Question

You are planning the 2017 audit for Victoria University. Using the 2016 annual Report (provided)

Victoria University Annual Report 2016

1. Analysing the Financial Statements (pages 57-61) and associated notes, highlight 3 areas you may focus on during the audit, giving reasons for your choices.
2. Calculate an initial overall materiality level for the audit, showing your workings.
3. Using the following charge out rates, provide an indicative timeframe and resource allocation plan to support your initial fee request of $130,000 for the audit.

Charge out rates

Audit Partner                 $500 per hour

Audit Manager               $300 per hour

Audit Senior                   $150 per hour

Audit Junior                    $100 per hour

Needs to download Victoria University Annual Report 2016 and needs to look page 57-61 . Thank you

Answer 1

Victoria University Audited Financial Report 2016 – Refer page 57- 61 – Represents companies financial Statement –

We need to find out major 3 key area to do Audit Investigation :

1. Income Statement – On preliminary analysis , noticed that University instead of generating revenue mainly from Australian Government grants , HELP Australian Government payments , + state and local government financial Assistance . University cost has increased and absorb +ve growth in revenue. While reviewing detail Expenditure ( cost ) list , noticed that “Other Expenses “ has increased significantly mainly due to consulting and legal fees .
2. As an Auditor, need to verify correctness and completeness about Legal and consultancy cost . Mainly due to Higher Operation cost , University is not making Profit , As an Auditor , need to do more in depth cost Audit to ensure that University accounting team followed correct accrual method while accounting cost , need to check complete approval process , need to review high ticket amount with help of materiality limit base
3. Auditor need to review Net Working Capital position . As per Financial , University is well managed working capital . They are generating money from Account receivable as well as internal generated money which help them to reduced Short term liability . University maintain +ve cash flow after incurring good amount of capex . Auditor need review Working capital position and ensure high value amount and review complete process , document flow to understand that University is really generating Internal cash flow and maintaining +ve cash flow
4. Auditor while deriving Materiality  Limit – They use their Thumb rule also determined the possibility of material misstatement . Auditor before start of the audit, do Audit planning , allocation of resources , captured timing ( Billing hrs ) . While doing Audit planning , auditor used their judgement to determined audit tolerable misstatement . In case of risk matter high then tolerable misstatement will be smaller percentage of the planning materiality ( like 10% -20%) In case of low risk factor % selection automatically increased at 70%
5. Auditor in general elect anyone of the parameter to do Audit materiality :
6. 5% of Pre Tax Income – In this case not possible because generated loss
7. 0,5% of Total Asset
8. 1% on Equity
9. 1% of total Revenue

10. In general and common in nature while selecting audit materiality would be Revenue base : 0.5% to 1% of Gross Revenue

Allocation of $130 k ( Audit Fees ) as below :  

	Hr	rate $/hr	Cost$
Audit Partner	4	500	2000
Audit Manager	25	300	7500
Audit Senior	350	150	52500
Audit Junior	680	100	68000
Total Audited Cost			130000