Discuss about the Understanding of CSR Limitedand.
This study helps in developing an understanding of CSR Limitedand the different environments which impact the organization. Industry factors, regulatory factors and various other external factors affect the working of CSR Limited. To deal with these factors, the management of CSR Limiteddefine overall goals and objectives of the organization in order to make the plans. This study also provides a detailed understanding of various business risk of CSR Limited. The business risk also includes various internal and external events which are relevant to the preparation of financial statements of the organization. This study also provides details of business risk that may consider at significant risk of material misstatement in the account balances of financial statements of CSR Limited.
The Entity and its environment
Industry Factors
The industry factors which impact CSR Limitedare competitive environment, customer relationships, organization relation with its suppliers and different technologies advancement. The other industry factors which will impact CSR Limited are energy supply and cost, price competition and seasonal activities. The industry in which CSR Limited is carrying out its operations may lead towards risks of material misstatements in the financial statements (Australian Government, 2017). These material misstatements arise from the degree of regulations and the nature and objective of the business of the organization.
Regulatory Factors
The regulatory environment of CSR Limited is composed of applicable accounting policies and financial framework and the political and legal environment. The other regulatory factors which affect the organization are industry specific practices which are formed by government and the regulations which may impact the operations of the organization. Foreign exchange policies, monetary policies, fiscal policies and trade restriction policies are the regulatory factors which impact CSR Limited (Berg, 2010).
Other External factors
The other external factors which impact CSR Limited are general economic conditions of the organization, interest rates, availability of loan in the country and revaluation of currency.
Nature of CSR Limited
CSR Limited is carrying out its business activities in according with the industry factors, regulatory factors and other factors. To deal with these factors, the management of CSR Limited define overall goals and objectives of the organization in order to make the plans. The management of the organization formulates various strategies in order to achieve the goals and objectives and theses strategies by the top management changes from time to time (De Martinis et. al., 2011).
For assessment of risk, the auditor should develop a proper understanding on the nature of CSR Limited. The nature of CSR Limited primary consists of ownerships, governance and the other types of investments. The Auditor should also identify the structure of CSR Limited and the availability of finance for the organization. This understanding will help the auditor to properly make an understanding about classes of transactions, disclosures and account balances in the financial reporting system (Keane et. al., 2012). The auditor should also develop an understanding about the ownership and the key personnel of CSR Limited and their relationship with each other in order to identify the related party transactions in the organization.
The auditor should develop an understanding about the measurement of the financial performance of CSR Limited. Financial performance measurement in the organization always creates inbuilt pressure to take some reasonable steps in order to improve the performance of the organization. This will help the auditor to identify whether the management actions can lead towards material misstatement or not. The The auditor should obtain a particular understanding through carrying out various procedures regarding risk assessment in order to identify the design of controls which can play an important role in the audit of the financial statements of the organization (Asare and Wright,2012). This will also help the auditor that these controls have been implemented in the organization or not.
There is various business risk of CSR Limited which is discussed here. The business risk can be regarding to the preparation of the financial statements according to the applicable financial standards and reporting system prevalent in the country. The business risk to the organization can be to make an estimation of the importance and assessment of the occurrence of transactions in order to make a decision regarding the results which have to be attained. The business risk also includes various internal and external events which are relevant to the preparation of financial statements of the organization. The internal and external events in the organization have the ability to affect the financial reporting and the financial data consistently (Aldamen et. al., 2012). The management of the organization can make plans and actions in order to mitigate the risks. The business risk in the organization can arise due to some changes in the circumstances-
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Specific account balance |
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Assets and Liabilities |
Equity Interests |
Transactions |
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(a) Explain why the account balance is at significant risk of material misstatement. |
The account balance of assets and liabilities can be at significant risk because there can be over statement in the assets and liabilities of CSR limited. There can be inclusion of fictitious receivables or inventory which can lead towards material misstatement. This phenomenon is very much related to the happening of occurrence of transactions in the organization. There can be omission in the assets and liabilities Of CSR Limited that has not been disclosed by the organization and thus generates the significant risk of material misstatement (Christensen et. Al., 2012). |
The account balance of equity interests of CSR Limited can be at significant risk when equity interests are not valued and recorded properly and all the information regarding account balance of equity interests are not disclosed properly. There arises a significant risk if the balance of equity interests has not shown an appropriate amount at the time of valuation and the balance of equity interests has not recorded in the proper accounts. If the equity interests of the current accounting period are not recorded than it can lead towards material misstatements. |
The account balance of transactions of the organization is at significant risk of material misstatement because if the transactions are not recorded when actually occurs and does not relate to the organization. If there have been errors at the time of preparation of financial statements or at the time of posting the transactions into ledger than it can lead towards significant risk. The transactions are not measured properly at the time of putting them into financial statements, than it can lead towards material misstatement. |
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(b) Explain the key assertion at risk of not being valid. |
The key assertion at risk of not being valid for assets and liabilities for CSR Limited is that the organization represents the yearly financial statements according to the applicable provisions and policies of the financial framework of reporting and other statutory reporting requirements and according to the policies of Government of the country (Eilifsen and Messier, 2014). CSR Limited follows all the prescribed regulations regarding measurement, recognition and presentation of assets and liabilities and other events and provides all the required disclosures. |
The key assertion at risk of Equity interests is not being valid for the organization i.e. CSR Limited because Equity interests are appropriately recorded in the financial statements and a full description is provided for them by the organization. The related disclosures and understanding on equity interests is provided by CSR Limited in according to the current accounting and financial reporting framework (Chen and Roberts, 2010). |
Risks of material misstatement at the level of assertion for the classes of transactions is not being valid for the CSR Limited because the organization at a considerable level assists in determining the nature and class of transaction to the extent of procedure of audit in order to get sufficient evidence and disclosures to put in the financial statements (Cao, 2010). |
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(c) Detail one (1) relevant substantive audit procedure to address the assertion at risk as identified in b) above. |
The audit procedure of CSR Limited firstly includes the consideration of auditor for making the required disclosures in the account balances of the organization. The auditor use both quantitative and qualitative disclosures in order to identify the risks and the misstatements respectively. Substantive procedures are carried out by the auditor in order to detect material misstatements and to address the assertion. The auditor design details of the tests to be undertaken in order to assess the risk with the major objective of getting relevant evidence for the audit procedure. This will help the auditor to achieve planned level of assurance at the assertion level. In designing the substantive procedure regarding existence of assertion, the auditor selects various items and transactions from the financials of the organization and thus obtains the audit which can be considered relevant. In designing an audit procedure and to get a complete assertion at risk of misstatement, the auditor investigates different items of the financial items and their reasonability on inclusion in the financial statements (Margret and Hoque, 2016) The nature and extent of the substantive audit procedure depends on the financial reporting complications of the organization and the risk associated with material misstatement. |
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(d) Detail one (1) relevant practical internal control that would mitigate the risk in relation to the assertion at risk as identified in b) above. |
Communication and enforcement of integrity and ethical values is one of the practical internal controls that would help in mitigation of the risk in relation to the assertion at risk. Integrity and ethical behaviour of the individuals in the organization brings the effectiveness in the control system will help the organization. The enforcement of integrity and ethical values will help the management to remove or mitigate risks of the individuals acting dishonest or illegal for some temptations. When the organization communicates the organization policies on ethical values and integrity than the behavioural patterns of the individuals can be set in order to mitigate the risk. This will help the organization to mitigate the risk of any fraudulent activities in the organization and helps to maintain the reputation of the organization in the market (Contessotto and Moroney, 2014) |
Conclusion
From the above study it can be concluded that CSR Limited is carrying out its business activities in according with the industry factors, regulatory factors and other factors. The industry factors which impact CSR Limited are competitive environment, customer relationships, organization relation with its suppliers and different technologies advancement. It is also analyzed from the above study that the business risk to CSR Limited can be regarding to the preparation of the financial statements according to the applicable financial standards and reporting system prevalent in the country. It is also identified from the above study that the account balance of CSR Limited can be at significant risk because there can be over statement in the assets and liabilities of CSR limited. There can be inclusion of fictitious receivables or inventory which can lead towards material misstatement.
References:
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