QUESTION 1:
AUDIT RISK:
Audit risk is the type of risk that auditor search while conducting audit of financial statements of the company. There are mainly three types of audit risks that auditing company should search in the financial statements of Argent Minerals Limited. The three audit risks are inherent risks, control risk and detection risk. Among all these risks, inherent risks are considered as one of the major risks in auditing.
Inherent Risk:
The risk that occurs due to the presence of complexity in the business or transactions of the business is known as inherent risk (Andon, Free and Sivabalan 2014). The mistakes in judgement die to the complexity of the transactions, inherent risk takes place. The change in external environment may also give rise to such risk.
Some of the major inherent risks that auditing teams needs to consider are provided below:
- The most common types of inherent risks that is mainly common in financial service sector. The changing in rules and regulations affects the creation of the financial statements of the company.
- The valuation of the derivative products also creates confusion and leads to the material misstatement.
- The material misstatement also occurs when the company considers the transactions of the off balance sheet entities.
GOING CONCERN:
After analysing the annual report of Argent Minerals Limited it is evident that company’s positions and financial statements raise questions on the going concern (Barr-Pulliam et al 2017). As per the analysis of the balance sheet of the company it is evident that the liability of the company in 2019 was $1,395,276. This liability is related to the R&D claims payable. The general interest charges are also included with the liability amount. After consulting with ATO, the company entered in an agreement that states that the company will make monthly payment of $5,000 (Asx.com.au. 2020). This will continue until Australian Industry completes its review process and issues its determination. These will give rise to the material uncertainty and hence the questions will arise in future on the going concern of the company.
POSSIBLE RISK:
After analysing the 2019 financial statements of Argent Minerals Limited it is evident that the company may have material misstatement in the long-term liability of the company, short-term assets and remuneration of the director. After identifying the current positions of the company it is evident that the long-term liability of the company may understated. The company’s long-term liability should be much higher (Asx.com.au. 2020). The short-term assets, especially cash account of the company is overstated, because the company decided to provide the cash every month to ATO, which certainly depletes the cash balance of the company. Another chances of material misstated is the remuneration report of the company. The company’s remuneration report may be understated, as it can easily believe that the remuneration of the management is much higher than what is presented in the 2019 annual report of the company.
BETTER CORPORATE GOVERNANCE:
The good corporate governance increases the accountability of the company. The better corporate governance means that the company will be in very good positions and able to avoid any kind of big danger. The good corporate governance can mitigate the company’s risks. The bad corporate governance may affect the financial performance of the company and also compromise the shareholder’s interests.
CONCLUSION:
After analysing the above discussion it is evident that the company is facing problems with large liabilities. The problem may affect the going concern of the company. The huge liability may also increases the chances of making material misstatements in the financial statements of the company.
QUESTION 2:
As stated in the case study recruitment of ex-audit members on the client’s company board may affect the quality of the financial statements of the company. Instead, if the ex-audit member is in the audit committee then he/she can identify the potential risks that may present in the financial statements of the company (Pitt 2014). The experience of the ex-audit member can also assists other audit team member to identify any kind of material misstatement that may present in the financial statements of the company. The audit process of the company will also become more efficient and hence the company can successfully maintain the shareholder’s interests.
REFERENCES:
Andon, P., Free, C. and Sivabalan, P., 2014. The legitimacy of new assurance providers: Making the cap fit. Accounting, Organizations and Society, 39(2), pp.75-96.
Asx.com.au. 2020. Available at: https://www.asx.com.au/asxpdf/20190919/pdf/448ntz8qrrmc3q.pdf.
Barr-Pulliam, D., Brown-Liburd, H.L. and Sanderson, K.A., 2017. The Effects of the Internal Control Opinion and Use of Audit Data Analytics on Perceptions of Audit Quality, Assurance, and Auditor Negligence. Assurance, and Auditor Negligence (August 17, 2017).
Pitt, S.A., 2014. Internal audit quality: Developing a quality assurance and improvement program. John Wiley & Sons.
