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Assignment 1: The Planning Of The Audit Of Woodside Petroleum (Essay Sample)

Instructions:

Description - REQUIREMENTS/QUESTIONS:
(a) From your research, identify four (4) issues or events (accounting or otherwise) that may have an impact on the planning of the audit of Woodside Petroleum for years ending on or after 31st December 2013.
HINTS: Students should use initiative in answering this question.
Remember auditors are trying to find conditions or events that might give rise to material misstatement. Whilst not necessarily related to Woodside Petroleum, ASA 315 provides some examples of common conditions and events that may indicate the existence of ‘risks of material misstatement'. Please go to Appendix 2 of ASA315 of your Auditing Handbook for a broad categorization of possible events or conditions that might possibly apply to Woodside Petroleum. Please be warned however that you MUST demonstrate clearly (with substantive research evidence that is appropriately referenced) that an identified issue relates specifically to Woodside Petroleum and the planning of its audit.
Inclusion of evidence of research is critical. Do NOT merely use information from the company's financial reports – to score well you must find independent research evidence to support the issue. Better quality research = better quality marks.
(b) State what audit evidence you would gather in order to gauge the issues identified in part (a) above, for inclusion in the planning strategies for the audit of Woodside Petroleum.
HINTS: When auditors identify conditions or events that give rise to the risk of material misstatement, they design information (evidence) gathering procedures in order to establish whether or not the identified risk exists and may result in material misstatement in the financial reports. This question is asking you to use your ‘best judgement' to identify relevant audit evidence you might seek in the audit of Woodside Petroleum. All the different types of audit evidence that might be referred to, is shown in paragraphs A10 to A25 of ASA 500. The challenge for students is to make the evidence gathering activities SPECIFIC to the risks you identified in part (a) above. We do not expect you to know EXACTLY what documentation etc you would find at Woodside, but you should be able to identify documents or records or information you would look at and/or people you would speak to, from your experience and studies in the Unit. Broad brush answers (eg “look at sales documents for evidence of unusual sales”) will not be sufficient. Think about the specific information you might seek in a real world situation. Where appropriate, be sure to use in-text referencing.
The assignment is split into two questions – please make sure you answer them as two separate questions. There is no need for an introduction, a synopsis, a conclusion or summary for assignment 1. You are asked two questions – answer them and make sure you use headings to indicate when you are answering question 1 and then question 2.

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Content:

Assignment 1
Name
Institution’s Name
Part I
Fraud Risk
It is also important for the auditor to assess risk of material misstatement due to fraud. Fraud is defined as an international act to obtain illegal or unjust advantage through deception. The choice of looking for fraud risk is mainly brought about by major incentives of risk of fraud that are clearly evident in Woodside petroleum (Woodside Petroleum, 2013). Despite the fact that these incentives does not necessarily indicate that an organization has engaged in fraud, they show that an organization may be inclined towards committing fraud (Mock and Turner, 2005). Some of the incentives to commit fraud includes falling profits, poor cash flows and ongoing losses. Looking at the Woodside petroleum income statement for the year ending December 2013, it is clear that the company witnessed substantial losses in 2013, there has been pronounced poor cash flow both in 2012 and in 2013, and the 2013 annual profits are significantly lower than 2012 annual profits.
Closing Procedures
According to Bedard and Johnstone (2004) there is a risk that most of companies or organizations have inadequate closing procedures. Basically, in finalizing the financial statements, firms will close their financial reporting period, and the revenue and expense items need to include all the transactions that occurred during the period as well as exclude the transactions that relate to other periods. Moreover, the asset and liability balances should also include relevant items, contingent liabilities should completely reflect future obligations and accruals must be complete. Significant errors can be eliminated through having monthly financial statement, and they are likely to be more evident in yearly financial statements. Woodside Petroleum prepares quarterly and annual financial statements.
Complexity of a Company
Complexity of a company is an issue that should be considered in auditing planning. Complexity of a company is determined by its operations, governance, ownership and its investments or financing of the company. Project partnership with other entities is a firm’s investment. Understanding of the complexity of a company will help the auditor to know transactions and accounts expected in the financial statements reports. The risk of material misstatement due to complexity of a company can be caused by project partnership. The risk of material misstatement arises when the percentage share of joint venture plans is not well accounted. Woodside Petroleum has joint ventures such as Daewoo International Corporation, and governments like Peru, Brazil and Canary Island (Woodside Petroleum, 2013). Therefore, Woodside Petroleum can be said to have complexity of a company.
Tax Risk
Tax risk, mainly in large corporations with global initiatives, is also another issue that the auditor should assess. Mainly, large initiatives such as moves to shared service environment are some examples of initiatives that are critical for tax to be involved in up front. Evidently, Woodside petroleum is an international organization operating in a number of continents and also it enjoys a number of global initiatives in the areas of operation (Woodside Petroleum, 2013). As such, it is exposed to tax risks and therefore this should be considered by the auditor as a main issue. Moreover, having joint venture in Brazil exposes the company to tax risk more so because Brazil and Latin America has a reputation of tax resulting to greater tax risks.
Part II
Fraud Risk
While assessing the fraud risk, the auditor should adopt an attitude of skepticism so as to ensure that all the indicators of potential fraud that could be evident are well investigated (Joyce, 2006). While remaining independent of the client, as well as maintaining a questioning attitude, the auditor should search thoroughly for corroborating evidence which could be indicated by red flags such as high turnover of the key employees, overly dominant management, key finance personnel refusing to take a leave, inadequate training programs, lack of or ineffective) internal auditing staff, weak internal controls and policies, unusual transactions, and poor compensation procedures.
Closing Procedures
In order to assess whether Woodside Petroleum has risks associated to closing procedures, the auditor will need to look and check all the financial reports including the quarterly and annual financial statements in order to evaluate the accuracy of the firm’s closing procedures while preparing the reports (Johnstone, Gramling & Rittenberg, 2014). More importantly, if there are errors such that the closing procedures seem to be inadequate, there is exclusion of relevant items in the asset and liability balances, accruals are incomplete, contingent liabilities do not reflect future obligations and the transactions are not always recorded in the appropriate reporting period, the auditor, should then plan to spend more time conducting detailed testing through the year.
Complexity of a Company
In order to investigate material misstatement due to complexity of the organization, it is important for the auditors to seek obtain independent financial reports from various departments and projects in each of the country the company is operating in. the auditors should compare the independent reports with the company’s financial report in order to look for any misstatement of materials. More importantly, in case of partnership with other firms, like the case of Woodside petroleum, agreements pertaining the projects will also help to establish whether there are cases of material misstatement (Rittenberg, Johnstone and Gramling, 2012).
Tax Risk
In looking for the evidence related to tax risk, the auditor should seek to find out how efficient the process of compiling data for the tax provisions, and mainly whether there is globa...
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