Inherent Risk

The current report aims to deal with carrying out the risk assessment of a new client. In this case, AGL Limited has been selected as the new client and the intention is to develop a thorough risk assessment procedure of the firm along with suggesting the necessary control elements.

Inherent Risk	Explanation	Impacted Ledger account and Assertion	Audit Process/Task Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Unbilled revenue	It explains that recorded revenue which is not billed yet over a contract. An unbilled revenue of $1032 million mentioned within the Note 11 indicates that gas and electricity value offered to consumers among the last meter reading and reporting date in which bill has not been offered by AGL to its consumers at the reporting period end (AGL Energy Ltd, 2016).	Assertions: -Precision -Cut-off -Segmentation – Event -Extensiveness Impacted ledger account: – Revenue – Cash on hand – Retained Earnings – Accounts receivable	Certain processes encompass attaining a common view of major controls regarding management for determining the anticipation of unbilled revenue.
Unbilled distribution cost	Detailed financial reporting using electricity and gas consumption analysis of AGL’s consumers along with important segmentation tariff rates are employed in deciding certain anticipatedunbilled distribution accrual of $453 million as mentioned within Note 21 (Arens et al., 2016).	Assertions: Accuracy -Cut-off -Classification – occurrence -Completeness Ledger account impacted: -Accounts payable -Purchase register -Sales Register -Tariff Tables	The organization attained major controls management for explaining analysis of accrualbased on distribution cost.
Deferred tax assets associated with tax losses	As mentioned within Note 9, at 3o June 2016 the organization has mentioned a deferred tax asset of $861 million related with tax losses maintained by AGL Loy Yang subsidiary (Basu, (2016).	Affirmations: -Precision -Cut-off -Segmentation – Occurrence -Entirety Impacted ledger account: -Account of deferred tax asset -Current tax liability -Income statement -Statement of business activity	It has been anticipated that along with confronted judgement of management in associated to forecasting in upcoming taxable profit along with analysing the supposition acceptability associated with the forecast composition.

Financial Ratios	Formula	2017	2016	Difference	High or low risk
Short-term Liquidity Ratios
Current Ratio	Current Assets/Current Liabilities	1.41	1.34	0.06	Low
Quick Asset	(Current Assets – Inventories)/ Current Liabilities	1.39	1.33	0.06
Profitability Ratios
Return on shareholders’ equity	Net Income/Shareholder’s Equity	(0.05)	0.02	(0.08)	High
Solvency Ratios
Debt to equity ratio	Total Liabilities / Shareholders Equity	0.84	0.80	0.05	High

In the year 2017, the current ratio became better due to certain inventory increase. It indicates capability of the organization in addressing its short term and long term obligations. An increased current ratio signifies that the organization has increased ability to pay all its debts. Such ratio has increased in the year 2017 from 1.34 to 1.41 in 2017 and the ideal ratio is deemed to be 1:1.

This ratio provides an understanding regarding returned net income as shareholder’s equity percentage (Chandler, 2014). The return on equity decreased for AGL in the year 2017 for the reason that the organization experienced loss in this year. This ratio has lessened in the year 2017 from 0.02 to (0.05).

The debt to equity ratio explains financial leverage of companythat is employed by it in order to finance its business conducts. This ratio elucidates the equity and debt proportion employed by the organization in order to acquire finance for its assets. The debt to equity ratio increased from being 0.80 for 2016 to 0.84 in 2017 signifying that the organization is employing higher debts for financing business conducts.

Analytical Evaluation – Identified Area of Concern	Answer Justification	Impacted Assertion and Ledger Account(s)	Audit Process/Task
Current ratio	In the year 2016 the current ratio got better majorly due to inventory increase in AGL. Moreover, the ratio was increased. The organization has attained increased assets in order to address its liabilities and the suitable ratio is deemed to be 1:1.	Ledger Accounts 1. Cash and cash equivalents 2. Accounts Receivable 3. Inventory 4. Prepaid expenses 5. Short-term investments (marketable securities). 6. Accounts payable 7. Payroll taxes payable, 8.  Income taxes payable, 9. Interest payable and 10. Some accrued expenses Affirmations 1. Presence 2. Fullness 3. Privileges and obligations 4. Assessment	1. It is observed that inventory mentioned within the balance sheets are there at the end of the period. 2. Every inventory unitmust be aligned with the aspects indicated and recorded within the financial statement of the organization. It should always have considered to encompass the inventory and the assets attained by third party on behalf of the audit entity within inventory balance.
Return on equity	This serves as signal regarding the better way in which a company is employing its assets in attaining profit over the period. This ratio for AGL was decreased from 0.02 to negative 0.05 having a difference of 0.07. In the year 2016, the organization experienced a drastic loss. Moreover, the companyexperienced consecutive losses for the two years (2014 and 2015). These ratios are observed to be poorer in these years as it decreased from minus 0.01 to minus 0.26 in 2014 and 2015 considerably.	Ledger Accounts 1. Sales 2. Expenses 3. Assets (total) Affirmations 1. Existence 2. Extensiveness 3. Precision 4. Cut Off 5. Segmentation	1. Income section must be evaluated in making sure that the overall amount of revenue is equal to addition of income lines. 2. Dates must be checked on the expenses in ensuring that they are applicable over the time that is being referred andphysically make sure the calculations to entertain that the recorded aggregates remain correct.
Debt to Equity Ratio	From the balance sheet of AGL, in the year 2016 this ratio is observed to be 0.84. There is a liability increase by 0.05%. For each dollar 0.84 cents are owed by the creditors. This ratio has decreased gradually and this caused because of a decrease I liability and increase in equity.	Ledger Accounts 1. Payables 2. Provisions 3. Unearned 4. Revenue 5. Interest bearing liabilities Affirmations 1. Actuality 2. Privileges and Obligations 3. Extensiveness 4. Assessment and Allocation	1. An auditor must consider reviewing and making sure that there is an existence of assets and liabilities. Substantial resources must also be analysed and printed material must be attained which indicatesthat the company centred on certain commitments. The auditor must evaluate to make sure that the liabilities and assets are for the company. 2. The assets including land and buildings must be registered in the name of the business.

1. Deloitte issued the audit report for AGL which is an unmodified report published on 10^thAugust 2016. This also encompass the major audit matters communication for the management. Major audit concerns include the aspects within professional judgement of auditors that was most considerable and was observed within financial report at the end of the year for 30 June 2016.
2. The auditors published a viewpoint report that is unmodified that indicates the report is clarified. It is for the reason that the auditor made it clear that AGL company’s financial statements were reported fairly and offered true and fair view regarding the company’s business in alignment with the suitable framework of financial reporting. The report was in adherence to AASB 101, IFRS, Corporations Act 2001, Australian Auditing standards (ASA), indicated fair representation, and did not have any material misstatement within the annual report.

It is agreed that AGL Company follows corporate governance and this can be observed within its annual report for the year 2017. Along with the company’s corporate governance, there are 19 pages separately mentioned document that can be found in its website, which is approved by the board of the firm in 26 August 2017. This contains certain practices and policies that are in adherence with 3^rd edition of ASX-CGC recommendations. This encompasses overall 8 principles that includes principle number 1 offer the management foundation that increases till principle number 8 compensates responsibly and fairly with all the principles containing effective recommendations. The company observed it to be vital to consider all recommendations for this might estimate shareholders’ interests along with attaining the objectives of the organization.

It is agreed that AGL attained an audit committee as it is indicated within the page 12 of the annual financial report o AGL at the end of the 30 June 2017. The company has more than 5 independent members within the risk management and audit committee along with 1 chair person. All the members were present in all meetingsand they are qualified and experienced this is due to the reason of its suitable composition of AGL offers advantages to its shareholders. They centered on the derivative valuation and integrity models along with the contract terms with major estimations including discount rate and future price. 

Impacted Ledger account and Assertion

Considering the viewpoint of the company’s team, the audit committee interlinks external and internal management along with its shareholders. The audit committee has lesser responsibilities along with the nomination of an effective external auditor that will anticipate the company’s opinion regarding fairness and materiality associated with Audit report. In such manner, the shareholders might consider annual report’s fairness of the organization along with accepting the same as a factsheet.

Audit parts such as evidence support audit opinion, audit documentation along with professional skepticism kept by an auditor has a questioning mind for attaining enough suitable evidence on audit. The ASIC guideline facilitate the preparers to implement professional judgement in order to determine certain disclosed information within the annual report. This is an effective opportunity in taking into account certain interests of the stakeholders in making sure that the financial statements attain the standard mark and considering that non-material information is not included. The article must take into account the below focus areas:

• Asset values
• Choices of accounting policy
• Material disclosures
• The role directors
• Improved audit reports
• Consumer monies
• Impact

Conclusion:

Based on the above discussion, it could be stated that major audit concerns include the aspects within professional judgement of auditors that was most considerable and was observed within financial report at the end of the year for 30 June 2016. Considering the viewpoint of the company’s team, the audit committee interlinks external and internal management along with its shareholders. The audit committee has lesser responsibilities along with the nomination of an effective external auditor that will anticipate the company’s opinion regarding fairness and materiality associated with Audit report. In such manner, the shareholders might consider annual report’s fairness of the organization along with accepting the same as a factsheet. 

References and Bibliographies:

AGL Energy Ltd 2016, Annual Report 2016, AGL Energy Ltd, New South Wales, Australia.

Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2016). Auditing and assurance services. Pearson.

Basu, S. K. (2016). Auditing & Assurance. Pearson Education India.

Chandler, R. (2014). Auditing and assurance. London School of Economics. London.

Cohen, J. R., &Simnett, R. (2014). CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), 59-74.

Gay, GE & Simnett, Roger 2015, Auditing and Assurance Services in Australia, 6^th edition, McGraw Hill-Education (Australia) Pty Ltd, New South Wales, Australia.

Knechel, W. R., &Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.

Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., &Thibodeau, J. C. (2015). Auditing & assurance services. McGraw-Hill Education.

Messier, W. F., Glover, S. M., &Prawitt, D. F. (2014). Auditing and Assurance Services: A Systematic Approach; Diterjemaholeh Denies Priantinah, Linda KusumaningWedari, 2014. SalembaEmpat. Jakarta.

Simnett, R., Carson, E., &Vanstraelen, A. (2016). International Archival Auditing and Assurance Research: Trends, Methodological Issues, and Opportunities. Auditing: A Journal of Practice & Theory, 35(3), 1-32.

Simnett, R., Zhou, S., & Hoang, H. (2016). Assurance and other credibility enhancing mechanisms for integrated reporting. In Integrated Reporting (pp. 269-286). Palgrave Macmillan UK.

William Jr, M., Glover, S., &Prawitt, D. (2016). Auditing and assurance services: A systematic approach. McGraw-Hill Education.