The paper “ Santos Limited In Australia - Inherent Risk Factors” is a persuasive example of a finance & accounting case study. Inherent risk is the probability that there are misstatements in an audited section in an organization that arises out of existing circumstances and before the implementation of internal controls. In assessing the inherent risk the audit is expected to apply his professional discretion. Inherent risk – Nature of the industry (ASA315 Appendix 1)Santos Limited operates in gas production which is an industry that is susceptible to market fluctuations and volatility as a result of growth in demand and different product specifications as demanded by the consumers, the different quality in crude oil, and the influence of the new investors in the market.
The global economic crisis had an effect on the oil prices where there were frequent price changes within the year. This is possible to have an effect on the stock prices as stated in the financial statements. The stock prices affect both the income statement in calculating the cost of sales and the balance sheet while recording the stock balances.
Hence the focus will be on the cost of sales and in the calculation of the realizable value. There was a big decrease in the profit that is attributable to the shareholders (BusinessDay, 2010). This has mainly been attributed to the change in prices affected by the global crisis, and partly by demand from other countries and more specifically the Asian population and mostly China. The price and demand changes may also be affected by new oil explorations globally. Therefore is a need to analyze all the figures that affect financial statements.
Therefore the sampling of the audit will need to be a wide one so as to cover all areas with the intention to conduct an audit that will be very thorough. However, the inherent risk in this report will concentrate mostly on other reports that are not in the financial statements and reports of Santo Limited. The reports are available in the newsrooms and in the public media. • Santos was also planning to sell its stake in Evans Shoal to Magellan. The inherent risk in this is and what is questionable is the possibility that the transaction between Santos and Evans Shoal (Santos limited, 2010).
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BusinessDaily. (2010). Time For Santos To Put A Price On Hold LNG Dreams. Retrieved on May 14, 2010, from http://www.businessday.com.au/business/time-for-santos-to-put-a-price-on-lng-dreams-20100218-oj1m.html
BusinessDay, (2010). Santos Eyes Further Asset Sales To Fund LNG Plans. Retrieved on May 14, 2010, from http://www.businessday.com.au/business/santos-eyes-further-asset-sales-to-fund-lng-plans-20100218-og98.html
Cosserat, G. (1999). Inherent risk and the Control Environment. Retrieved on May 14, 2010, from http://www.accaglobal.com/archive/sa_oldarticles/50047
Khanna, R. (2010). Santos Plans To Sell Stake In Evans Shoal To Magellan. Retrieved on May 14, 2010, from http://www.topnews.in/companies/santos-ltd
Pritchard, E. (2008). Oils Perfect Storm May Blow Over. Retrieved on May 14, 2010, from http://www.telegraph.co.uk/finance/newsbysector/energy/2790363/Oils-perfect-storm-may-blow-over.html
Rittenberg, L., Johnstone, K & Gramling, A. (2009). Auditing: A Business Risk Approach. Boston: South-Western College Publisher
Santos Limited, (2010). Corporate Governance. Retrieved on May 14, 2010, from http://www.santos.com/annual-report-2009/corporate-governance.aspx
Santos Limited, (2010). Appendix 4E Preliminary Final Report Under ASX Listing Rule 4.3A: For the period 31 December 2009. Retrieved on May 14, 2010, from http://www.santos.com/library/2009%20Appendix%204E%20Preliminary%20Final%20Report.pdf
Smith, A. (2010). Santos Cuts Spending, Exploration to Focus on LNG. Retrieved from http://www.bloomberg.com/apps/news?pid=20601081&sid=aSMD4HrVCejI&refer=australia