Discuss About The Planning Of Audit And Risk Analysis Pharma?
Accounting is the activity which records the transaction of businesses on daily basis and results are reported to the management of the company at the regular intervals. Auditing is an activity through which the books of accounts are checked and verified by the independent third parties appointed by the company and is known by the name of auditors of the company. Auditors are required to plan their audit first depending upon the nature of the business of the company and the size of the company. For the purpose of this report, Company – Mayne Pharma Limited has been selected for the study. In this report, at first the understanding of the business of the client has been discussed and how they are performing their functions. In the second section, regulations and the rules that the pharmaceutical companies are required to comply with have been detailed. In the third section, annual report of the company for the financial year ending two thousand sixteen has been discussed in relation to the changes made in each item of the balance sheet and profit and loss account. After that the risk associated with the business identified and the going concern assumptions are verified. At the last the reference has been made to the concept of social responsibility as to how the company has been performing the same. With this the study has ended up with the conclusions.
The beginning of every audit starts with the understanding of the business of the company as to how the company’s main business activities and how does it functions. As per the recent introduction of the auditing standard number 315 which states through the paragraph number eleven that the auditor shall have the understanding of the nature of business of the prospective client before proceeding to the conduct of an audit. In the given case following are the understandings that has been obtained from the Mayne Pharma group limited annual report (AASB, 2006).
The company is the public limited company and listed in the Australian Stock Exchange. The main focus on the company’s business is for supplying or transporting the medicines or the drugs at the place where it is required. In other words, the main business of the company is to deliver the medicines from the place of the manufacture to the place where it will be consumed. The company delivers not only the branded medicines but also the non – branded or the generic medicines across the globe. The second major business activity is to provide the development of contract thereby manufacturing the drugs or the medicines for others. The company has the distributors across different parts of the World including Asia, Europe, North America and Australia. Therefore, the company is into the process of developing, manufacturing, marketing and distributing the products in United States of America. In case of the specialty brands, the company is engaged into the business of the marketing and distributing only of the products in the United States of America. The company has the record of the last thirty years for the development of the innovative ideas and new technologies which had helped the patients to have the affordable medicines and also have developed the new oral drug delivery system. Thus, the company is engaged in developing, manufacturing, marketing and distribution of the medicines across the World (Singh, 2017’ Ullah, 2014).
The company is operating in the pharmaceutical sector. In this sector, all the companies which manufacture the drugs, medicines and thereby marketing and selling will be covered. Whenever any comparison is made, then for the purpose of the benchmarking the strong performer will be selected from the same industry and then comparison is made. The need for determining the industry is correct in the sense that the industry data will provide whether the functions as performed by the particular company is as per the industry current market conditions and the norms. In this way industry defining is very essential and the company is engaged in the pharmaceuticals sector.
The pharmaceutical companies are managed by the department of health, Therapeutic Goods Administration of Australia. From time to time they are bringing the arrangements as to how the pharmaceutical goods are required to be controlled and managed. Following are the regulations as prescribed by the Australian Government for pharmaceutical goods:
Labeling and Packing – The Therapeutic Goods Administration of Australia has defined the labeling and packaging guidelines as to how the pharmaceuticals shall be labeled and packed. The department has issued two orders for labeling and packing which is required to be fulfilled by the companies. One is for the prescription medicines issued under order number 91 and the other is for the non prescription medicines issued under order number 90. Some of the common rules and regulations includes like the labels should be clearly pasted in order to enhance the safety of the consumers, providing the dial dispense packing wherever required so as to enable the customer to identify the number of the dosages available in the pack, etc.
Efficacy – It means that the medicine of the drug that will be given to the patients will be effective for them rather than being an ineffective medicine. The companies have to mention while licensing the new product as to how the medicine will be effective and up to what percentage the same will be effective. It is because as per the common parlance no medicine will provide hundred percent results but the medicine should be like that which will in definite terms meets the criteria of the disease.
Safety Norms – The companies are required to satisfy the safety norms as defined by the Therapeutic Goods Administration of Australia. It states that the company shall produce the medicine which will be effective and that will not in any case carries the side effects or any other type of risks which can be harmful to the patients. The safety norms are tested clinically and then only approval for listing of the medicine for further manufacture and sale will be made available (DOI Australia, 2016; TGA, 2017).
Advertising and Business Promotion – The companies though in other countries are allowed to do the advertising and marketing of their medicines to health professionals and to the patients but in actual the Therapeutic Goods Administration of Australia has specified that the company shall not be allowed to do the advertising in the following cases:
Will create negative impact in the future in case the medicine works out as non effectives
The advertising is totally unreliable where the company is making unnecessary claims like if by having this medicine the headache will be gone definitely with hundred percent otherwise the whole amount will be refunded.
Wrong advertising will always lead to the material risks to the life of the public and therefore the company is required to follow all the rules and regulations as defined by the Therapeutic Goods Administration of Australia.
The financial statement consists of the three statements. One is the statement of the balance sheet which helps in determining the financial position of the company as on that date. Second is the statement of the Profit and Loss which provides the financial performance that the company has gained over the years and lastly is the statement of cash flows which provides the detail of the cash inflows and cash outflows that the company has made during the year and helps in determining as to how much has been cash and cash equivalents increased or decreased during the year. In the following table, the changes in the major items of the financial statements of the company for the last two years have been mentioned.
Balance sheet is statement which shows how much the company owes from another person or how much the company owes to the particular liabilities (Company Official Website, 2017).
|
BALANCE SHEET |
||||
|
(In ‘000 dollars) |
||||
|
S. No. |
Particulars |
2016 |
2015 |
Increase / (Decrease) |
|
1 |
Trade and Other Receivables |
123716 |
64657 |
59059 |
|
2 |
Other Current Assets |
887653 |
5333 |
882320 |
|
3 |
Trade and Other Payables |
1020553 |
59980 |
960573 |
|
4 |
Interest bearing loans |
76331 |
61756 |
14575 |
Profit and loss statement provided the details as how the company has performed over the last two years.
|
PROFIT AND LOSS ACCOUNT |
||||
|
(In ‘000 dollars) |
||||
|
S. No. |
Particulars |
2016 |
2015 |
Increase / (Decrease) |
|
1 |
SALE OF GOODS |
206629 |
96316 |
110313 |
|
2 |
R&D Expense |
8731 |
5588 |
3143 |
|
3 |
Marketing and Distribution |
38029 |
17549 |
20480 |
|
4 |
Finance Expense |
2494 |
5945 |
(3451) |
Cash flow statement provides the detail of the cash movement made under the three heads – operating, financing and the investing activities and as to how the cash has been flowed.
|
CASH FLOWS |
||||
|
(In ‘000 dollars) |
||||
|
S. No. |
Particulars |
2016 |
2015 |
Increase / (Decrease) |
|
1 |
Operating activities |
53504 |
22420 |
31084 |
|
2 |
Investing Activities |
(83798) |
(95504) |
11706 |
|
3 |
Financing Activities |
17990 |
115109 |
(97119) |
From the above analysis, it is very well established that both the financial years have drastic change in the value of items reported in the balance sheet, profit and loss account and cash flows of the company.
As pet the nature of the business of the company and the complexity of the case within which the company is working, the following has been estimated as risks which are associated with the revenue:
Increase in the Revenue – One of the major risks that has been encountered by the company is the increase in the value of revenue. It has created the shocking news for the company in the market. On the one hand the company’s revenue has been increased considerably over the last years and on the other hand the company has paid the maximum of the amount of the loan outstanding in the books of accounts. If this is the practice adopted by the company then there would have been the risk of utilizing the short term funds against the payment of the long term funds. As per the generally accepted accounting policies the company is not required to do so and in case it has been done then it shall be mentioned in the auditor report. Thus, if the same practice is followed then there will be the risk of liquidation in the future.
Increase in the Expectation of the customer – In this current scenario, there is great pressure from the customers regarding the new products that will be launch and when it will get started to be available at the shops. The customers are ready to pay for their better health but the company does not have sufficient knowledge and worth and thus will bring down the reputation of the company.
Poor Productivity –As per the industry norms, the level of output of the Pharma companies is stable and stagnant. But the company have generated higher revenue which details that the there might be some chances of the manipulative practices and has thus increased the risk of having the material misstatements (AASB, 2013).
Poor Management – In the current scenario, the nature of the work and the official climate which the company has belongs to that of the traditional one which has increased the chances of having the violation of the accounting principle which in turn will be regarded as the material misstatements (MSH, 2017).
Thus, in this manner the risks have been identified.
As per the going concern assumption of the accounting principles, it has been mentioned that the financial statements of the company shall be prepared and presented on the basis of the going concern assumption. In other words it means the financial statements are prepared so as to give impression that the company will exists and work for future years. There will not be any case which leads to the closure of the operations of the company (Boyce, 2005).
In the given case, the company has recalled some of its major brand products and removed them from sale. Although the company is having the major business of brand products but the company will not be affected as the company’s main line of activity or the main line of business would not stopped rater it will keep going. If the major brand products have been discontinued then the company will still in the business of selling the products which are generic in nature and are not branded. Thus, in this way the going concern assumption will not be affected.
Social responsibility plays the very important role in the success of ever organization whether it is big or small, whether it is effective or non effective. Social responsibility is defined as the responsibility of the company towards the society of the country within which the company is operating. The corporations Act, 2001 along with the accounting standards, has prescribed that the company is required to report the company’s policies and procedures in the report to ensure that the company is not affecting the rights and the privileges of the society and also takes care of the society. The report which is prepared is known as the corporate social responsibility (Shaw, 2008).
The company has issued the first sustainability reporting for the year ending 2016. Thus, in this the first report will be analysed. The report has been prepared in accordance with the Global Reporting Initiative standards. The report has contained the thirty eight clauses and each clause has been detailed. The report has contained the bifurcation of the stakeholder detailing the mechanism to be appointed for the engagement and the examples of the different key interest that the stakeholders have in the business of the company. For instance customers are the main stakeholders of the company. Their engagement with the business of the company has been entered through the visits at the office or separate meetings. Their key interest in the working of the company would be to have the good quality of product; the supply of the products shall be timely delivered to the customers of the company and also the pricing strategy adopted by the company. The bifurcation of other stakeholders has also been mentioned. In this manner the social responsibility statement have been prepared.
As it is the first time of issuing the corporate social responsibility, the certificate of assurance may be obtained from the external parties.
Conclusion
An auditing plays the significant role in the success of every company. The auditing helps in verifying each and every function of the business of the company and reporting the discrepancies if any to the management of the company. In the report the analysis have been made of the financial statements of the company – Mayne Pharma Limited and how each item of the financial statements of the company is important for the stakeholders of the company. Audit plan has been detailed with the clear understanding of the business of the company and has been ended up with the social responsibility of the company. Each item of the financial statements has been detailed and the interpretation thereon has been made. In order to conclude, each and every company shall represent the true and fair view of the state of affairs of the company and the financial performance of the company and along with that the auditor shall report any material misstatement to the management of the company and if requires shall be reported to stakeholders as the key audit matters specified in New Auditing standard 701. .
References
AASB, (2006), “ASA 300 – Planning and Audit of a Financial Report” available athttps://www.auasb.gov.au/admin/file/content102/c3/ASA_300_28-04-06.pdf accessed on16/09/2017.
AASB, (2013), “ASA 315 – Identifying and Assessing the Material Misstatements through understanding the entity and its Environment” available at https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_ASA_315.pdfaccessed on 13/09/2017.
Boyce J, (2015), “PWC Pharma Industry Surveys Highlights” available at https://medicinesaustralia.com.au/media-release/2015-pwc-pharma-industry-survey-highlights-challenges-for-innovative-medicines-sector/ accessed on 16/09/2017.
Company Official Website, (2017), “Annual Report” available at https://www.maynepharma.com/about-us/about-mayne-pharma/ accessed on 17/09/2017.
DOI Australia, (2016), “Australian Industry Report 2016”, available at https://industry.gov.au/Office-of-the-Chief-Economist/Publications/AustralianIndustryReport/assets/Australian-Industry-Report-2016.pdf accessed on 16/09/2017.
MSH, (2017), “Pharmaceutical Legislation and Regulation” available at https://www.msh.org/sites/msh.org/files/mds3-ch06-legislation-mar2012.pdf accessed on 16/09/2017.
Shaw B, (2008), “Australian Pharmaceutical Industry at a Crossroad?” available at https://medicinesaustralia.com.au/files/2009/12/Australian-Pharmaceutical-Industry-Report-2007.pdf accessed on 16/09/2017
Singh R, (2017), “Financial Management in Pharmaceutical Industry”, available at https://www.slideshare.net/dentobizz/drricha-project-cfm accessed on 16/09/2017.
TGA, (2017), “TGA Regulatory Framework” available at https://www.tga.gov.au/tga-labelling-and-packaging-regulatory-framework accessed on 17/09/2017.
Ullah A, (2014), “Planning and Audit of Financial Statements” available onhttps://leaccountant.com/2014/12/08/asa-300-summary-planning-an-audit-of-financial -statements/ accessed on 16/09/2
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