Reference no: EM133935384

Auditing

Assignment Reflection

AussieBuild Ltd. (AB) is a medium-sized company in Melbourne that sells high-end construction materials. To save money, AB set up a subsidiary in the Philippines in 2024 called PhilBuild Manufacturing, Inc. (PB). PB's small factory in Batangas makes products using raw materials from overseas suppliers, then ships the finished goods back to Australia.

Reporting: AB prepares consolidated financial statements under AASB/IFRS (year-end 30 June). PB keeps basic records in pesos on desktop software and uses Excel to convert results into AUD.

Policies: AB recognises revenue when goods are delivered to customers (mainly DDP Melbourne).

Treasury: PB invoices AB in USD; AB pays monthly in AUD converted at the spot rate. There is no formal hedging.

Systems: No ERP system. AB uses Microsoft 365; PB mainly uses shared drives and Excel. PB also shares two generic email inboxes for receiving and shipping. Get top-notch online assignment help now.

Quality: PB's ISO 9001 certificate expired in May 2025; renewal is booked after year-end.

Audit history: The 2024 audit report was clean, but auditors warned about weak segregation of duties at PB, delayed intercompany reconciliations, and poor inventory counts.
People: PB has 28 staff. Some staff perform multiple roles (receiving, recording, and shipping). Toolbox safety talks are done weekly, but there is no training on internal controls.
PB receives shipments at Batangas Port through a customs broker. Goods are rushed out of the port to avoid storage fees.
Timber shipment (April): Supplier invoice shows 22 pallets, but PB's form says 21 pallets. A weighbridge slip suggests 22 pallets. Excel records were updated days later to 22 pallets, with no investigation.
Steel shipment (May): Pack list says 1,000 cartons; PB form says 1,004 cartons. The "extra" cartons were ignored. Excel records later show 1,000 cartons.
Compound shipment (June): PB noted 598 bags received, saying 2 were damaged and swept away. Later, QC records showed 600 bags. Excel recorded 600 bags.
Practices:
No three-way match (invoice, packing list, receiving form).
Receiving forms are handwritten then summarised later.
Emails to AB sometimes miss attachments.
CCTV covers the gate but not inside the warehouse.
Pest control logs are kept monthly (but not really relevant to controls).
PB stores timber, steel, and chemicals in separate racks. A climate room monitors temperature and humidity, but readings sometimes exceed limits.
Bills of materials: Timber kit A needs 10 sheets, 20 brackets, and 1.5kg compound. Timber kit B needs 8 sheets, 28 brackets, and 1.2kg compound. Scrap allowed up to 2.5% (4% if approved by supervisor).
Material issues: Sometimes slips are filled after goods are released verbally.
Cycle counts: Supposed to be monthly, but only three were done by June.
May count found timber short (-210 sheets), steel long (+42 cartons), and compound down (-5 bags).
Some count sheets had changes without explanation.
Usage variances: One batch used 8.7% more compound than standard, explained as "humidity." Another batch used fewer brackets, but the BOM wasn't updated.
Obsolete stock: Old brackets flagged in April were still in racks in June.
Insurance: Survey in May noted "adequate housekeeping" but advised better humidity control.
AB sends order instructions (OI) by email. PB prints and pins them to a whiteboard. Revisions are emailed but not logged properly.
Example: AB first ordered 1,000 units, then increased to 1,200, then reduced to 1,100. PB produced 1,180 and kept 80 as "buffer stock."
QC: PB keeps two samples per batch. One QC sheet flagged "marginal" compound viscosity. External testing of timber moisture was fine.
Scrap: Three cases of uneven compound application caused scrap of 3.6% (above tolerance). Supervisor approved it.
Power dip: A short outage in May caused issues with mixing compound. Stock was tagged "use first" but no expiry dates were adjusted.
Customer complaint: BuilderCo in Victoria reported missing brackets and poor adhesion in 37 kits. AB opened a case, but no root cause analysis was done.
PB prepares shipping documents, but often after the truck has left. AB receives them after the goods are already on the water.
Shipment X (May): Packing list showed 1,100 kits. AB warehouse received only 1,063 kits (short by 37). PB said they were on another shipment, but that shipment was for a different product.
Shipment Z (June): Packing list said 1,000 cartons of steel. AB received 984 cartons; 7 were damaged, 9 missing. Insurance claim not finalised.
Other issues:
Inconsistent Incoterms (FOB vs. DDP).
Sometimes AB invoices customers when PB ships, not when goods arrive.
One fumigation certificate had a smudged signature but was still accepted.
PB keeps shipping photos on a USB stick, not backed up.
AB invoices customers based on PB shipping documents.
Receivables: At 30 June, AR was $6.8m, with 18% over 60 days due.
Credit notes (Apr-Jun): $412k issued, mostly for wrong quantities and unapproved discounts.
Quarterly reconciliations: Performed late (Q4 done in July).
Year-end invoices:
MetroBuild NSW: Invoiced 29 June for 2,000 kits. Delivery occurred in July.
BuildRight VIC: Invoiced 30 June for 1,000 cartons. GRN on 1 July showed 16 cartons short/damaged. Credit note raised later.
Customer confirmations: MetroBuild confirmed balance but noted delivery after June. BuildRight confirmed partial receipt.
Pricing: Price list showed AUD 179 per kit, but invoice charged AUD 185. No record of approval for surcharge.
Banking error: $250k payment in June was misallocated to the wrong customer until July.
Communication is mainly by email and Teams. PB cannot access AB's SharePoint. Version control of files is poor, with multiple "final" versions of production schedules.
Oversight: AB COO visited PB in April and recommended stronger controls, but changes were not implemented. No internal audit function exists.
Related party: PB bought packaging from a company owned by a cousin of the Shipping Supervisor. No clear tender evidence on file.
Compliance: Tax receipts from the customs broker sometimes differ from invoices due to withholding tax.
Operations noise (possible distractions): Barcode printer ran out of labels for two days; biometric clock sometimes fails when hands are wet; PB donated PHP 50,000 to a local barangay; forklift servicing was two weeks late.
Board pack (June): Noted rising complaints and credit notes, and recommended better document controls and site reviews, but no budget yet.

Group Case Study Requirements

Q1. Identify and Prioritise Weaknesses
From the case, identify six key internal control weaknesses.
For each, explain why it is a weakness.
Rank them from most critical (1) to least critical (6) based on the potential impact on financial reporting and operations.

Q2. Risk Analysis
Select five of the weaknesses from Q1. For each, explain the risk it creates in terms of:
(a) financial statement misstatement,
(b) operational disruption, or
(c) reputational/compliance issues.
Q3. Recommendations for Improvement
Propose four specific and practical recommendations to strengthen internal controls.
Each recommendation must directly address one or more weaknesses from Q1.

Required Sections

Introduction
• Briefly describe your group project and your role within the team.
• Outline the main objectives or problems your group was addressing.
Collaboration and Contribution
• Describe how your group organised tasks and communicated.
• Explain your specific contributions (research, calculations, writing, editing, meeting coordination, etc.).
• Reflect on challenges in working collaboratively and how they were managed.
Learning and Critical Thinking
• Identify two key technical or professional insights you gained from this project (for example, understanding audit risk, internal controls, or applying ASA/ISA standards).
• Explain how these insights have enhanced your understanding of auditing or professional practice.
Personal and Professional Growth
• Comment on skills you developed or improved (teamwork, time management, analytical thinking, communication).
• Identify one area you would approach differently in future collaborative tasks.
Conclusion
• Summarise your key reflections and how this experience supports your development as a future professional.