Financial Statements, MYOB And Auditing Standards

Overview of Financial Statements

Question:

Discuss about the Fraud Resistance and Detection System.

Financial statements are an important aspect of any business organization in analysing the company’s financial position and statement which includes balance sheet, journals, profit and loss account, and statements of the company. It is necessary for every company to analyse its financial accounts time to time. It also provides information regarding net profit, gross profit, operating profit. Sales amounts are divided by these to find out the profit. All activities regarding investing, financing, sales, profit, operational are summarized under the financial statement of a company (Blay, 2005). Financial statements are generally audited by the company to know about the frauds and other fraudulent means in the accounts also the business growth. Accounts are sometime audited by the Government departments to find out any tax evasion, financing etc. Financial statement is includes of three statements:

• Income statement
• Balance sheet
• Cash flow statement.

Auditors, Accountants are fully dependent on these statements to prepare financial statement. These three are also called as Annual report. Financial statements are summarized annual reports. These statements provide information to many users like managers, shareholders, prospective investors, financial institutions, suppliers, employers, competitors etc. These financial reports are made by the company to show the financial position of a company at the ending of the accounting period. This statement is the main source of information for many decision makers of the company.

MYOB (Mind Your Own Job) is a public company founded in the year 1991 by Christopher Lee including a team of developers at Teleware, Inc. which develop accounting software’s. Its headquarters are in Glenwaverely, Victoria, and in Australia. Teleware was acquired by Best Software Inc. in 1993. MYOB products were republished by Data Tech Software and in the year 1997 it entered into an agreement with Best Software to purchase the company and changed its name to MYOB, Inc. and also bought the property rights of MYOB software. In 1999 Data Tech Limited changed its name to MYOB. After that it was listed on the Australian Stock Exchange on July 9, 1999. In 2009 the bid to completely takeover the company was taken by a private equity consortium led by Bain Capital. The amount of takeover deal was undisclosed. By this the Bain Capital acquired a major stake in its shares including the management. Mind Your Own Business is an Australian Multinational Corporation. It provides more than 50+ products to the small and medium businesses.

History and Products of MYOB

It provides wide range of products and services relating to accounts like _ accounting software’s, payroll, customer’s relationship management, job management, human resource management, profession tax products. It also provides tax accounting and other services to the small and large businesses. The main aim of MYOB is to provide efficient accounting Software’s, tools at very reasonable price to the businesses. It helps to small start-ups, small and medium businesses by giving every possible help and guidance through its management. At present MYOB is providing its assistance to over 1.20 million Australian and New Zealand companies by making available it 50 + products. This company also have around 40,000 accountants, bookkeepers and other profitable partners working with the company in its development and in achieving its set goals and objectives (Cook, Brown and Lightle, 2009).

Approximately over 60% companies of Australia and New Zealand use accounting software’s of MYOB because they are safe, easy to understand and less time consuming in the work. Its real purpose to give every possible help to the start-ups and small businesses to be more productive, in saving their time and be more competitive in market. It supplies a large range of desktops, cloud based management system therefore there are different segments of operations.

In this ASA315 this auditing standard is used by AUASB by the help of this standard by this entity and environment is identified and the risks can examine which is related to the material statement. This standard of auditing forms fundamentals and applications and some material is the responsibility of the auditor. The duty of auditor is to find out the risks with the help of systematically procedures to the understanding of the entity and the internal system which is related to the audit. ASA520 shows that with the help of this accounts can examine those accounts in which statement is wrong (Botica, 2012). ASA230 it is audit documentation is used to identify the documents and also identify the every aspect of auditing and document must be in an order. In addition to this, the weakness of the financial report of entity is due to material misstatement, and also find out those entities which suffered from error and frauds and later this error and frauds are solve out by engagement team. ASA230 it is documentation is used for verify the each document in the audit. Following are five accounts at risk of being materially misstated:

ACCOUNT	REASONS
Sales account	Sales account can be said as the significant account most at risk of being materially misstated because MYOB has many different segments from where they are earning revenues (Young and Coleman, 2010).
Cash and cash equivalents account	Cash and cash equivalents account is the account that management or finance manager has to handle carefully because they are highly liquid and can be manipulated or stolen. Therefore it is possible that cash and cash equivalents can be materially misstated. In case of MYOB Limited, Cash and cash equivalents holds significant value in current assets and in total assets (Burgherr and Hirschberg, 2014).
Inventories Account	It can be observed from the statement of financial position, that inventories has significant holding in total current assets. Since MYOB has different business segments therefore inventories from different businesses needs to be taken care and managed (Pickett, 2010). While valuating inventories, many estimates and valuations bases needs to be decided.
Reserves	Reserves includes amount that are available for business expansion of business and these amount are kept aside (Spires, 1991). From the analysis of statement of financial position, it has been observed that reserves have been significantly reduced from last year’s figure.
Finance cost	From the analysis of financial statements, it has beenobserved that finance cost has been significantly reduced from last year’s figure. Therefore there is possibility that there can be any material misstatement.

Services Provided by MYOB

Materiality is defined as it is an auditing tool which is related to any amount, transaction, and discrepancy it is known as materiality. While preparing the final statement auditors sets the limit or the level of companies which are small or big that the amount or the item must be in the limit in the financial statement. It is known as materiality. In this with the help of audit report it shows the clear pictures of the financial statement of the company but still the audit and assurance does not provide the 100%gurantee that the financial statement is prepared by the auditors by the help of this also the financial statement of the company is not may be in the good position (Chen and Pevzner, 2012). Only with the help of this report, a path can be provided for decision-making. Audit report works it is based on the decision-making process of the company then only they can examine the different business operations and the financial position of the company. A material error or frauds can occur so to solve these error auditor must have to examine all accounts or the material amount. In addition to this auditors must have to finalize the limit of the material amount if the amount is beyond the limit it affects the stakeholders and the decision-making process. It is the responsibility of the auditor to solve out the problem of auditing and the also solve out the financial statement material account.

In this two types of materiality is mention and they have to be managed by the auditor’s i.e. performing and planning materiality. These standards set by ASA320 for the organization which sets the accounting standards. The performing materiality is used by the audit team to sets the process of the audit and the planning materiality is used by the auditor at the starting level of auditing. In this the planning materiality can be used or not as final planning, even changes can be done. In this condition must identify these issues. The identification of the materiality is known as a professional experience. In this level of skills of the audit is needed for the materiality (Knechel and Salterio, 2016).

In this MYOB limited, materiality level can be check while considering the revenue comes by examining the sale of the company of the previous year and till now. The base is the most important for any company if the base is not found of any company it became tough to calculate the materiality same as in MYOB Financial statements are an important aspect of any business organization in analysing the company’s financial position and statement which includes balance sheet , journals , profit and loss account, statements of the company. It is necessary for every company to analyse its financial accounts time to time. It also provides information regarding net profit, gross profit, operating profit. Sales amounts are divided by these to find out the profit. All activities regarding investing, financing, sales, profit, operational are summarized under the financial statement of a company (Ianniello, 2015). Financial statements are generally audited by the company to know about the frauds and other fraudulent means in the accounts also the business growth. Accounts are sometime audited by the Government departments to find out any tax evasion, financing etc.

Materiality and Audit Risks

Audit risk is of three types auditing assurance and risks. These risks are considered of controllable risks and uncontrollable risks. Audit risks mainly consist of or it is a combination of three types of risks in the auditing 1) Audit risk is a bigger risk in audit and these risks are considered only after considering the all three risks. 2) Audit risks are also known as auditor’s inability for e.g. while preparing the financial statement of the organization is posted wrong and the auditors are also failing to identify the error (Sidortsov, 2014).

Inherent risk: Inherent risks are those risks which occur due to risks which include the judgment and estimations are required. Inherent risks are those where the decision is taken on the basis of personal experience and judgment and due to this inherent risks factor increase high. This inherent risk is known as uncontrollable risks and risks can be controlled based on the judgments and non-estimated decision and as a result, failure can be control.

Control risk: Control risk can occur due to having the lack of internal control system is executed in an organization and due to this effect is on the financial statement and error and frauds done. The control risk is not used at the level of the control system and due to this control risk occurs in the business operation (Hoelzer, 2011).

Detection risk: Detection risk can occur when the auditors cant is able to detect the errors and frauds in the financial statement of the company. The risk can be detected or it depend on the ability of auditors skills of auditing.

ACCOUNT	Inherent risk	Control risk	Detection risk
Sales account	Moderate risk	High risk	Moderate risk
Cash and cash equivalents account	High Risk	High risk	Moderate risk
Inventories Account	High risk (Singleton and Singleton, 2011)	High risk	High risk
Reserves	Low risk	High risk	Moderate risk
Finance cost	Moderate risk	Moderate risk	Moderate risk

Conclusion

The method of auditing used for that the financial transactions are recorded properly or not in the financial statement of the company at the end of the year. Auditing method is used for ensuring that the books of accounts are proper manage or not books of accounts must be proper management and there is no error occurs and also pay attention that there are no frauds done in the books of accounts. With the help of auditing, the business organization can easily evaluate the risks as soon as possible in the books of accounts. The auditing process is also used in finding the features related to the operation of the business property. With the help of audit process, auditors must have to pay attention for finding the errors related to the qualitative and quantitative aspect. Errors can also affect the audit process and by this audit report can be affected. In this auditing, it is most important for auditors to understand the client business. As working continuously it has become easy for the auditors to estimates the transactions events and practices, financial information and also the practices related to financial aspects. Auditors also have the power to understand the entity of a number of sources such as company’s financial statement of current and previous years, books of accounts, discussion with client and employees etc.

References

Blay, A.D., 2005. Independence Threats, Litigation Risk, and the Auditor’s Decision Process*. Contemporary Accounting Research, 22(4), pp.759–789.

Botica Redmayne, N. 2012, Essentials of Auditing, Assurance Services & Ethics in Australia: An Integrated Approach. Journal of Accounting & Organizational Change, 8(1), pp. 120-122.

Burgherr, P. and Hirschberg, S. (2014). Comparative risk assessment of severe accidents in the energy sector. Energy Policy, 74, pp.S45-S56.

Chen, Krishnan & Pevzner, 2012. Pro forma disclosures, audit fees, and auditor resignations. Journal of Accounting and Public Policy, 31(3), pp.237–257.

Cook, John K., Brown, Kevin F. & Lightle, Susan S., 2009. Voluntary disclosure agreements and auditor independence: crafting a policy that fits the process.(practice management). The CPA Journal, 79(12), pp.60–62,64–66.

Handsworth, A., 2012. Risk Management Audit Guide. s.l.: Xlibris Corporation. .

Hoelzer, D. 2011. Audit Principles, Risk Assessment and Effective Reporting. EnclaveForensics.

Ianniello, G. 2015. The effects of board and auditor independence on earnings quality: Evidence from Italy. Journal of Management & Governance, 19(1), pp. 229-253.

Knechel, W. R. & Salterio, . ‎. E., 2016. Auditing: Assurance and Risk. s.l.: Taylor & Francis. Copyright. .

Pickett, K. H. S., 2010. The Internal Auditing Handbook. s.l.:John Wiley & Sons..

Samociuk, M., & Iyer, N. 2017. A Short Guide to Fraud Risk: Fraud Resistance and Detection. Routledge.

Sidortsov, R. 2014. Reinventing rules for environmental risk governance in the energy sector. Energy Research & Social Science, 1, pp.171-182.

Singleton, T. W. & Singleton, ‎. J., 2011. Fraud Risk Assessment. s.l.:John Wiley and Sons..

Spires, E. 1991,. Auditors’ Evaluation of Test-of-Control Strength. The Accounting Review, 66(2), pp. 259-276.

Young, B. & Coleman, ‎., 2010. Operational Risk Assessment. s.l.:John Wiley & Sons..