Question:
Discuss about the Audit Engagement Planning.
1. The steps that need to be considered before doing an audit is accepting the engagement of audit, planning the audit, performance the audit tests and reporting the findings. The auditor should consider the revenue, net book value, assets, liabilities, expense and other items of the financial statements. The documents should be arranged and evaluated such as previous reports of audit, ledger, receipts and bank statements. In order to plan for the audit, it is important to determine the information the contained in the documents and then planning how the audit should be conducted (Abbott, Parker and Peters, 2010). The auditor can gather information from an open meeting and then finalizing the audit plan. The tests of the auditors should comply with the accounting processes and procedures and internal control will help to evaluate that the procedure is adequate and appropriate. The auditor should consider the details of the findings of audit and the report includes posting issues, payments, mathematical errors and other concerns of audit. The auditor should evaluate the audit risks and assessing the performance of the audit. The processes of audit are similar for engagements and consist of four stages: planning, field work, audit report and the follow up review. The key objectives of audit process to minimize time and avoiding the disruption of ongoing activities (Buys, 2014). The revenue of the company shows $30 billion that ought to be comprised by the auditor in their financial statements, net present value of the property, plant and equipment is around $16.5 billion of AUD and other $ 5 billion AUD that would be desired in excess of after that seven years. All the values of items should be considered into the financial reports. The auditors should gather information on the processes, evaluating the existing controls and planning the remaining steps of audit. The auditors should gather the information and data in order to acquire the general review of the operations (Catty, 2012). The audit program will help to achieve the objectives of audit. The auditors play an important role in the preparation of the audit reports in the given fiscal year.
2. The inherent risk is the material misstatement risk in the financial statements that arises due to the omission and errors as the result of the factor other than failure of the controls. It is considered to be to be the higher where high degree of estimation and judgment is involved and where the transactions of the organization are complex highly. The control risks are risk of the material misstatement that arises in the financial statements due to the failure or absence of the control of the organization. Therefore, it is important for the organization to have internal controls in order to detect and prevent error or fraud (Chorafas, 2006). The control risks are high where an audit firm does have an adequate internal control in order to detect and prevent errors and fraud in the financial statements. The assessment of the control risk can be higher if a small organization in which the segregation of the duties are not define and financial statements that are prepared by an auditor who do not have adequate knowledge of finance and accounting. The detection risks are the risk that an auditor fails to detect the material misstatements in the financial statements. Therefore, it is important for the auditors to detect and prevent the material misstatements in financial statements of the company due to the error or fraud. The omission or misapplication of audit procedures can result in the material misstatement that remain undetected by auditors. The detection of risk is present sometimes dues to the limitation of audit (Henriques and Richardson, 2004). The detection of risks can be reduced or controlled by the auditors by increasing the sampled number of transactions for the detailed testing. The inherent risks of KGC limited in the PNG are around 80% and detection risk and control risk is around 50% and 10%. Therefore, the audit firm can accept the role of doing the audit of KGC limited in the PNG. The audit risk model can be used by auditors in order to manage the risk of the audit engagement. The auditors should examine the control and inherent risks in order to reduce the risk of audit (Horngren and Harrison, 2007). The implementation of strategies will help to detect risk and control the risks within the organization.
3. The auditors should prepare the plan after selection of junior and senior staff allocating the tasks to them. The auditor includes all the procedure in the written form, the objectives of each department and the directions that to be given to staffs that helps to control the work and implementing programs into actions (Kessler, 2013). The audit program refers to detailed plan of work that includes the work time and procedure to do the work. The audit program includes the following procedures:
The audit program helps to control and guide the junior staffs. The points that should be included in the audit program are as follows:
The items that are mentioned above are as follows:-
4. The fair market cost of the PPE should be presented in the financial statements. The auditor should estimate the fair value of the assets on the basis of amount received from the sale of the assets in the transaction amid the market participants at amount date. Therefore, to measure the fair value of PPE an auditor should take into account the main characteristics of liability or assets and assuming that the assets is exchanged in the transaction at measurement under the market condition (Lehane, Fabiani and Guttentag, 2012). The auditor should use the valuation techniques and methods in order to measure the fair value of PPE. The main concern is to evaluate the fair market value of the assets. The financial statements should includes the liabilities and assets that to be measured at fair value on non recurring or recurring basis in financial position statement subsequent to the preliminary gratitude, the inputs and the estimation techniques that should be used.
5. The future that can be focused is the environmental aspects that are created for the determination of the aspects for the proper creation of the settings in the star mountains and thus due to the ore mining process, all the sludge with the proper processing and pipe lined to the sea water. Due to this the creation of the pollution takes place and hence, due to this the health issues arise (Ma, Masters and Mancinelli, 2015). The water gets contaminated and environmental groups of Australia have concluded that the sludge is polluting the waters and hence the waters are also getting contaminated. This leads to the several health issues. Thus the future prospects determine the issues and also the company KGC limited ties to mitigate the issues for the future safety creation and the proper development of the safety in the environment. The future prospects also enhances the future safety and the enhancement that helps the company KGC limited to develop and also helps in the creation of the more values in the market. The employment increment also determines the increment of the production processing of the ores for the creation of the increment of the product and thus it also enhances the events and the circumstances that can be enhanced for the future prospects of life line of the company KGC limited (Machado, 2014). The costs are also decided for the remediating of the sludge spills and thus, it also helps in the creation of the safety environment with the proper processing of the operations for KGC limited.
6. The triple bottom line theory can be described as the reporting system that is utilized by Karrick Gold and Copper Limited. This is a business accounting strategy that is implemented in order to promote the information which is to be provided to the stockholders of the company. The triple bottom line is a theory that is dissimilar from the traditional accounting systems. With the triple bottom line theory, the influence of the organization on the surroundings is determined. There are primarily three principles of triple bottom theory (Masters-Stout, Costigan and Lovata, 2008). These are individuals, plant and benefit. This can be explained as the intentional push to financial, ecological and social contemplation in the organization’s assessment and fundamental leadership form. This type of reporting assists in building up a standard buy that a firm needs to work to focus on the average effect of their activities in case of both positive and negative sense inside the company (McCambridge, 2015). The KGC Ltd’s triple bottom procession concentrates on the interest of the societal and the ecological contention among the group of companies. At the time of resuming data on KGC Ltd Company influence an issue that is impacting the supportability. There will probabilities of the development of both positive and negative matters. The reporting of triple bottom line is consolidated signifying the fact that the business is continuing in best ways beside the range of requirement is altered. Reporting the specific lines illustrate a drive towards extended and straight forwardness which can be medium by models of shrouded information. Because Karrick Gold and Copper is applying triple bottom line theory that is includes extra reporting, the organization needs to mingle excess data in the reports which are better presented to the partners (McKee, Garner and McKee, 2002). The specific data should necessarily be reassessed repeatedly in the attempt to assure the fact that the extra representative needs to have extra binding techniques after taking the end goal into consideration.
7. KGC Ltd is hoping to raise fun of $ 5 billion AUD by issuing share, which help the company to minimizing the risks of investment as the company want to share its obligation among the shareholder of the company and for this the company is agreed to share the profit of the company also among the shareholders (Metrejean and Noland, 2011). In order to raise fund from the investors and shareholders the management of the KGC Ltd specified that the company’s PNG operation is the key asset of the company as well as the management described that the operation in PNG is very low risk and the company permanently will do the business operation over there in PNG. Now it can be observed that the operation of PNG is really a low cost profitable operation as there are plenty of human resources available there in much lower remuneration and human resources is the key aspects of the business operation (Milburn, 2008). Moreover, the skilled workforce with lower remuneration provide additional benefits to the company, which lowering the costing of the operation and improve the profitability of the company thus ensure better return to the investors and shareholders of the company. The PNG operation is the key operation of the company (Raiborn and Watson, 2003). Moreover, from the operation the company earn substantial amount of money and the share of the company is lucrative for the investors and shareholders. However, it is also seen that the political condition of the PNG is not stable which is most essential for doing business operation as the unstable political situation of a country can hamper the busters operation within the country (Stittle and Wearing, 2008). Besides this, it is also observed that the operation al activities of the KGC in PNG is doubtful as there are several environmental and social organization claim that the business organization is performing their business activities in most irresponsible way and raise protest against the company because it is observed that in a modern fall down of a “tailings” pool deserted 5 million liters of ore-waste slush into a river from which two neighboring villages draw their consumption water, fish, hunt, harvest lotus root and water their taro root, yam and cassava crops (Smith, 2011). Generally the ore waste of the company use to be flushed into the ocean and for this several environmentalist protest against KGC that the company spoils the environmental balance and doing irresponsible activities in order to perform business activities. All these are goes against the company and the company is in a fuss, moreover, the company states that the PNG is their key asset however, after eight years the contract of extracting ore from the PNG mining will be expired and PNG cannot find any other option and its ore storage is also limited also will end in next seven years thus in this context investing in the share of KGC will not be a wise option and it has several risk thus investors should not invest in the share of KGC (Smith, 2011).
References
Abbott, L., Parker, S. and Peters, G. (2010). Serving Two Masters: The Association between Audit Committee Internal Audit Oversight and Internal Audit Activities. Accounting Horizons, 24(1), pp.1-24.
Buys, L. (2014). A triple bottom line planning tool for measuring sustainability. Oxford, UK: Chartridge Books Oxford.
Catty, J. (2012). The Professional’s Guide to Fair Value. Hoboken: John Wiley & Sons.
Chorafas, D. (2006). IFRS, fair value and corporate governance. Oxford: Elsevier.
Henriques, A. and Richardson, J. (2004). The triple bottom line, does it all add up?. London: Earthscan.
Horngren, C. and Harrison, W. (2007). Accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.
Kessler, E. (2013). Encyclopedia of management theory. Thousand Oaks, Calif.: SAGE.
Kortleve, N., Nijman, T. and Ponds, E. (2006). Fair value and pension fund management. Amsterdam: Elsevier.
Larrán Jorge, M., Andrades Peña, F. and Muriel de los Reyes, M. (2015). Factors Influencing the Presence of Ethics and CSR Stand-alone Courses in the Accounting Masters Curricula: An International Study. Accounting Education, 24(5), pp.361-382.
Lehane, C., Fabiani, M. and Guttentag, W. (2012). Masters of disaster. New York: Palgrave Macmillan.
Ma, Z., Masters, G. and Mancinelli, N. (2015). Two-dimensional global Rayleigh wave attenuation model by accounting for finite-frequency focusing and defocusing effect. Geophys. J. Int., 204(1), pp.631-649.
Machado, M. (2014). Reliability In Fair Value Of Assets Without An Active Market. ASAA, pp.319-338.
Masters-Stout, B., Costigan, M. and Lovata, L. (2008). Goodwill impairments and chief executive officer tenure. Critical Perspectives on Accounting, 19(8), pp.1370-1383.
McCambridge, J. (2015). Accounting for the masters of deception. Addiction, 110(7), pp.1072-1073.
McKee, D., Garner, D. and McKee, Y. (2002). Crisis, recovery, and the role of accounting firms in the Pacific Basin. Westport, Conn.: Quorum Books.
Metrejean, E. and Noland, T. (2011). An Analysis of CPA Firm Recruiters’ Perceptions of Online Masters of Accounting Degrees. Journal of Education for Business, 86(1), pp.25-30.
Milburn, J. (2008). The Relationship between Fair Value, Market Value, and Efficient Markets.Accounting Perspectives, 7(4), pp.293-316.
Raiborn, C. and Watson, S. (2003). Survey of accounting. Hoboken, N.J.: J. Wiley.
Smith, M. (2011). Research methods in accounting. Los Angeles: SAGE.
Stittle, J. and Wearing, B. (2008). Financial accounting. Los Angeles: SAGE Publications.
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