Audit risk analysis of a company Essay Example | Topics and Well Written Essays - 1750 words

Audit risk analysis of a company - Essay Example This is mainly due to an increase in taxes paid by the company. The Group might have been induced to manipulate the taxes because previous tax losses available for claim might be expiring this year. Exceptional items were more than the current year in the previous year, yet there was no taxation charge in the previous year (Scapa Group, 2013a). The calculation of the tax over the exceptional items has to be checked in detail. The operating profits increased by 14 % and the tax charge on them increased by 32%. The application of the new (changed) tax rate over the profits has to be reviewed. Classification of the exceptional items is also of high risk. The rationale for such classification of exceptional items has to be inquired for. Scapa has disposed off one of its subsidiaries and faced pressures from European side (Scapa Group, 2013b). In order to present a better picture, Scapa might have engaged in showing a better Trading profit to Revenue ratio. This ratio is 6.5%, which is 1.1% better than the previous year ratio. Had exceptional items been included in trading profit, the ratio would have come down to 6% showing just 0.5 % improvements with respect to previous year ratio. Other Receivables have decreased by 98.5 % from $19.6 mn to $0.3 mn. This variation is mainly because of the re-classification of the assets of the Georgia subsidiary (Scapa Group, 2013c). This amount pertained to the insurance claim. The status of the claim and its valuation is a critical matter. It might be possible that a claim might have decreased, but it is transferred at the amount of the opening balance. Moreover, this liability is discounted at risk free interest rate of 3.35% (Scapa Group, 2013d). The assumption on the basis of which this rate is taken has to be reviewed. Change in rate may change the valuation of the insurance claim. Secondly, the discounted asset has not been unwound by the