Audit Of Pushpay Holdings Ltd For The Year 2017

Materiality is one of the concepts, which is being covered by ASA 320 as per which materiality is very crucial for the auditor in terms of planning and performing the audit of the financial statements. The misstatements, errors and significant omissions’ either individually or in aggregate are considered material if the same has the ability to change the economic decision of the users of financial statements (Farmer, 2018). Materiality is a measure of professional judgement, which may vary from individual to individual and from company to company. For a small company, an amount of $ 50000 may be material whereas for the large listed company, the amount of even $ 500000 may not be material. Thus, it is situational. It can be qualitative as well as quantitative. As recommended in ASA 320 and IASB there are some common materiality levels which have been prescribed some of which are 0.5% to 1% of sales revenue, 2-5% of the shareholders equity, 5-10% of net profit of the company, 1-2% of the total assets of the company or the gross profit being made by the company (Grenier, 2017).

The company, which has been chosen here for analysis Pushapy Holdings Limited that is listed on the New Zealand Stock Exchange. It deals in building of mobile applications for making the mobile payments between the customer and the merchants and is operative predominantly in the charity, non-profit organizations and faith sector. Its office is in Auckland and has more than 200 employees worldwide (Werner, 2017). It delivers its products on the software as a service model (SaaS) and most of its products are based on the subscription model with the earning in the form of the fees based on the transaction volume. The quantitative materiality level of the given company has been derived using the parameters mentioned above but the auditors have mentioned in the auditor’s report that they have considered the materiality to be $400000, which is slightly above the levels shown in the below table. Hence, the calculation of materiality is justified.

Section 2: Preliminary analytical review of the company

There can be two types of procedures, which can be applied by the auditor during the conduction of the audit. These can be substantive test and the analytical review procedures. Substantive test include the vouching of incomes and expenses whereas verification includes checking of the completeness, valuation, appropriateness and change in the values of the assets and liabilities. In case the auditor is not sure on giving an opinion based on substantive measures, he performs preliminary analytical procedures, which includes understanding the business environment and his business as whole based on the financial performance of the entity over the past, the relevant industry and the comparison groups (Alexander, 2016). This includes trend analysis, variance analysis and many such procedures based on which the auditor sets the audit planning and assesses the risk of material misstatement in the entity and understands the nature, timing and extent of the audit procedures. In the given case, the preliminary analytical testing has been using the basic ratios of the profit and loss account and balance sheet and analysing the same using the trend over the year 2014 to 2017 (Erik & Jan, 2017).

Section 2: Preliminary Analytical Review of the Company

Form the above analysis, it can be seen that the company has progressed a lot in terms of increase in the topline or the sales revenue but over the years, the growth has minimised and it has come down from 1415% in 2014 to 97% in 2017. Similarly, the cost of goods sold has also grown over the years but in the recent years, the same has stabilised. The Gross Income has grown from negative 455% in the year 2014 in which the company became public to 99% in 2017. This goes on to show that the company is improving not only on the topline but also on the bottomline as well. On the cost side, the company has done well but needs to improve further with the Selling general and administration cost (Belton, 2017). It increased at levels of 348% for the year 2014 whereas for the year 2017, it has increased by 38%. Savings can still be made in this area. The company has moved from loss making company to the profit making company. The company became public in 2014 and since then it has made considerable improvement in terms of the net profit lowering it from 356% loss in 2014 to 9% profit in 2017. This goes to show the huge improvement in the bottom line of the company and thus the internal fundamentals of the company is strong. When we analyse the current ratio, we see that the it has grown from 97% in 2014 to 336% in 2015 and then again cash down to 195% in 2017 (Arnott, Lizama, & Song, 2017). Since the company does not holds any stock nor it has any prepaid expenses, therefore the quick ratio also remains the same. This is as per industry trend and shows that the company possesses the ability to make the short-term payments to its creditors and meet off its current liabilities. The company is trading entirely on equity and does not hold any debt balances as of now and thus its debt equity ratio is zero throughout the years. It thus, has a scope of improving the profitability and return of equity in the years to come by utilisation of the low cost debt (Goldmann, 2016).

Audit assertions are the implicit representations and claims, which are being done by the management who is generally responsible for the preparation and presentation of the financial statements that the data being disclosed in the financial statements are all appropriate (Choy, 2018). On the other hand, audit risks are the risks that hints that the accounts of the company may be materially misstated and still the same is not being highlighted by audit. The risks can be of 3 types namely detection risk, the inherent risk and the control risk. With respect to the company in hand and studying its financial statements, some of them are highlight below.

Section 3: Analysis of the Statement of Cash Flows

Section 3: Review of the cash flow statement of the company

In this section of the report, the cash flow statement of the company has been analysed.

From the above statement, we can see that the majority of the cash inflows are generated from revenue form customer $ 20572000 and other from issues of the share capital amounting to $ 29510000 (Das, 2017). Therefore, the major cash inflows for the company is coming from financing activity. Both investing as well as operating activities accounted for the major portion of the cash outflows. Amongst operating activity, the payment to creditors was $ 39380000 whereas in terms of investing activity, cash outflow was there in purchase of property, plant and equipment amounting to $ 1074000, development and intangible costs amounting to $ 2740000 and acquisition of software licenses and customer contracts amounting to $ 2100000 (Kim, Schmidgall, & Damitio, 2017).

The primary cash receipts and the primary cash payments have been discussed in the above option with most of inflows and outflows from sales and payment to creditors respectively. There was no major non-cash financial and investing activity except for amortization of the intangible and tangible assets (Trieu, 2017). In case the company would have declared the dividend, it would have accounted for non-cash financial activity.

From the above study and analysis, it can be said that the company has prepared its financial statements on a going concern basis. The company has suffered a major loss this year amounting to $ 25.3 Mn and hold the net assets position of $ 18.8 Mn as on 30^th June 2017. The company has been driving on the market growth strategy and has requirement of additional fund to execute growth strategy and maximise the shareholder’s return and the company has been respecting the same thus it can be said to meet the going concern assumption. The requisite audit procedures to counter the risks have been highlighted above in the table (Sithole, Chandler, Abeysekera, & Paas, 2017).

From the study of the financial statements and the annual report of the company, the auditor Deloitte has expressed a clear opinion mentioning that it has been prepared in all the material respects and is prepared in compliance with New Zealand International Financial Reporting Standards and the local GAAP (Jefferson, 2017). Furthermore, they have highlighted few sections in the key audit matters highlighting the risks and how they addressed the same during the audit. Some of these were capitalization of software development costs, recognition of subscription revenue and the going concern assumption of the company over the coming 12 months as the funding is required for its operation.

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