Auditing and Assurance in Australia for Financial Statements

Question: Discuss about theAuditing and Assurance in Australia for Financial Statements. Answer: The two significant financial statements of financial assertion account at risk for Matrix are the accounts receivable account and the goodwill account. The accounts receivable is an account that appears under the head of asset especially the current asset of the balance sheet. The goodwill account will also be affected. The account appears under the head of intangible asset in the balance sheet. One key assertion at risk regarding the accounts receivable account is the valuation and allocation assertion. The disclosure made by the management regarding the receivables as to who were the customers, who have purchased the most controversial products and the terms for such purchase. If the purchase have been done on credit then such assertions in the financial statements are at risk. The key assertion at risk (inherent risk) regarding the goodwill account is the valuation and accuracy assertion associated with the account. As the valuation of such an account is difficult, the assertion by the management regarding the goodwill of the company is likely to change and observe a diminishing trend in all probabilities. The accounts receivable is at the risk of valuation and allocation assertion because the transactions that may have been recorded in the books of accounts may not be appropriate. This is because the product sold by the pharmaceutical firm that resulted in the hospitalization of a number of customers may not have been properly accounted for. These products that resulted in a major health issue may belong to old stock or ld batch of production and may be was compiled into the current batch of products for the purpose of stock clearance. Therefore, the accounts receivable account is at risk. The goodwill account on the other hand is at risk because the goodwill of the company is likely to fall due to the recent occurrence of the health issue faced by the customers due to one of its products (Abbott et al., 2016). The firm should be more responsible about the quality of the product that is being shipped to the market for the purpose of sale. A detailed and rigorous quality check is essential to avoid such assertion risks. Secondly, the firm may also develop an inventory system that does not allow the products which do not belong to that respective batch of production. The audit opinion in this case is that the management of the company should be asked to republish its financial statements. The management should be specifically asked to provide the disclosure in the financial statements about whether the company is meeting the conditions to be a going concern. The auditor should also ask the management to specify the amount of materiality applied to the financial accounts. If the management provides the disclosures regarding the material uncertainty, it would not be enough. This is because whether the company is a going concern or not should be determined by reviewing whether the company matches the criteria for being recognized as a going concern (Knechel Salterio, 2016). References Abbott, L. J., Daugherty, B., Parker, S., Peters, G. F. (2016). Internal audit quality and financial reporting quality: The joint importance of independence and competence. Journal of Accounting Research, 54(1), 3-40. Knechel, W. R., Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor Francis.