Assignment:
A) Your task here is to assume the role of external auditor
Explain and support your preliminary judgement about planning materiality for the entity you chose. You are expected to come up with four different a dollar amounts - determined by using each of the Bases shown in the left hand column of the Table below and the % range specified in your text - and then explaining which of the four amounts you believe to be most relevant to your chosen entity and their current operating environment.
We will be sure to illustrate this process using the Lakeside Company case a
Completing the Tables below documents the support for your preliminary judgement; discussing why you chose your selected base amount and the impact of any qualitative factors on increasing or decreasing your selected amount.
Quantitative Considerations
(Planning) materiality is relative and so you need to choose an appropriate base. This base will vary depending on the nature of the client's business and the focus of users when they make their economic decisions. Typical bases and percentages applied to the bases range from 0.5% up to 10% are listed in your text and ASA320 (noted above). Show the bases you evaluate and the % applied in the Table below - explain your choice of percentages AND briefly explain which base you believe is most appropriate in the bottom row of the Table (your explanation will wrap automatically).
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Base
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$ amount
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% range
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$ range (% x $)
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Profit before tax
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$A 457.10million
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Net revenue (sales)
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$A 2,029.70million
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Total Assets
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$A 14,533.90million
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Equity
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$A 8,227.40million
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Explanation of your choices
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Qualitative Considerations
Users may rank some misstatements more important than others. List any relevant qualitative factors from your chosen entity and indicate in the Table below how each impacts on the quantitative level of materiality you have justified in the Table above - make sure you check and apply the relationship between the materiality level and evidence . One example is included as an illustration.
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Items to be considered
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Impact (increase or decrease) on materiality
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e.g. New client in a new industry for A&C
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e.g. Decrease materiality ... increase evidence
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Explain which of the items you consider to have the most impact
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Preliminary Judgement about materiality
Combining the qualitative and quantitative considerations what is your judgement of the amount for the overall planning materiality level (in $) for STOCKLAND? Briefly explain how you combined the two considerations. (If the qualitative factors persuade you to "increase"/"decrease" the level of materiality you need to exercise your judgement by indicating by how much ($) and provide a brief explanation (justification/reasons).
Brief Explanation of combination (below)
B) You have learned that ASA 315 stipulates analytical procedures be used as risk assessment procedures, while ASA 520 stipulates their use as substantive procedures. The standards also discuss the nature and purpose, extent of reliance on analytical procedures and subsequent investigation of unusual items identified.
Using the financial report/statements of the entity you chose for STOCKLAND:
identify and briefly explain three (3) ways you could use analytical procedures as risk assessment procedures
identify and briefly explain three (3) ways you could use analytical procedures assubstantive procedures during the audit
This requires you to use the material from your chosen entity to illustrate the application of ASA 315 and ASA 520 in the application of Analytical Procedures to the audit process you have been learning about in the unit. You are being asked to provide examples to support your explanation.