65010 – It is and Auditing unit of Accounting course. Must has

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It is and Auditing unit of Accounting course. Must has to be topic related and plagarism free. Information must be related to Auditing and Assurance services in Australia.BAC313 Audit Theory and AssuranceAssessment Task – Assessment 2 – 30% weightageSemester 1 2021Submission: Using the Turnitin link on MoodleDue Date: Week 10 16th May 2021 by 11pmStudents are to answer all of the following four (4) parts (Total max. 2,000 words)Part A: Identifying audit risk and audit proceduresPart B: Identify business riskPart C: Identifying and testing effective internal controlsPart D: Identify weak internal controls in the payroll accountStudents will need to use the background information, Internal Control information and the ratio analysis provided below to answer each part asked in the required sectionBackground informationYou are a manager in the audit division at Anderson, Frazer and Mutter (AFM), an accounting firm with offices throughout the major regional centres of Western Australia, Victoria and New South Wales. Although a medium sized firm by national standards, AFM is the second largest regional accounting firm in Australia. Most of AFM’s audit clients are in the agriculture, mining, manufacturing and property industries. All of those industries are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas competitors.You are gathering information to prepare the audit plan of Blasting, Drilling and Earthmovers Limited (BDE), a company that leases and services large mining machinery to several of the gold mines in the region. The following information has been gathered to date.Principle activities of BDE:• mining machine leasing, mainly to gold, coal and iron ore miners.• machine maintenance, and• contracting machine operators to the mines.BDE was incorporated as a private company in 1979 importing and maintaining mining equipment. It survived the downturn in mining in 1982/3 operating profitably as a private company until it experienced a recent mining boom in 2018. At that point the directors decided that the company needed an injection of funds enabling the company to capitalise on the need for extensive new machinery in the mining sector. A combination of share issue and bank finance provided the capital to expand and update the machines that BDE could offer the industry.The directors are:• Mr. Matthew Collins, Chairman.• Mr David Long, Chief Executive Officer.• Ms Cynthia Brown.• Mr Jeff Ferguson.• Mr Patrick Singh.Mr Jeff Ferguson and Mr Patrick Singh are independent, non-executive directors and have been directors since 2010. Mr David Long was recently hired as CEO, coming to the firm with extensive experience in the mining industry. The other two executive directors were employed by the company prior to its public share issue.AFM has placed reliance on most internal controls based on satisfactory results of extensive tests of control. Recent discussion with the client revealed that there have been changes to the systems and software used to record and pay contractors. No other changes to the internal control system have been made since the last audit when the permanent file was updated. In past audits reliance had been placed on the internal controls, thus reducing the amount of substantive testing.AFM has placed reliance on most internal controls based on satisfactory results of extensive tests of control. Recent discussions with the client revealed that there have been changes to the systems and software used to record and pay contractors. No other changes to the internal control system have been made since the last audit when the permanent file was updated. In past audits reliance had been placed on the internal controls thus reducing the amount of substantive testing.Over the past 18 months there has been a decline in the demand for the machinery already owned and an increased demand for computer controlled equipment and for contract staff to maintain this equipment. As a result, BDE has had to increase borrowings to finance the new equipment required. You have walked around the main warehouse and yard and noticed that there are several large used mining machines standing idle in the yard.Ms Leanne Hopkins, the audit partner for BML, has identified several areas she is concerned about and wants you to report back to her about these before you complete the audit program. She has advised you about a few changes in the metals market that may have an impact on BML’s operations. The metals market has fluctuated with:• gold dropping 24.95% since 2015 but has risen 9.25% over the past year.• iron ore dropping 43.78% since 2015 and dropping 9.71% in the past year.• coal rising 9.99% since 2015 and rising 18.35% in the past year.The areas and accounts of interest for the preliminary audit assessment are:• Plant and Equipment.• Machinery Finance Liabilities.• Accounts Receivable.• Lease Income.Ratios extracted from an unaudited set of financial reports at 31 December 2020 together with audited comparatives for the year ended 31 December 2019 and the industry averages are set out below for your review.Ratio 2020 (Unaudited) 2019 (Audited) Industry AverageReturn on equity % 15 22 26Profit/lease income % 8 12 No dataReturn on total assets % 14 17 20Gross margin % 25 25 30Net profit margin % 14.5 18.5 20.27Times interest earned 1.9 3.51 4.10Days in accounts receivables 62 53. 45Current ratio: 1 1.02 1.54 1.66Quick asset ratio: 1 0.7 0.78 0.82Debt to equity ratio: 1 1.05 1.35 1.5Internal Control Information:The Financial Controller for BDE has provided you with the latest internal control manual which includes details of the controls over contract payments. As the system is new you also walk through the system checking that the walkthrough matches the information in the internal control manual.Details of the controls over contract payments evidenced in your walkthrough are listed below:? BDE tenders for a contract to lease a number of machines and provide the operator at a set price over a certain period.? When the contract is accepted an accounts receivable account is set up by the accountant responsible for the machine contract, and a payroll account is set up for the employee who operate the machine.? The payroll clerk demonstrates the setup of the payroll account entering a ‘super user’ name and password specifically set up for the walk through. The menu screen appears and displays many functions.? The clerk selects the ‘add new employee’ function. You are advised that the details can only be entered from a hard copy form signed by the employee and the contracts manager and a signed income tax instalment declaration form. The clerk then enters the following information:? employee name? employee number? contract number? employee address? employee phone number? employee email? start date? employee date of birth? employee tax file number? hourly rate? general exemption from tax Y/NThe fictitious employee is now set up in the system.? The clerk goes back to the main screen and clicks the item ‘enter hours’ and explains that the employee can enter their own hours but that this must be approved by the contracts manager before the pay-run can be processed.? The clerk then approves the hours.? Then the clerk selects ‘process pay-run’ and explains that the system automatically calculates the monthly payments based on hourly rate and the current tax rate. The system also calculates the superannuation accrual for the employee.? The system then generates a standard report entitled ‘monthly pay-run’ that lists the employees, their payments and the total tax paid. This report is then approved by the contracts manager who then, in a live pay run, uploads the Australian Bankers Association (ABA) file to the bank. The pay-run is automatically posted to the general ledger on approval by the contracts manager.? The contracts managers bank login gives him the rights to approve processing of payments on the bank website. The bank account is reconciled monthly by the accountant who also has a bank login that gives him the right to approve processing of payments on the bank website. Other regular payments through the bank account occur on a weekly basis when the accountant uploads the ABA creditor’s payment file to the bank and approves it for processing.You note that the contracts payroll can be checked to the contracts accounts receivable by deducting from the accounts receivable amount the standard mark-up on the contracts.Required:Prepare a business report to answer following parts (Part A-D). Your business report should follow a standard business report format.Part A: 12 marksAnalyse the ratios and the background information associated with the four accounts listed by your audit partner. Identify the potential audit risks and any particular audit steps that need to be undertaken to reduce audit risk.Answer this question using the following headings:Account Analysis(ratio and background information) Audit Risk Audit steps to reduce riskAccounts Receivables Do NOT write on the question sheet all comments must go in the business report in this formatPlant and equipmentMachinery FinanceLiabilitiesLease incomePart B: 3 marksAnalyse the ratios and the background information and list and explain business risks that BDE faces (minimum of 3 business risks required).Business Risk Explanation:Do NOT write on the question sheet all comments must go in the business report in this formatPART C 9 marksIdentify (any three) internal controls in the system that are potentially effective, the risk that the control could alleviate and one test of control for each of the identified potentially effective controls.Answer this question using the following headings in a table format:Effective Controls Risk Alleviated Test of ControlDo NOT write on the question sheet all comments must go in the business report in this formatPART D 4 marksList and identify (any three) weaknesses in internal control for contract payrollInternal Control Weakness What might go wrongDo NOT write on the question sheet all comments must go in the business report in this formatThese last two criteria relate to all of the above questionsProfessional communication 1 markAppropriate resources and correct referencing 1 markMarking criteria:Criteria High Distinction Distinction Credit PassAnalysis of ratios and other information demonstrating audit risk assessment skills and critical andreflective judgement (8 marks) Correct interpretation of ratios and other information provided, demonstrating a sophisticated understanding of how the ratios can be used to analyse the audit risks. Correct interpretation of ratios and other information provided, demonstrating a clearunderstanding of how the ratios can be used to analyse the audit risks. Mostinterpretations of ratios and other information provided correct, demonstrating an understanding of how the ratios can be used to analyse the audit risks. Mostinterpretations of ratios and other information provided correct but a limited understanding of their usefulness in identifying the audit risks.Identification of audit tests that minimise audit risk identified through the analysis of the ratios and the additional information (4 marks) All appropriate audit tests identified with a clear statement as to how these will minimise audit risk, demonstrating a sophisticated level of audit planning. Most appropriate audit tests identified. A clear understanding of how audit tests minimise audit risk. Many appropriate audit tests identified. Some understanding of how audit tests minimise audit risk. Some appropriate audit tests identified. Basic understanding of how audit tests minimise audit risk.Analysis of ratios and other information demonstrating business risk identification skills(3 marks) Strong application of analytical procedures and other provided information to provide comprehensive assessment of at least three items of business risk. Sound application of analytical procedures and other provided information to provide assessment of at least three items of business risk. Some application of analytical procedures and other provided information to assessment of at least two items of business risk.Use of some provided information in listing at least two items of businessrisk. Basic application of analytical procedures.Appraisal of the clients internal control environment and application to the audit risk model(6 marks) Identification of at least three internal controls that are potentially effective, with a comprehensive explanation of the Identification of at least three internal controls that are potentially effective, with an explanation of the risk each one could mitigate. Identification of at least two internal controls that are potentially effective, with an explanation of the risk each one could mitigate. Identification of two internal controls that are potentially effective with basic explanation of the risk each one could mitigate.Criteria High Distinction Distinction Credit Passrisk each one could mitigate.Development of a series of audit steps that assess the effectiveness of internal controls(3 marks) Development of a comprehensive series of audit steps designed to assess the effectiveness of internal controls. This demonstrates a deep understanding of the audit process. Development of a series of high quality audit steps designed to assess the effectiveness of internalcontrols. This demonstrates a clear understanding of the audit process. Development of audit steps designed to assess the effectiveness of internal controls. This demonstrates a moderate understanding of the audit process. Development of basic audit steps designed to assess the effectiveness of internal controls. This demonstrates a basic understanding of the audit process.Identified internal control weaknesses (4 marks) Identification of and comprehensivejustification for at least three payroll and disbursement internal control weaknesses. Identification of and justification for at least three payroll and disbursement internal control weaknesses. Identification of and justification for at least two payroll and disbursement internal control weaknesses. Identification of but limited explanation for at least two payroll and disbursement internal control weaknesses.These last two criteria relate to the whole of the case study. Professional communication (Note: you arerequired to space between paragraphs; use Arial 10pt or TNR 12 pt; use 1.5 or double line spacing) (1 mark) Work contains distinct understandable statements with no errors. Extremely well organised. Content is structured in amanner thatfacilitates the reader’s understanding.All components (executive summary, introduction, body, conclusion) for a business report are correctly presented Work contains distinct understandable statements with minimal errors. Answer is well organised. Contentis structured in amanner thatfacilitates the reader’s understanding.All components (executive summary, introduction, body, conclusion) for a business report are correctly presented with only minor mistakes Minor spelling, grammar and punctuation errors. Work shows evidence of proofreading. Well-structured with one main idea or argument provided per paragraph.All components (executive summary, introduction, body, conclusion) for a business report are correctly presented with few mistakes Some spelling, grammar and punctuation errors found but the work is readable and structured. Work may include too many ideas in one paragraph.All components (executive summary, introduction, body, conclusion) for a business report are presented with some mistakesAppropriate resources and correct referencing(1 mark) A range of sources. All work has been referenced correctly as per Harvard referencing style Used three or more sources. All work has been referenced correctly as per Harvard referencing style Used two or more sources. All work has been referenced within the body of the answer and in the reference list, with few omissions or errors in terms Used one or more sources. All work has been referenced within the body of the answer and in the reference list, with some omissions or errors in terms

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