Audit Planning Memorandum For Rogers Communications

About Rogers Communications

The purpose of the Audit Planning Memorandum is to provide a brief to the Audit committee on the approach that have been adopted for the audit of Rogers Communications.  The main aim of auditing is to provide independent opinion on the financial statements of an organization. The opinion of the auditors on the financial statements will help the users of the financial statements to take correct decisions affecting their interests in such organizations. Audit must be carried out in accordance with the Generally Accepted Auditing Standards in order to ensure that the audit opinion is in accordance with the standards on auditing (Gildenhuis & Roos, 2015). In this document, an audit shall be conducted on the financial statements of Rogers Communications, one of the largest companies in terms market valuation in the whole of Canada. The document shall contain the procedures to be followed in the audit of the financial statements of Rogers Communications from pre-audit engagement to the conclusion of the audit of the company.

Rogers Communications is one of the largest companies in the whole of Canada and it operates in the field of communications and technology. To be more specific the company operates in the field of wireless communications, cable television, telephone, internet and other forms of communications in the country and other parts of the world. Founded in the year 1960 by Rogers Vacuum Tube Company the company has it’s headquarter situated in Toronto, Ontario, Canada. Alan Hoe is the current chairman of the company with Joe Natale as the president and Chief Executive Officer of the company (Krahmer & Phillips, 2016). The company’s shares are listed on the Toronto stock exchange and New York Stock Exchange with the ticker RCI. Over the years, the company has invented new ways to enrich the experience of its customers by providing wireless network services as well as internet connectivity with unrivalled quality and transmission power. Bell Canada is the primary competitor of the company with substantial media assets to provide similar wireless network, cable television, telephone services and internet connectivity.

The management over the years have conducted the business operations with honesty and integrity to take the company to the top of the telecommunication and network business in the country. The company is not only the largest telecommunication company in the country but also one of the largest companies in all across Canada. Over the years, the annual reports of the company containing the financial statements of the company have been prepared in accordance with the International Financial Reporting Standards increase the confidence of the auditors on the integrity and honesty of the management (Council, 2015).              

Responsibility of management and auditors

The management is responsible for the preparation and presentation of the financial statements of the company and the auditors are only reasonable to express an appropriate opinion on the financial statements of the company. Thus, the use of appropriate accounting standards to prepare and present the financial statements of the company is the responsibility of the management and the auditor has nothing to do with the preparation and presentation of these statements (Rose & Rose, 2014). 

The Canadian Auditing standard (CAS) 260 “Communicating of Audit matters with those charged with Governance” requires that the auditor should communicate any relationship that exists between the company and the auditor. The auditor of the company is required to be independent of the entity so that the auditor can provide an unbiased opinion on the financial statement of the company (Miro et al., 2015). It is important to consider the independence while appointing the auditor of the company and at the. Planning stage. Thus, no employee of the company or any person who has any interests associated with the company shall be appointed as the auditors of the company. In this case, the Auditor is independent of the entity and it can be assured that the audit firms conforms to the highest level of governance standard.

The professional standards requires the auditor to consider these two kinds of risks:

• Fraudulent revenue recognition;
• Management override of control;

There are certain risks that revenues are recognised fraudulently to provide a different picture of the financial situation of the organisation. The auditor should assess the risk of fraudulent revenue recognition both at the time of accepting the engagement and at the planning stages of audit (Okafor, 2015).

The management has the position of power to manipulate the accounting records and prepare a financial statement with the fraudulent intention. The auditor should assess this risk at the planning stage. In order to assess this risk test of control is conducted. In addition to this substantive audit, procedure is conducted over the accounting estimates, journal entries and significant transactions that occur in the normal course of business (Rahma et al., 2016).

There are two types of risks associated with the expression of audit opinion. Firstly, the risk of expressing an opinion that the financial statements of the company are free of material errors and misstatements whereas these are not. Secondly the risk of expressing an opinion that the financial statements of the company are not free from misstatements whereas the financial statements not contain any material errors or misstatements (Chonowitz, 2015). The auditors are mainly concerned with the risk of expressing an inappropriate opinion on the financial statements that the statement are free of material errors where in fact the statements contain material errors.

Communication with those charged with governance

After appraising the findings from the pre-engagement activities, the auditors shall determine whether it would be appropriate to accept the engagement as auditor of the company to express an appropriate audit opinion on the financial statements of the company.

Preliminary audit planning is mainly dependent on the identified risks in the audit of the financial statements of the company. Generally the pre-engagement activities and preliminary investigation about the affairs and operations of the company will help us to identify the risks associated with the audit of the financial statements of the company (Onoja & Usman, 2015). Based on the findings of preliminary audit planning shall be made. The preliminary audit planning of the company shall have to be made after considering figures and trends identified from the brief financial statements of the company, i.e. income statement, Balance sheet and cash flow statement of the company.

In order to assess the risk of material misstatement at the overall financial statement level it is important to have significant knowledge about the financial performance and position of the company. The auditors will use the financial statements of the company, i.e. Income statement of the company, Balance sheet, cash flow statement of the company, statement of changes in equity and notes to accounts (Martin et al., 2016).

The auditor will use effective audit procedures to collect necessary audit evidence based on which the opinion shall be formulated. The necessary documents supporting the revenue as provided in the financial statements along with the supporting documents against the expenditures incurred shall be made available by the management of the company to allow the auditors to conduct an effective audit (Kumar & Sharma, 2015). The overall risks assessment of the audit will be dependent on the integrity and honesty of the management, employee and other staffs of the company as the auditors will have to depend on the documents, written and oral representations along with financial statements prepared by the internal staffs of the company. As has already mentioned that the company has followed the IFRSs to prepare the financial statements thus, the auditors can place reliance on the financial statements and conduct the audit (Toolkit, 2014). Apart from that the auditors will verify the integrity and honesty of the management to determine the extent to which they can place reliance on the evidences and representations made by them while conducting the audit of the financial statements of the company.     

Types of risks associated with audit opinion

In order to conduct an effective audit of the financial statements of any organization it is important to follow the generally accepted auditing standards that have been universally accepted to be effective auditing standards (Dhand & Diab, 2015). The following procedures shall be properly followed in the audit of the financial statements of an organization in order to express an appropriate audit opinion on the financial statements of the organization:

1. Pre-engagement activities.
2. Preliminary audit panning and risk identification.

• Risk assessment procedures to plan an audit.

1. Internal control documentation and testing.
2. Decisions to use sampling techniques and the basis of such decision.
3. Appropriate use of such sampling techniques to express an appropriate opinion on the financial statements of the company.

• Performance of audit programs as planned taking into consideration the entity and its activities.  
• Review of the audit findings.

1. Expression of an opinion on the financial statements of the company on the basis of the audit procedures and appraisal of the evidence collected during the course of the audit.

Obtaining an understanding of the entity and its environment of whose financial statements are being audited in order to have the basis understanding about the financial statements of the company. It is essential to obtain necessary knowledge about the nature of the entity and its business operations to conduct an audit effectively (Johnson, 2017). Apart from obtaining an understanding about the entity and its environment it is equally important to assess whether the management of the organization is honest and have necessary integrity to provide information about the company and to what extent the auditors can place reliance on the financial as well as non-financial information provided by the management. Accordingly, let us conduct the pre-engagement activities to start the audit on the right note (Enget, 2015).

The entity and its environment is considered while determining the staffing and expected time required for the audit is provided in the table below:

Activity	Staff	Expected time
Preliminary audit activities	2 staffs with substantial and significant knowledge in accounting and auditing and 2 staffs with significant knowledge in the field of information and technology.	5 working days assuming that the auditors do not have any prior knowledge about the company.
Risk assessment	2 staff with significant experience in auditing.	2 working days
Conducting analytical procedures	3 person with significant knowledge in financial ratio calculations.	2 working days
Substantive procedures	6 auditors with substantial experience in auditing.	14 working days

The assessment of the financial statements of the company will help us to determine the materiality levels for the audit of the company. The income statement of the company provided below will help us to determine the overall materiality levels for the verification of items of revenue and expenditures (Collier, 2015). The audit procedure for the items of revenue and expenditures of the company can subsequently determine taking into consideration the overall materiality levels for these items.

On analysing the above income statement, it is clear that the company has huge amount of revenue and expenditures. The materiality level for the audit is determined by the application of the percentage on the amount of revenue and expenditures. It can be seen that it will be an effective method for risk assessment in the audit of the financial statements of Rogers Communications (Mutua & Kilika, 2016).     

On analysing the above items of income and expenditures of the company over the last five years the changes that have occurred in the amount of incomes and expenditures is calculated. The main purpose of the calculation is to analyse the trend in the amount of revenues and expenditures, as these will help us to conduct the audit effectively (Vandermoor, 2017).

Preliminary audit planning

In order to determine the overall materiality level in the financial statements of the company for auditing the lower of the 1% of particular items and 1% of net income shall be used to determine the overall materiality for the risk assessment of the audit of the company.   

Revenue	137.02
Cost of revenue	86.71
Gross profit
Operating expenses
Restructuring, merger and acquisition	1.55
Other operating expenses	27.6
Net income	1283
1% of net income	12.83

Appropriate substantive audit procedures have been used to verify the items of revenues, expenditures, assets and liabilities of the company to express an appropriate opinion on the financial statements of the company.

The auditors to assess their appropriateness and correctness shall verify the internal controls, which have been installed within the organizations, properly. In case of Rogers Communications, the company has installed number of internal controls that have been up-dated at periodic intervals to ensure their effectiveness and efficiency (Young & Waterhouse, 2015). The digital employee cards will help us to track the actual attendance of the employees and accordingly, the payment of salaries and wages to the employees can be verified to assess the correctness of the accounting treatment and financial disclosure in the financial statements of the company for the item of salaries and wages of the company. The company has maintain clear line of separation in duty and have segregated the responsibilities of different employees and workers including the management thus, the auditors will not find it difficult to determine the employees responsible for different works and jobs within the organization and accordingly, will be able to conduct the audit properly (Sorunke, 2016). The employees have also been rotated by the management at periodical intervals to reduce the possibility of frauds by ensuring that an employee do not get the chance to collide with other employees to take carry out any unethical acts at the expense of the company. The use of close circuit cameras within the office and factory premises is also one of the methods to control and manage the functions within the organization effectively. The management has a standard procedure to conduct through testing of these internal controls to see whether these need any changes in order to be more effective that these are at any point of time (Egbon et al., 2017). Apart from that, the company has separate accounting departments that are responsible to maintain the books of accounts of the company. The accrual basis of accounting and double entry system to record the accounting transactions have been followed to maintain the books of accounts of the company. Apart from that, the financial statements have been prepared in accordance with the IFRSs to ensure these are in conformity with the internal standards and the users of the financial statements are able to take correct decisions on the basis of these statements. Thus, the internal controls within the organizations are quite strong and the auditors can place reliance on these controls while conducting the audit of the financial statements of the company (Han & Sherman, 2015).           

Effective audit procedures

The documentation within the company include the financial statements, supporting documents and other books and papers that are maintained by the company. All these documents have to be tested to determine whether these are in conformity with the financial information provided in the statement of financial position, income statement, statement of cash flow, statement of changes in equity and notes to accounts (Chowdhury, 2016).   

Sampling means use of audit procedures, i.e. substantive audit procedures on less than 100% of the items of an organization of which financial statements are being audited. Considering the large scale of financial operations of the company as clear from the financial statements of the company it is clear that an effective sampling technique has to be used to ensure that the opinion which is to be expressed on the financial statements based on the findings from the audit is appropriate and correct (Farrell et al., 2015). The auditors will use random sampling technique without any pre conceived notion to ensure that there is no set tone of sampling thus, each and every single transaction will have equal opportunity to be examined during the course of auditing. Apart from that the items which are above the material level to be determined below for the audit of financial statements of the company shall be examined in addition to the items which shall be subjected to audit procedures in the sampling decisions. This will improve the quality of auditing and subsequently, the effectiveness of the audit shall be increased and the opinion will be appropriate with the financial statements of the company. 

The auditors have the option to use substantive and analytical audit procedures to conduct an effective audit of the financial statements of the company. In case of audit of financial statements of Rogers Communications, the auditors will use both analytical and substantive procedures during the course of audit of financial statements of the company. The detailed audit programs are provided below.

Firstly, the auditor shall conduct analytical procedures to assess the fluctuations in the financial performance and position of the company in the current financial year. The fluctuations shall be calculated by conducing ratio analysis of the company. This will include calculation of profitability ratio, liquidity ratio, solvency ratio and efficiency ratio. Based on these ratios it will be possible to identify the extra-ordinary fluctuations in profitability, revenue, liquidity and solvency position of the company (Pendleton et al., 2015). Based on results of analytical procedures the auditor will determine the substantive procedures to be used to conduct the audit.

Importance of following generally accepted auditing standards

The substantive procedures will include verification of the items of financial statements with the supporting documents to check whether the transactions of have been correctly recorded and reflected in the financial statements of the company to reflect the actual financial performance and position of the company (Pitt, 2014).

The analytical procedures are conducted below to identify any unusual fluctuations in the profitability, liquidity and solvency position of the company.

	2013-12	2014-12	2015-12	2016-12
Increase in revenue (%)	1.76197	1.13332	4.38911	2.14701
Increase in cost of revenue (%)	0.8798	0.91061	7.23183	2.7735

Statement showing profitability Ratios
Particulars	2012	2013	2014	2015	2016
Revenue	12486	12706	12850	13414	13702
Gross profit	4757	4909	4982	4977	5031
Gross profit margin	38.0987	38.6353	38.7704	37.103	36.7173
Revenue	12486	12706	12850	13414	13702
Operating income	2766	2926	2838	2700	2111
Operating margin	22.1528	23.0285	22.0856	20.1282	15.4065
Revenue	12486	12706	12850	13414	13702
Net income from continuing operations	1732	1669	1341	1381	835
Net profit ratio	13.8715	13.1355	10.4358	10.2952	6.094

Statement showing efficiency ratio
Particulars	2012-12	2013-12	2014-12	2015-12	2016-12
Revenue	12486	12706	12850	13414	13702
Inventories	293	276	251	318	315
Inventory turnover (Times)	42.61433	46.03623	51.19522	42.18239	43.49841
Revenue	12486	12706	12850	13414	13702
Total assets	19618	23601	26522	29175	28342
Total asset turnover ratio (Times)	0.636456	0.538367	0.484503	0.459777	0.483452

The fluctuations in the efficiency ratios are not unusual so the use of normal auditing techniques can be applied. This techniques includes physical verification of inventory, physical verification of other current assets including cash. The technique also include verifications of accounts receivables and accounts payables by using written confirmations have helped the auditor to assess that the current assets and liabilities are all have been recorded correctly and the closing balances of accounts receivables and payables have been properly stated in the financial statements.

As can be seen from the above that the increase in revenue as well as increase in corresponding cost of revenue both are in conjunction with each other. Hence, there is nothing unusual in the fluctuations of the company in the items of revenue and expenditures will be audited by verification of the supporting documents to support the generation of revenue and expenditures incurred to earn the revenues for the financial year ending on December 31, 2016.           

The fixed assets shall be verified by assessing their existence and the ownership document. The fixed assets of Rogers Communications are either owned by the company or have been taken on long-term lease. All the documents in relation to the fixed assets are in conformity with the stated financial position of the company (Cameran et al., 2017).     

The margin of gross profit, operating profit margin as well as net profit margin of the company all have decreased significantly in the year 2016,. Thus, the audit procedure shall specifically include the verification of the supporting documents against the expenditures incurred by the company to check whether the expenditures have been incurred properly in the financial year 2016. The supporting documents will help to analyse whether the expenditures is recorded in the financial statements is justified (Zyla, 2015).   

Conclusion: 

The auditor shall perform the substantive audit procedure and analytical audit procedure as discussed in the earlier section of the report. From the audit evidence collected during the course of audit of financial statements of the company it will be assessed whether the financial statement have provided with significant amount of information on the preparation of the financial statement.  Based on this an audit opinion should be formed whether the financial statements of the company have been prepared in conformity with the financial reporting standards, i.e. IFRSs and the financial statements reflect the actual financial performance and proper financial position of the company. 

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