Jocelyn Lin- 42884462
1. Case 1-2 Part A, D and F
Explain how each situation would affect your overall audit plan. Include reference to the nature and extent of audit evidence, which need to be accumulated.
A) The civil unrest in Country X would impose various strains upon the planning of an audit. Firstly, due to communication blackouts, the level of information ascertained by the auditor would be very limited, which could potentially affect the auditor’s professional opinion on materiality. During an audit plan, auditors normally estimate the scope of misstatements that would be considered material to BZ limited. However, as it is impossible to visit the Regional Processing Centre ...view middle of the document...
If the event is immaterial, less effort is needed for the auditor in that account. Secondly, the auditor must also use its professional opinion to choose a base to compare the significance of materiality. In this situation, it would be most appropriate to use either the net proit or Net asset base. Net profit would be favourable if the business is profitable, but may also carry risks if it is not profitable- in this case net asset would most likely be a more suitable base for materiality.
F) In this case, auditors must apply the same process as in part D. In addition to that, they must also consider and familiarise themselves with the external changing environment. As the cost of waste is charged as an expense, it will reduce BZ’s net profits. As a result, using the net profit as a base for materiality would not be in favour for the business. Additionally the value of any waterways is stated to be taken up as an asset and must be amortised. In effect, this would reduce the net value of assets, thus making it meaningless to base materiality on net assets. Therefore, it seems that a true representation of materiality would be achieved through using revenue as a base.
2. Case 3-5 part B
A) Based on 35 invoices valued at $100000 out of $2850000, the new graduate had identified a $2000 error. Although he believes this to be fair and correct, there may have been an error in his calculations. The sample size should have little to no variance. Additionally, based on 35 invoices, there was a $2000, which indicates that if the graduate used more invoices, assuming it to be 100, then it would exceed the materiality benchmark of $25000.