Auditing Of The Seven’s Annual Reports †MyAssignmenthelp.com

Question: Discuss about the Auditing Of Sevens Annual Reports. Answer: Introduction In this study, the auditing of the Sevens annual reports has been done in order to understand the different standards of risk associated with the different accounts. In more clear terms the inherent assessment of risk is conducted in accordance to the data provided in the annual report. The inherent risk assessment is also executed in order to provide a clear picture of the financial condition of the entity as well as the liquidity position of the organization. The reason for conducting such an audit is that the loophole of the management policies and other procedures will be highlighted after conducting such an audit. Inherent Risk Assessment An inherent risk assessment is done periodically in order to recognize the potential areas of risk that is areas where fraud could occur and the ways to mitigate them. An inherent risk assessment consists of three key steps. Firstly the measure of fraud involved in the system of work or the locations of weakness that could be exploited by committing infringement is judged. Secondly the ways in which a particular employee or member of the organization may commit the fraud, that is the various methods in which the fraud might be committed and thirdly the ways in which the fraudulent tasks committed can be covered up or concealed. Risk of Fraud The risk of fraud is a major risk and takes up a large part of the auditing procedure. Identifying the exact areas where a particular employee can cover up his fraudulent activities and assessing the mindset of that particular employee so as to understand how and why he or she committed such an unethical task really requires sincere effort on the part of the auditor. There are a number of identified areas of risk in the annual report of Seven. These are the revenue recognition funds that imply errors in the highest extent in terms of recording receipts. For an instance a source of revenue may be recognized in some other financial year that is incorrect, therefore increasing or decreasing the net revenue as the case may be. Thus the accounts that are vulnerable to risk of fraud are the accounts receivable and accounts payable. Another area where the fraud risk can be committed is the area related to misclassification of balances which is more or less similar with the issue related to revenue recognition. A person trying to conceal a certain amount in order to increase or decrease the total earned revenue of the firm then he or she may tamper the balance of a particular account. This is known as misclassification of balances. The last area vulnerable to risk of fraud is the area related to misappropriation of assets. Under this category the defaulter may tamper with the balances of the assets and liabilities or may create an entire new asset or liability just to adjust the amount of fraud that has been stolen. Going Concern Risk The going concern risk is associated with the risk that is implemented while ensuring that the particular entity is a going concern. The management of the company has a huge role in such a condition. This is because the management has to conduct the going concern risk assessment procedure in order to make sure that the entity does not fall out from satisfying any of the conditions that ensure its type as a going concern. When a particular firm is established as a going concern then it is assumed that the particular firm will be in business for the near future without any planning of wrapping up and will be able to discharge the liabilities and recognize the assets and obtain refinancing as and when necessary. As it can be observed from the annual reports of Seven, it more or less does satisfy the conditions of remaining a going concern. There has been no such disparity in the net profit earned by the company in the last few years. Thus it is evident from the observations that the management of Seven has taken enough care and has conducted going concern risk assessment from time to time in order to maintain its reputation as a going concern. Risk Factor arising from Related Parties Risk arising from related parties refers to the transactions that take place between two parties who are not independent of each other and that is the reason why the risk associated with such transactions is relatively higher. Therefore there should be addition of new disclosures and rules controlling the nature of those transactions. In case of Seven the existence of risk associated with related parties is there and should be dealt with utmost care. This is because if a sincere effort is not taken while handling these, then there may be a chance of material misstatement in the accounts. Six Inherent Risks faced by Seven The six inherent risks faced by Seven are namely as the risk of fraud, risk of misappropriation of assets, risk of misclassification of account balances, risk of material misstatement, risk associated with the loss of money, high balance of a particular account also involves inherent risk and the risk associated with short term liabilities. In other words inherent risk faced by Seven is optimum and with proper guidance from the internal auditor and with proper vigilance on the part of the management regarding these issues, the company is sure to prosper and excel. Control Risk Control risk refers to the risk that occurs after proper implementation of measures in the organization in order to minimize those particular risks. The factors that lead to implementation of internal control in case of Seven is the environment of the firm that is the ambience in which the employees are working. Secondly the effectiveness of the control procedures also affect the implementation. The monitoring of the management should be truly effective and done to the fullest effort in order to implement an effective measure of internal control. The implementation of internal control is so important both in case of Seven and also in general because it helps an auditor to ensure what are the tests that have to be performed and also helps in understanding the integrity of the management. Thus internal control not only aids in controlling the internal issues of the firm but also checks and evaluates other key factors of the entity. Therefore the internal control measure as observed in the Annual Report of the Seven has been done effectively and the company has a firm internal control. The management of the firm seems very serious and takes up a true effort in order to exclude all types of internal risks. References Auditing and assurance services in Australia 6e Revised (Grant Gay Roger Simnet) chapter 6(page:251-277) https://www.sevenwestmedia.com.au/investors/annual-reports