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Report on the Australian Whisky Holdings Audit Program

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Australian Whisky Holdings Limited is a holding company running their operations worldwide. Company operates from the Sydney, Australia. The company has long vision to hold several premium and super malt producer not only in Australia also in Tasmania and Asia countries. The expanding of their business through using the strategy of increasing distribution, which ultimately increase their profits as well as high margins in market. All industries in relevant field are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas competitors. Ratios extracted for 3 years from set of financial reports at 30 June 2017, 2016 and 2015. “Our vision is to have equity holdings, if not ownership, in several premium and super premium single malt whisky producers in Australia focusing on Tasmania”.

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Executive summary

The “Australian Whisky Holdings Limited” incorporated in 2003 operated successfully and profitably since their incorporation. Company run their operations not only in domestic also in international markets such as Nant Distillery, Redlands Distillery, Overeem Distillery, Lark Distillery and Hobart. Australian Whisky Holdings limited continually developing and making efforts to support the development of expanding their business through exploring human resource. With emphasis on cross-functioning capabilities for management and staff will increase employee effectiveness with increasing overall goal of providing the variety of brands.

Brands of Australian Whisky Holdings Limited includes:

  • NANT – Distilling Company which is established in 2017
  • LARK Distillery – Tasmania which is founded in 1992
  • OVEREEM – Single malt whisky which is founded in 2007
  • FORTY SPOTTED
  • KEMPTON – Distillery Tasmania.

The organization structure of Australian Whisky Holdings Limited includes following board of directors.

Key buisness risk

The Australian Whisky holdings limited company may face following business risks.

  • Changing the new market demands for requirements of manufacturing of wine and grapes production.
  • Decrease in net profit year by year from 2015 to 2017 resulting due to increase in Australian compliance laws and administrative cost se well.
  • Continuously increase in temperature at vineyards that effecting the production of sparkling wine and grapes production.
  • By implementing a new integrated internal control system must established properly and monitor, if it is not can harm the business.
  • Not accurate organizational structure, which leads to bad governance, can become the business risk as well.

Ratio analysis

The current ratio shows that how much company can pay their liabilities over asset. If company go into liquidation can pay off their liabilities. The current ratio consider to good nearest to 1. The above trend shows that company able to manage their current ratio throughout the prospective years. The healthy ratio should not exceed 1.5. However, above trend shows that company may exceeds their assets in 2017 as compare to 2016 and 2015.

The quick ratio shows that how much can pay off their debts after deducting the trade debts. The above trend shows that company maintains their quick ratio. The best ratio, which is significant in 2017 and comparatively low in 2016 and 2015. The quick ratio falls between 1 which consider too good for company.

The inventory turnover shows that in which time period company purchase back their inventory and refill their stock. The lessor the inventory days is beneficial for company. In 2017, company significantly manages the inventory turnover afterwards; the inventory days are high so that does not company manages their inventory levels. The larger amounts of inventory can harmful can cause obsolete.

The receivable days shows that in how many days company received their amounts against sales. Shorter the period of receivable, beneficial for company. The above trend shows that company receivable days decrease in 2017 from 2016 and 2015. However, company maintains and decrease their receivable days in 2017 that is good indicator.

The gross margin ratio shows that how much company earns their after deducting cost of goods sold in terms of revenue they earn. The above ratio trend shows that significant decrease in 2017 compare to 2016 but huge decrease occur in 2015. That might cause, revenue decreased or may the production cost in increased. The company earns more profit in 2017 as compare to 2016 and 2015.

The net profit margin ratio shows that how much company earns in terms of their revenue generated. The net profit margin ratio shows decreasing trend from 2015, 2016 and huge decrease in 2017. Tis might occur due to decrease in revenue or interest and tax expenses increase due to change of regulations.

The return on asset ratio shows that how much company earns by spending their asset. The trend shows that company increasing their return year by year. The company earns huge revenue in 2017. As compare to other years, the financial position in 2017 is satisfactory. However, company need to maintain their control on expenses.

The return on equity shows that how much company earns their profits on investment made by shareholders. This ratio also measures the ability of company to generate profits. The above ratio trend shows ROE ratio increase in 2017 and 2016 from 2015, it shows increasing trend. This can done in terms of might profits decrease or investors may increase their investment.

The debt to equity ratio shows how much company can pay off their debts in terms of equity. The lessor the ratio is beneficial. In 2016 and 2017, the company rely more on debt for running their operations.

Materiality planning

The Australian Whisky holding limited company during an audit identify the four departments for several areas on which company should make internal controls.

  • Identifying and Assessing the Risk of Material Misstatement through Understanding the entity and its environment.
  • Understanding of the control procedure sufficient to assess its effectiveness.
  • Analytical procedures and a review of internal controls, particularly in relation to payroll.
  • Identifying several areas of potential audit risk.
  • Provision for doubtful debts needs to be analyzed with care.
  • Older machinery may be overvalued.
  • There is a possibility that not all debt has been included in the financial statement.

Accounts receivables account analysis audit risk audit steps to reduce risk

Existence or occurrence

The trade accounts receivable trend shows that company with increasing trend of revenue. The significant increase occurs in receivables but a huge increase in sales we can see in 2017. The major risk associated with accounts receivable usually consist of an aggregation of accounts, the auditor verify terms of payment through confirmations with customers and the validity of the debt.

  • Reconciliation of aged accounts receivable ledgers to the general.
  • Review documents of occurrence of doubtful and bad debts accounts.
  • Review bank confirmation for indication of liens.

Completeness

The completeness risk relates to the company that has not record all accounts receivable transactions. Auditor cannot test the company’s records for completeness by looking at transactions around period.

  • By accessing, the sales process.
  • Inquire bills of unbilled, discount.

Rights & Obligations

Rights and obligation assertion relates to the receivables due to the company property.

  • By learning and understanding the business models.
  • Revenue Cycle Valuation or Allocation Valuation of accounts receivable must held as net realizable value and companies must make an estimate of collectability and reduce their balance.
  • Determine the methodology is reasonable.
  • Identifying the correct methods of recording and valuation.

Presentation and Disclosure

Accounting standards have specific guidelines as to the presentation and disclosure of receivables balances.

  • Identify that balances of accounts receivables present in footnotes.
  • Prepare checklist to analyze the presentation and disclosure.

Investments account analysis audit risk audit steps to reduce risk

Existence or Occurrence

The investment trend shows that company expanding their operations year by year. The company acquiring subsidiary companies and purchasing more brands. On another hand company investing in financial assets and shows increasing trend. The smallest increase we can show sin intangible assets. The major risk associated with accounts receivable usually consist of an aggregation of smaller accounts, the auditor verify terms of payment by sending confirmations to the entity’s customers and the validity of the debt.

  • Reconciliation of investment accounts to the general ledger.
  • Review documents that made with parties.
  • Review validity of investment agreements made.

Completeness

The completeness risk relates to the company that has not record all accounts receivable transactions. Auditor cannot test the company’s records for completeness by looking at transactions around period. By accessing, the bid and qualify process.

Rights & Obligations

Rights and obligation assertion relates to the receivables due to the company property.

  • By learning and understanding the business models.

Valuation or Allocation

Valuation of accounts receivable must held as net realizable value and companies must make an estimate of collectability and reduce their balance.

  • Determine the methodology is reasonable
  • Identifying the correct methods of recording and valuation.

Presentation and Disclosure

Accounting standards have specific guidelines as to the presentation and disclosure of receivables balances.

  • Identify that balances of share capital invested in footnotes.
  • Prepare checklist to analyze the presentation and disclosure.

Property assets account analysis audit risk audit steps to reduce risk

Existence or Occurrence

In 2016 and 2015 company, have near to zero property assets like property plant and equipment. However, in 2017 a huge investment is made in PPE which we can see that by the amount of near 6 million dollars. The company may acquire the brands or subsidiaries that shows their net assets. The major risk associated with accounts receivable usually consist of an aggregation of smaller accounts, the auditor verify terms of payment by sending confirmations to the entity’s customers and the validity of the debt.

  • Reconciliation of fixed or property assets accounts to the general ledger.
  • Review documents on which purchases made.
  • Confirmation made through parties.
  • Identify the principle or interest payments made.

Completeness

The completeness risk relates to the company that has not record all accounts receivable transactions. Auditor cannot test the company’s records for completeness by looking at transactions around period.

  • By accessing, the rates of property.
  • Identify the legal clearance of property.
  • Installments through banks or leasing form investors.
  • Identify the effects on share capital that lead to return on equity.

Rights & Obligations

Rights and obligation assertion relates to the receivables due to the company property.

  • By learning and understanding the business models.

Valuation or Allocation

Valuation of accounts receivable must held as net realizable value and companies must make an estimate of collectability and reduce their balance.

  • Determine the methodology is reasonable.
  • Identifying the correct methods of valuation.

Presentation and Disclosure

Accounting standards have specific guidelines as to the presentation and disclosure of receivables balances.

  • Identify that balances of accounts present in footnotes.
  • Prepare checklist to analyze the presentation and disclosure.

Audit procedures

“Internal control is a process for assuring of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting and compliance with laws, regulations and policies.” (KPMG) By applying the substantive and effective audit procedures, we can easily resolve the issue, which we identify in the audit materiality.

Conclusion

The Australian Whisky holdings limited company audit program states that initially company runs business with the aim of producing wines but afterwards it leads to expanding their operations grapes and wines. Afterwards the additional business open with the nature of beef production. The audit program conducted by John Richards, identified some week internal controls implemented by TCW. Revision of internal controls may enhance the efficiency of using humane resources as well as increasing production of grapes and wines. By implementing computerized accounting system, reduce the chances of fraud and misleading activities related to cash management, sales, purchase, stock etc. The financial position of company of grapes and wines is good but beef production should consider the decision for continue their operations.

Recommendations

  • TCW group should focus on grapes and wines production, which generates more profits.
  • TCW not only focuses to domestic operations but also expand in overseas market.
  • Minimization of production cost leads to retain of more profits of grapes and wines production. This strategy also applies on Beef production.
  • TCW should review their company policies and procedures towards their employees.
  • The need for land for expanding the business of grapes and wines business can funded by bank loans.
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