Generates Distributes Energy In Australia †Myassignmenthelp.Com

Question: Discuss About The Generates Distributes Energy In Australia? Answer: Introduction AGL Energy (AGL in the ASX), is a publicly listed Australian company that deals with services and products pertaining to energy. It has been audited for the past decade by a different audit firm and now wants to be audited by NY partners. It is involved in the generation and retailing of gas and electricity for commercial and residential use. It is in the energy and utilities industry where the Australian government has put a lot of measures and policies to encourage the liberalization of the sector and its growth (Chambers and Rand, 2011). For initial audit planning strategy, the company has to conduct preliminary investigations on the audited accounts prior to the companys transfer of auditors. In the planning phase of the company audit, the attention will be on key areas of the audit and ensuring that there is sufficient resources that are allocated for the audit engagement. The planning phase should ensure that the audit being carried out will be well directed, supervised and adequately affected to highly reduce the audit risk involved. This is well articulated in ISA300, planning and auditing of financial statements (Ridley, 2008). Initial audit planning Planning begins shortly or after the completion of the previous audited work. This begins with a review of discussed issues with AGL Energy management and the issues that were previously reviewed under the previous audited accounts such as deficiencies in control or the unadjusted errors. These matters are very essential to the audit of the current financial reports and should be considered when planning. AGL Energy is a very big company and therefore NY partners should consider the size of the company, the nature of business and the complexity of the company (Arens et al., n.d.). There is also other factor that may arise like previous engagements with the company if there was at all. The audit plan will also be revised in progress with the audit and should not be viewed as fixed in one constant phase. Clients business and Industry As earlier stated, the client is in the manufacturing and retailing of energy in Australia. It is a big energy company that is also listed in the Australian stock exchange and performs considerably very well. It operates in the gas and utilities industry. Key people in the management include the CEO, Andrew Vesey who also doubles up as the MD. The products that the company deals in include, wind power, Hydro electricity, natural gas, wind power and coal gas. This is generated, retailed and eventually distributed to retailers. Its revenue as at FY 2016 was $ 11.150 Billion while the income for the same period was $ 1.211 Billion. The number of employees as at 2016 was 3,358 and it owns a 25% stake in Actew AGL a subsidiary (Halpert, 2011). It is Australia largest and private owner of renewable assets and energy. Business risk- Risk assessment phase The objective of the risk assessment phase in the audit of financial statements is to identify sources of risk and then assess whether they could result in material misstatement in the financial statements. The auditor should then identify and assess the risks of material error at the level of the assertions included in the financial statements for the various types of transactions, balance sheet accounts and disclosures. This process provides the auditor with the information needed to focus auditing efforts on areas where the risk of material misstatement is highest. On the other hand, the auditor does not need to audit all control activities related to each type of transaction but must focus on significant risks; that is, in the risks of material error identified and evaluated that, in their opinion, require special audit attention. Subsequently, the auditor should clearly, timely and consistently document the identified risks and the material error evaluation at the level of the financial statements and assertions (Halpert, 2011). The risk assessment consists of two parts: the identification of risk, which consists of identifying possible weak points, and the risk assessment, which is to determine the relative importance of each risk. Identification of risks Business risk: Business risk is the result of events, circumstances, actions or inactions that adversely affect the entity, which impairs its ability to achieve its objectives. Business risk also includes events that arise from changes in the company, complexity in specific areas or lack of timely changes. A business risk can have immediate consequences and generate a risk of material error pertaining to transactions, balance sheet accounts and disclosures of assertions and financial statements (Rupert and Kern, 2016). For AGL Energy the business risks involved include change in foreign exchange currency where the currency falls resulting in losses that compounds the business. Energy is mostly affected by nature and lack of strong winds or rainy seasons will lead to little or no generation of wind and solar energy. Changes in the company management structure are also a business risk that can lead to business risk. Material error in transaction of business may also lead to business risk There are several firms of Public Accountants that, in carrying out their audit work, focus their study on financial statements, in particular on the documentary review, by means of detailed tests of the main items and elements that form the financial statements. This stems from the fiscal approach of some of these audits and, as the case may be, due to the staff's lack of knowledge of applicable auditing standards. This gives rise to several problems for these firms: Lack of identification and evaluation of the ri sks of material error, which causes failures in the design and implementation of responses to evaluated risks (non-compliance with the Auditing Standards [NA]). Incur significant time investments to achieve established audit objectives (operational inefficiency).In addition to the serious problem of noncompliance with NAs, the above drawbacks are reflected in the need to apply additional audit procedures once completed, resulting in a significant investment of time for the team. Comprehensive ration analysis in relation to the industry AGL Energy is doing better than its peers in the industry. This is a comprehensive ratio analysis for the company Ratios Formulae AGL Energy Industry Ratios Net profit margin Net Income * Net Sales 189.875/3197.62= 0.059 196.733/3289.813= 0.006 Asset turnover Sales/ total assets 3197.62/4302.23= 0.79 3289.813/4489.96= 0.74 Current ratio Current Assets Current Liabilities 1249.17/876.46= 1.42 1332.96/706.71= 1.89 Quick ratio Cash + Accounts Receivable Current Liabilities 335.32+462.67/876.46= 0.91 387.18+504.77/706.71= 1.26 Debt ratio Total debt/ total assets 1701.6/4302.2= 0.395 1792.3/4489.9= 0.399 Reflection on this matter How often do you notice that audit work programs are defined, without having made an identification and evaluation of risks of material error? Even without having done the audit planning? The use of analytical procedures allows the auditor to efficiently identify potential risks of error, but not only this, but also allows him to know about the entity audited, its financial development and the industry trends of the entity (Performance audit, 2005). Substantive analytical procedures According to their nature, analytical procedures provide different levels of security; to the extent that the level of security decreases may require the incorporation of another type of procedure or, where appropriate, non-application of that procedure. Likewise, it is necessary to evaluate the possibility of applying together with substantive analytical procedures, details. For example, for the validation of the client balance, it is possible for the auditor to perform substantive analytical tests (evaluation of the seniority of balances) and to apply detailed tests (check of subsequent collections). When evaluating the reliability of the information, the auditor should take the following into account for the information available: the source, comparability, nature and relevance and the controls established in the preparation. Information obtained from independent sources of the entity is more reliable; and when it has been audited or reviewed by independent external parties (Ridle y, 2008). It is advisable to be careful in the reliability of the information used for substantive analytical tests; therefore, the auditor should make sure that you can trust it. Not every report provided by the revised entity may have been prepared with diligence. Types of analytical procedures 1.It refers to the procedures performed by the auditor in order to compare financial and / or non-financial information with information from the industry in which the client develops its object and / or with similar companies. Example: The auditor can compare key customer performance indicators (liquidity, indebtedness, performance and activity) with customer industry indicators. 2. Customer Expectation It refers to the comparison of the accounting information with the expectations that the client prepares (budget). Example: The auditor can make a comparison of the budgeted expenses against the actual expenses to a certain date. Significant variations may indicate errors and irregularities in the financial statements (Ridley, 2008).Before the auditor makes the decision to carry out this type of analysis, it is necessary to evaluate the budget preparation and approval process. 3. Auditor's Expectation These are calculations performed by the auditor in order to determine the reason ableness of an account of the financial statements. For these calculations, the auditor may use operational or financial information. 4. Expectation of financial statements It refers to analyzing the changes that occur in the balance sheet accounts and / or results between two or more periods. Likewise, the trends of key performance indicators (Liquidity, yield, indebtedness, activity) of the current period with previous periods can be analyzed References Arens, A., Elder, R., Beasley, M. and Hogan, C. (n.d.). Auditing and assurance services. Chambers, A. and Rand, G. (2011). The Operational Auditing Handbook. New York, NY: John Wiley Sons. Efficient auditing of private companies. (2012). London: Wolters Kluwer. Halpert, B. (2011). Auditing cloud computing. Hoboken, NJ: Wiley. Performance audit. (2005). Sydney: Audit Office of N.S.W. Ridley, J. (2008). Cutting edge internal auditing. Chichester, England: Wiley. Rupert, T. and Kern, B. (2016). Advances in accounting education. Bingley, U.K.: Emerald. Vona, L. (n.d.). Fraud data analytics methodology.