Auditing & Assurance Services Computation Assessment Answer

Key Topics

• Executive Summary of the assessment 
• The ethical code and standards set by the company related to the following areas:
• Risk assessment
• Computation of income statement and balance sheet ratio
• References

1. Executive Summary of the assessment 
2. Focus in each headline the implication of ASX Corporate Governance Principles from your selected company 
 Conceptualize and explain how to your selected company implements ASX CGC principles.
3. Risk assessment (When performing an audit, you use risk assessment procedures to assess the risk that material misstatement exists. This step is very important because the whole point of a financial statement audit is finding out if the financial statements are materially correct. How exactly do you assess audit risk?) There are various steps of risk assessment procedures, but your report will focus mainly: Recognizing the nature of the company, what’s the company’s market overview? Who (if anyone) regulates the client? What’s the company’s business strategy? Computation of income statement and balance sheet ratio, and Development of common-size financial statements and focus on relevant audit risk and potential steps to reduce risk.
B. ASX CGS Principles: 
The Principles and Recommendations are structured around, and seek to promote, 8 central principles: 
1. Lay solid foundations for management and oversight: Your selected company should establish and disclose the respective roles and responsibilities of its board and management and how their performance is monitored and evaluated. 
2. Structure the board to add value: Your selected company should have a board of an appropriate size, composition, skills and commitment to enable it to discharge its duties effectively. 
3. Act ethically and responsibly: Your selected company should act ethically and responsibly. 
4. Safeguard integrity in corporate reporting: Your selected company should have formal and rigorous processes that independently verify and safeguard the integrity of its corporate reporting. 
5. Make timely and balanced disclosure: Your selected company should make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities. 
6. Respect the rights of security holders: Your selected company should respect the rights of its security holders by providing them with appropriate information and facilities to allow them to exercise those rights effectively. 
7. Recognise and manage risk: Your selected company should establish a sound risk management framework and periodically review the effectiveness of that framework. 
8. Remunerate fairly and responsibly: Your selected company should pay director remuneration sufficient to attract and retain high quality directors and design its executive remuneration to attract, retain and motivate high quality senior executives and to align their interests with the creation of value for security holders
C. Risk Assessment 
1. http://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf

 

Executive Summary of the assessment 

The ethical code and standards set by the company related to the following areas:

?    Respect the rights of security holders: 
The company provides proper empowerment to its shareholders through:
?    Effective communication with the shareholder (Hinde, 1997).
?    Providing balanced and understandable information to shareholders.
?    Making shareholders participate in the general meetings of the company.

All the financial information of the company is published on its website. The company also encourages its shareholders to participate in the annual general meetings of the company through the electric communication methodology. All the important executives and directors attend these general meetings and are liable to answer put forward by the shareholders.

 Risk assessment

Who (if anyone) regulates the client? 
The services provided by the company to various clients is often regulated by the policies of the industry in which the client operates. These policies might relate to trade barriers, energy use, credit policies, taxation policy, governance policy, technological policies, etc. These policy adherence by the client company affect the operations and solution provided by Downer EDI Limited. The company has to provide the engineering and construction solution to the client within the framework of these policies. Hence the company has to deal with various laws and adherence to those laws.
What’s the company’s business strategy?
The company faces many challenges while it operates to provide services to the clients. However each risk is identified and proper strategies is constructed to face the challenge. Being an engineering and infrastructure management firm, Downer EDI Limited is constantly faced by the challenge of newer technological developments that take place in the field of engineering. However the company has adopted a strategy to meet this challenge by constantly upgrading itself in technological knowledge, being proactive in innovation of new technologies, using more appropriate technology for performing services of the clients. The company has a program called, “Fit for Business” under which the company aims to save $250 million across all industries by using better and more upgraded technology for performing business. As mentioned by the chief information officer of the company, this act would help align the company’s business strategy and helps in reducing risks by meeting the growing demands of the business.

 Computation of income statement and balance sheet ratio

Gross Margin    Gross Profit/Sales    12.23%
Net Margin    Net Profit/ Sales    2.49%
Operating Margin    Operating Income/Sales    3.58%
Earnings per share    Income available to shareholders/ average outstanding shares    
Price-earnings ratio    Market value of share/EPS    
Times interest earned ratio    EBIT/interest expense    6.3 times
Return on shareholders’ equity    Income after taxes/equity    0.061

References

Botica Redmayne, N. (2012). Essentials of Auditing, Assurance Services & Ethics in Australia: An Integrated Approach20121Essentials of Auditing, Assurance Services & Ethics in Australia: An Integrated Approach. Massey: Massey University 1st ed. Journal of Accounting & Organizational Change, 8(1), pp.120-122.

Hasan, M., Maijoor, S., Mock, T., Roebuck, P., Simnett, R. and Vanstraelen, A. (2005). The Different Types of Assurance Services and Levels of Assurance Provided. International Journal of Auditing, 9(2), pp.91-102.

Johnson, D. (2017). Corporate Governance. Bradford, West Yorkshire: Emerald Publishing Limited.

Mohseni, A. (2014). Audit Approach to Audit Risk Management, Quantitative Determination of the Components of Audit Risk and Determine the Impact on the Components of Audit Risk in Audit Sampling. SSRN Electronic Journal.