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

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...