Professional Documents
Culture Documents
Risk assessment of material misstatement and risk as per the ASA 315
The Dominos PIZZA Enterprise has been listed on the Australian Securities Exchange. This company
creates yearly financial reports so that they can understand their financial performance and come up
with better strategies to improve their position.
Like other companies, this company has also a higher level of risk to get involved in the material
misstatement. With the right level of risk assessment through auditing, future material misstatement
risks can be minimised. By implementing the ASA 315 auditing and assurance standards, the risk
assessment of Dominos Pizza Ltd has been analysed in the below section.
The auditor states that the material misstatement can be occurred because of errors and for fraud as
well. Each of these issues is identified by the ASA and such issues can be overcome through the
following guidance of ASA 315 (auasb 2021). The ASA 315 is related to the risk assessment process
where relevant information is used of the company so that the right risk assessment procedure can be
created based on the risk identification (auasb 2021).
The risk assessment procedures for Domino’s Pizza Enterprise Ltd:
The auditor needs to design and perform the task of the risk assessment so that audit evidence
can be provided properly for the betterment of the company. The risk can be associated with
fraudulent activities or errors in the financial statement report. There should have accordance
with ASA 315 guidance properly for further development.
In times of risk assessment, the auditor will have to design and perform the risk assessment
process without zero biasness (Agrawal, Tarca & Woodliff 2020).
In times of creating the risk assessment procedure for the company, the management inquiry
process should be included, and also in the entity, there should have appropriate individuals as
well including internal audit function. Moreover, to create an accurate assessment the auditor
must go with analytical procedure and through observation and inspection (auasb 2021).
To create strong audit evidence, the auditor must create a process regarding the acceptance and
continuance of the company audit engagement.
The auditor can go for using different sources of information to analyse the entity and also, they
can perform from their previous audits as well. Such a process helps the auditor to evaluate
whether there is relevance with the past and present audit process (Andiola, Downey &
Westermann 2020).
In below, based on the auditing standard ASA 31, the material misstatement process has been identified
and assessment has been illustrated for Dominos Pizza Enterprise Ltd.
1|Page
a. The company auditor must understand not only the control sets but also processes and the
structures where some factors need to be addressed such as:
The nature of the management oversight regarding the responsibilities towards the financial
framework of the company (auasb 2021). For example, the culture of the entity, the
management's commitment towards the company ethics and integrity.
The auditor will have to understand the company's authority and responsibility towards the
development of the financial framework (auasb 2021).
It is essential before analysing any financial report of the Dominos Pizza Enterprise Ltd
development process of the entity, the ways of attracting the entity, and also the process of
retaining competent individuals by the entity (Jade 2021).
By understanding the individual holding process towards the entity and those who are
accountable for the pursuit of the company objective within the internal system, the auditor can
easily create a sustainable and critical analysis regarding the financial entities.
b. The company auditor must comply with the Auditing Standard ASA 315 in times of evaluating
whether:
The company management team who has been an oversight with the governance charged has
developed the honesty culture and ethical policies within the company.
The company control environment has been able to provide the right level of foundation for the
internal control system of the process of an entity based on the factor's nature and entity
complexity (auasb 2021).
This entity's system of internal controls is eroded by regulatory deficiencies inside the
management system.
The Domino’s Pizza Enterprise Limited risks of material misstatement identification can help the
company to improve its future financial performance within the organisational culture. The auditor
must get the right amount of support while they work on the financial report and in times of
determining the company assertion level for the company in transaction class, account balances, and
also in disclosures (Baumann & Ratzinger-Sakel 2017).
The relevant determination of assertions of the company financial report can come up with the right
evaluation on the financial report. Material misstatement risks must be taken into account when trying
to analyse a financial statement since they can seriously affect an auditor's capacity to reveal a non -
qualified audit. To inform shareholders, monitoring is carried out (auasb 2021).
3|Page
asset and must notify it in its financial statements, regardless of the fact and he's not the holder.
If the lessee's assets and liabilities are incorrectly classified as financial leases, financial
analysis indicators are affected.
The company's financial users' choices are made just on the value obtained by the company's financial
preparers, so auditors' judgment is tightly linked towards the level of truthfulness they can anticipate
from the company's financial preparers (Ivan 2016). As a result of a thorough analysis, data is
communicated using measurement and categorization methods that are suitable for each entity.
Preparation of financial statements by auditors and accountants necessitates professional judgment,
particularly inside a principles-based accounting environment (Ivan 2016).
Effect on the audit of significant events and transactions which was happened
in the period
The events and transactions could have created an impact on the company financial report and this
effect can also be created to the audit which can be also identified as a significant risk for a certain
period (La Rosa, Caserio & Bernini 2018). An example can be drawn of this situation. The auditor can
have an extensive discussion period with the company management along with those who are charged
with the governance in different stages within the whole audit process regarding the impact of the
financial report of those important transactions with parties (Leung et al. 2019). The discussion can be
also made on the effect of the important transactions with the outsiders of the business entity. Because
the management could have created a complex situation or any difficult environment regarding the
judgments towards the recognition, measurement and also it can be the disclosure of the transaction.
The company management's such judgments can affect the whole strategy of the auditors (Robert
Hiester Montgomery 2013).
The management's judgments which are affected by the economy, accounting policy, industry it can
also create an impact on the auditor's approach towards the audit. Such impact can be lead to
significant auditor attention (Moroney et al. 2018). By improving audit transparency and providing
additional information to financial statement users, SA 701 focuses on improving the useful meaning of
auditors' reports (auasb 2021).
There are several financial statements with significant complexity as well as managerial judgment that
necessitate the auditing firm to make complicated auditing judgments.
The auditor's determination of audit may be impacted by issues that make it extremely difficult for the
auditor to obtain audit evidence or even to form opinions on financial statements (Kadganchi 2018). To
reflect aspects of financial statement auditors which may be of particular interest to destined users of
financial statements, these considerations consider the nature of matters communicated with all those
responsible for governance, which are often connected to things matter disclosed in the financial
statements (Kadganchi 2018).
Recommendations
The auditing process needs to be done accurately as it may create a negative impact on the company's
financial performance and its brand image as well. The internal audit or external audit both auditors
should identify the relevant information and find out the objective of the audit so that proper
documentation can be prepared. For the auditor, these standards serve as a guideline that helps
ascertain the degree of audit steps that should be implemented for the audit to also be met. Assurance
services can be regulated or based on conformance. Both assurance service and auditing ensure that a
company or organization is following guidelines, rules, and policies, as well as provide both internally
4|Page
and externally confidence in financial statements, respectively. Assuring that a company's money is
being spent wisely is the goal of auditing and assurance.
When it comes to making investment decisions, Australian investors need to be confident and well-
informed. The right auditing documents can help the company like Dominos Pizza Enterprise to target
those significant investors for the development of market share, growth, and profitability improvement
as well. As a result, investors can depend on the auditor's independent measurement of financial
statements.
References
ifac 2012, A PROFESSIONAL JUDGEMENT FRAMEWORK FOR FINANCIAL REPORTING An
international guide for preparers, auditors, regulators and standard setters 2012, viewed 6 September
2021, <https://www.ifac.org/system/files/uploads/PAODC/A-Professional-Judgement-Framework-for-
Financial-Reporting.pdf>.
Agrawal, P, Tarca, A & Woodliff, D 2020, ‘External auditors’ evaluation of a management’s expert’s
credibility: Evidence from Australia’, International Journal of Auditing, vol. 24, no. 1, pp. 90–109.
Andiola, LM, Downey, DH & Westermann, KD 2020, ‘Examining Climate and Culture in Audit
Firms: Insights, Practice Implications, and Future Research Directions’, AUDITING: A Journal of
Practice & Theory, vol. 39, no. 4, pp. 1–29.
Jade 2021, BarNet Jade - Find recent Australian legal decisions, judgments, case summaries for legal
professionals (Judgments And Decisions Enhanced) 2021, Jade, viewed 6 September 2021,
<https://jade.io/j/?a=outline&id=717486>.
Baumann, M & Ratzinger-Sakel, NVS 2017, ‘Audit Firm Alumni in Audit Committees: An Analysis of
the Time Dependence of Alumni Effects on Audit Quality and Audit Fees’, SSRN Electronic Journal.
auasb 2021, Compiled Auditing Standard ASA 315 Auditing Standard ASA 315 Identifying and
Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
2021, auasb, viewed 6 September 2021,
<https://www.auasb.gov.au/admin/file/content102/c3/ASA_315_Compiled_2015.pdf>.
Accounting Weekly 2018, Defining professional judgement and professional scepticism - Accounting
Weekly 2018, Accounting Weekly, viewed 6 September 2021,
<https://accountingweekly.com/defining-professional-judgement-and-professional-scepticism/>.
Ege, M, Kim, YH & Wang, D 2019, ‘Do Global Audit Firm Networks Apply Consistent Audit
Methodologies Across Jurisdictions? Evidence from Financial Reporting Comparability’, SSRN
Electronic Journal.
Garrison, RH, Noreen, EW & Brewer, PC 2018, Managerial accounting, Mcgraw-Hill Education, New
York, Ny.
Ivan, I 2016, ‘The importance of professional judgement applied in the context of the International
Financial Reporting Standards’, Audit Financiar, vol. 14, no. 142, p. 1127, viewed 6 September 2021,
<http://revista.cafr.ro/temp/Article_9503.pdf>.
5|Page
Kadganchi, B 2018, SA- 701- key audit matters, TaxGuru, viewed 6 September 2021,
<https://taxguru.in/chartered-accountant/sa-701-key-audit-matters.html>.
Kamarudin, KA, Wan Ismail, WA & Yatan, JC 2019, ‘NON-AUDIT SERVICES AND THE
CORPORATE GOVERNANCE OF AUDIT CLIENTS’, Management and Accounting Review (MAR),
vol. 18, no. 1, p. 167.
La Rosa, F, Caserio, C & Bernini, F 2018, ‘Corporate governance of audit firms: Assessing the
usefulness of transparency reports in a Europe-wide analysis’, Corporate Governance: An
International Review, vol. 27, no. 1, pp. 14–32.
Leung, P, Coram, P, Cooper, BJ & Richardson, P 2019, Audit and assurance, John Wiley & Sons
Australia, Milton, Qld.
Moroney, R, Campbell, F, Hamilton, J & Warren, V 2018, Auditing : a practical approach, John Wiley
& Sons Canada, Ltd, Toronto, Ontario.
6|Page