplier. In 2019 Vita accounts payable was 25,720. In 2019 there was more amount due which was needed to be collected from the market. This has been a very interesting year for the company as financials (Huang, 2019).

Tax Liabilities

Different measures and propensities are utilized when the audit for the tax liabilities account is carried out by the different measures. These are the measures that are carried out by the different propensities and evaluation of risk assessments. These are the evaluations that are maintained in the course of assessing the bases of propensities carried out in the course of alignments of office executions. Certain independent evaluations are maintained in the occurrence of audit bases (Lee, Dobiyanski, & Minton, 2015). These customizations and considerations associated with the propensities of estimation and corroboration. The bases of the reasonable expectations are measured in the course of alignment, which is maintained in the distinctions of carrying out the reasonable management of the audit planning.

The evaluation of the income is the propensity, which is in alignment with the consideration of tax. Therefore the bases of alignment must be made with the evaluation of certain propensities of problems in the evaluated period of consideration. These are the alignments that are measured in the course of providing the appropriate mechanisms of audit assessment. The considerations in the alignment which are measured in the course of assessing the tax and audit bases are the evaluations that include certain measures of risk in the alignments.

The initial base of issues in the course of alignment is expanded as the propensities maintained in the course of provisions that are aligned with the bases of income considerations (Alm, 2019). The assessment of these provisions and the course of alignment, which is measured in the course of charge depictions and provisions analysis, is the basic measure of risk. In this manner, the appropriate consideration of the alignment must be maintained in the course of matching the income alongside assets.

Revenue Account

The bases of audit risk assessment in the course of commencing credit sales are evaluated, which omits the sale in terms of evaluating the record of credit sales. These are the alignments of the considerations which are established on the bases of providing the propensities maintained in the course of revenue account risk of inherent omissions in case of record-keeping (Brazel & Schmidt, 2019). These are the propensities that are aligned with the evaluation of different measures evaluated in the domains of equity and credit account disturbance. These are the considerations which are to be maintained in the appropriate evaluation of calculation.

Audit Risks for Each of The Account:

Account Receivable:

Inherent Risks:

In the relevant account, inherent risks are medium because the account is the basic and cannot be omitted wholly. However, there is a lot of risks to omit transactions from account receivable. In inherent risks related to the account receivable, there is a risk of omitting the credit losses because the company has failed to meet the requirement if the accrual basis (Tuovila, 2019 ).

Control Risk:

The company normally makes sales on cash. On a credit basis, the company makes the individual as well as control accounts. Sometimes, due to a lack of focus on credit sales, internal control misstate the figures by balancing the accounts hypothetically. So the control risks for the relevant account are high (Accounting Simplified , 2020 ).

Detection Risk:

Detection risks are low because the error can be detected easily by comparing the ales accounts, cash account, and debit and credit invoices.

Audit Risks:

Overall, audit risk for trade receivables is normal. Control risk is high but is easy to detect.

Inventory:

Inherent Risks:

There is a risk of omitting the quantity of amount that should have been recorded as losses and charity. So the inherent risk for the inventory account is low.

In the relevant account, there is an inherent risk that the company does not compare the NRC with the cost of the inventory. The company

Control Risks:

In the relevant account, there is an inherent risk that the company does not compare the NRV with the cost of the inventory. The company should record the inventory at lower of cost or NRV.

Detection Risks:

Detection risks are high because it will be difficult to recognize the amount of the inventory which has been omitted or which has been recorded at NRV or cost (Tuovila, Detection Risk, 2020 ).

Audit Risk:

Overall, audit risk is high due to the difficulty in detecting the error and high chances of omitting the inventory.

Account Payable:

Inherent Risks:

Suppliers of the company are focused on maintaining the records, and the company also maintains the records of trade payable. So inherent risks are very low for the relevant account.

Control Risks:

Internal management has paid special attention to maintaining the account payable. Account payable is maintained individually and control account. There is a risk of conflict between the number of suppliers as well as the figures of the company.

Detection Risks:

Detection risks are high because of the high chances of conflicts. Due to the conflict, it will not be easy to detect the exact amount that is payable to the company.

Audit Risk:

Overall, audit risks are high because of the sensitivity of the account.

Tax Liabilities:

Inherent Risks:

In the relevant account, inherent risk is high. The risks are high because of ignoring amounts of tax payable. The company does not focus on the payables based on taxation. There is a chance of omitting the relevant tax expenses. 

Control Risks:

Control risks are high because the internal control is focused on maintaining the account.

Detection Risks:

Detection risks are low because it can be detected by comparing the profits, investment and relative legislative authorities.

Audit Risks:

Overall, Audit risks are high.

Revenue:

Inherent Risks:

Inherent risks are high because the company sometimes adds inventory losses in the revenue accounts. Sales related to the account receivables are sometimes omitted.

Control Risks:

Control risks are low because internal control has proceeded with the segregation of duties in maintaining the revenue account.

Detection Risks:

Detection risks are low because revenue can be detected by comparing the invoices and accounts.

Audit:

Overall audit risks are high due to the omission of the information.

Conclusion on Risk Assessment

By examining the annual report of Vita Group, the risk assessment has been done in the assessment. The risks were based on the identification of 5 accounts that can have large chances of misstatement. The general risks and audit risk are elaborated in the assessment. The assessment has revealed all three types of audit risks as well as over audit risks. It can be concluded that the company makes the misstatement based on errors and negligence. So, the company needs to be efficient in maintaining the accounts.

References for Risk Assessment

Accounting Simplified. (2020 ). Audit Risk Model. Retrieved from Accounting Simplified.

Adams, C. (2019). ORDINARY COUNCIL MEETING.

Allen, G. (2020). Public affairs in Australia: Evolving and enhancing corporate performance. Journal of Public Affairs, e2066.

Alm, J. (2019). What motivates tax compliance? Journal of Economic Surveys, 353-388.

Brazel, J. F., & Schmidt, J. J. (2019). Do auditors and audit committees lower fraud risk by constraining inconsistencies between financial and nonfinancial measures? Auditing: A Journal of Practice & Theory, 103-122.

Hayes, A. (2019 ). Liquidity Ratio Definition. Retrieved from Investopedia: https://www.investopedia.com/terms/l/liquidityratios.asp

Huang, Q. Z. (2019). The joint effects of lead time, information sharing, and the accounts receivable period on reverse factoring. Industrial Management & Data Systems.

Johnson, J. (2017). The Shock of Presence Peter Brook & Jerzy Grotowski–The Reinvention of Australian Theatre. Master's thesis, University of Sydney.

Kenton, W., & James, M. (2020). Profitability Ratios Definition. Retrieved from Investopedia: https://www.investopedia.com/terms/p/profitabilityratios.asp

Lee, B. B., Dobiyanski, A., & Minton, S. (2015). Theories and Empirical Proxies for Corporate Tax Avoidance. Journal of Applied Business & Economics.

Tuovila, A. (2019 ). Inherent Risk. Retrieved from Investopedia: https://www.investopedia.com/terms/i/inherent-risk.asp#:~:text=Inherent%20risk%20is%20the%20risk,in%20regard%20to%20financial%20estimates.

Tuovila, A. (2020 ). Detection Risk. Retrieved from Investopedia: https://www.investopedia.com/terms/d/detection-risk.asp

Vita Group. (2019 ). Annual Report.

Zikmund, W. G., D'Alessandro, S., Winzar, H., Lowe, B., & Babin, B. (2017). Marketing Research: Asia-Pacific Edition. Cengage AU.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Auditing Assignment Help

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