Audit and Ethics

Running head: AUDIT AND ETHICS
Audit and Ethics
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AUDIT AND ETHICS
Section 1
Materiality
The assessment would be analysing the application of materiality aspect in a business and
different processes which is undertaken by the management of the company for assessing the
materiality of the business (Elder et al., 2013). The concept of materiality is fundamentally
applied in the course of auditing for identification of material misstatement. An item which is
presented in the financial statement would be considered to be material if the same has a
significance over the financial statement or is important to the nature of the business of the
client. The concept of materiality is considered to be important for the scope of audit as the same
determines the accurateness of the financial statements of the business (Eilifsen & Messier Jr,
2014). The important material misstatements which are shown in the financial statements are
related to important decisions which are related to the business. The company which is
considered for this assessment is Dulex Group which is engaged in the marketing and sales of
paints products which effectively help in maintaining appropriate quality of products which is
offered by the business (About Us - DuluxGroup . 2019).
The concept of materiality is widely applied by most the auditors for assessing whether
the financial statements are free from material misstatement or not. The auditor has the option of
choosing materiality computation on the basis of qualitative characteristics or quantitative
characteristics. In case of qualitative computation, items which are pivotal to the nature of the
business is considered such as sales, machinery. On the other hand, if quantitative characteristics
are considered than the items which represent the highest value in the financial statements are
considered for computing the materiality of the business. The first step which is required for
computing the planning materiality of the business which is considered on the basis of

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AUDIT AND ETHICS
percentage which is estimated by the company and the same is applied to the highest figure
which is shown in the annual report of the business. The planning materiality of the business is
computed at initial stages of the business for effectively planning of the audit process which is to
be applied by the management of the company. As per the income statement which is prepared
by the management of the company, the sales figure is shown to be maximum in value and the
same is shown to be $ 1,843,714,000. The sales of the business show improvement in
comparison to previous year analysis. In order to derive the planning materiality of the business,
a percentage of 5% is considered. The computation of planning materiality of the business for the
year 2018 is shown below:
Planning Materiality=Sales Revenue∗5 %
¿ $ 1,843,714,000∗5 %
¿ $ 92,185,700
The planning materiality of the business is shown to be computed to $ 92,185,700 for the
year 2018 on the basis of the sales figure which is represented in the annual reports of the
business. It is to be noted that it is on the basis of planning materiality that performance
materiality of the business is computed.
Review of Draft notes and Disclosures
The draft notes and disclosures are also included in the annual report which is prepared
by the business with an objective to provide an appropriate presentation of the financial
statements of the business. The disclosures which are provided in the annual report of the
business also has an impact on the overall audit process which is conducted by the business.

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AUDIT AND ETHICS
 Impairment: The impairment disclosures which is provided in the notes to accounts
shows that the same requires significant judgement and estimation of the CGU, cash
flows from the asset. The annual report further shows that the impairment test is
appropriately conducted by the management of the company for estimating the amounts
for impairments of the business. The auditor needs to assess the basis of the judgements
which are considered by the management
 Business Acquisition: The annual reports of the business effectively show that the
management has acquired another business. The business acquisition of the company
considers appropriate judgement and estimation. The auditor needs to appropriate
conduct verification practices for ascertaining the appropriateness of the disclosures and
valuation which is done by the auditor of the business.
 Subsequent Events: The annual report of the business shows that the management of the
company has declared final dividend after the reporting date of the business which can be
considered as subsequent event for the business. The auditor of the business needs to
check the accuracy of the disclosure which is provided and whether the management of
the company has followed relevant accounting standards.
Section 2
Analytical Review of the Financial statements
Analytical Review of the financial statements can be regarded as a tool which is used by
the auditor for checking the accuracy of the financial information presented in the final accounts
of the business. The ratios which are presented reflect profitability, liquidity and activity ratios of