Preamble For the purposes of this Group Assignment, assume that you are a member of the audit team responsible for the audit engagement of one of the following Australian Stock Exchange (ASX) listed companies.
Our chosen company is Cochlear Limited (Coh) — Health care equipment and services
Gaining knowledge of your chosen company and its environment (for Requirement 1) Moroney et al. (2017), section 3.1.1) state that; ‘ASA 300 (ISA 300) Planning an Audit of a Financial Report requires that an auditor plan their audit by assessing risk to reduce audit risk to an acceptably low level.’
‘An auditor will undertake various risk assessment procedures to ensure that appropriate attention is paid to the accounts and transaction most at risk of material misstatement (see figure 3.1).’
‘Figure 3.2 includes elements of the preliminary risk assessment phase of the audit. Each element is now discussed, starting with ‘understanding the client’ and proceeding clockwise. The process used by an auditor when gaining an understanding of the client is outlined in section 3.2 of this chapter.’
Moroney et al. (2017), section 3.2) state that; ‘ASA 315 (ISA 315) provides guidance on the steps to take when gaining an understanding of a client. In gaining that understanding the auditor will consider issues at the entity level, the industry level and the economy level.’
ASA 315.A5-16 (ISA 315.A5-16) identifies a number of methods for obtaining knowledge of the entity’s business. These are called risk assessment procedures’.
Identifying and assessing your company’s business risk (for Requirement 2) Please refer to Gay and Simnett (2015, pages 211 to 220).
‘In order to properly assess client business risk, the auditor must understand the entity’s business and industry at two levels.’ ‘The auditor uses this entity and industry information to identify business risks that may have an effect on the audit.’ (see Figure 5.6 on page 214).
‘Business risk are risks that may adversely affect an entity in any of its activities. As indicated by ASA 315.A38 (ISA 315.A38), most business risks eventually have financial consequences and therefore, eventually affect the financial report.’ (see Figure 5.7 on page 216).
Gay and Simnett (2015, page 217) state that; ‘When assessing the risk of material misstatement, in accordance with ASA 315.27 (ISA 315.27), the auditor must use their judgement to determine whether any of the risks identified are a significant risk. ASA 315.4 (e) (ISA 315.4 (e)) defines a significant risk as ‘an identified and assessed risk of material misstatement that, in the auditor’s judgement, requires special audit consideration.’ (see Figure 5.8 on page 217).
. Identify and assess its business risk.
Note, to obtain 70 percent or more for either of these two requirements, there must be evidence of ‘material’ (i.e., quality and quantity) research. By research, this includes finding information about the company and its industry / business from reputable sources / websites (e.g., the company’s own website, IBIS (see library), the ASX, (financial) newspapers and academic/professional journal articles, as available from the library’s databases, etc. Therefore, and as per the submission guidelines (on the cover sheet to this assessment task document), it is important that all reference sources / websites used are cited in the text of your report and listed appropriately at the end of the report in a reference list using APA referencing style.