Accounting Factors Affecting Materiality

The assignment content discusses the factors that affect the preliminary figure for materiality in the context of Double Ink Printers Ltd (DIPL) company. The three main factors identified are accounting factors, operational factors, and technological factors. Accounting factors include proper treatment of revenues and expenses to avoid errors in audit results. Operational factors refer to the business policies and methods adopted by DIPL, such as print-on-demand, which can affect the financial statements and audit results. Technological factors involve the adoption of new and better methods of accounting and auditing, which can provide accurate material evidence without loopholes.

AUDIT ASSURANCE & COMPLIANCE
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Table of contents
Question 1:.................................................................................................................................3
Question 2:.................................................................................................................................4
Reference list..............................................................................................................................9
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Question 1:
Necessary Issue Audit-related decision towards this issue
The useful life of the assets- It is very
necessary to determine the useful life of the
asset for the accounting cycle which
considers the use of various assets
(Woodroof & Searcy, 2001, p.169). In case
of the Double ink printer’s ltd, it is found that
the useful life of the asset is not known. As
per as the audit & accounting principles the
estimation of fixed assets should be audited
but it cannot be done in this case.
The useful life of the asset is an audit related
issue. In this case, the company DIPL has not
considered the useful life of the asset. There
are no proper calculations regarding the
useful life of the asset which would lead to
the rise of an error in the audit. In order to
avoid this issue, the senior manager should
approach the others, Stewart & Kathy, to get
proper information regarding the useful life
of the assets. The audit manager should
provide a draft plan of the audit regarding
this estimation because the accurate figures
cannot be estimated (Whittington & Pan,
2010).
Allowance on stocks- The stock is another
issue. From the financial report of the
company, it is clear that the depreciation of
stock is necessary to find out the actual value
of the stock. In the statement of position,
there is no obsolescing for stock (Accorsi,
Sato MSc & Kai MSc, 2008, p.375).
Such audit related issue requires an audit
manager. The audit manager should plan
about the stock by way of computer systems.
The manager should take a decision of
checking the inventory status from the sales
department & then conduct the audit.
Loans & interests- Debt management is
very important for the company as debts can
affect the capital. From the financial
statements, the interests on loans are
increasing in the income statement but
decreasing in the statement of financial
position (Sheldon et al. 2016). Such is an
issue because it can lead to misappropriations
in audit regarding the estimation of the loan
to capital ratio.
In order to avoid this issue which can lead to
errors in financial statements, The audit
manager should ask other executives of the
DIPL company to give proper information
regarding the loans. The auditor should then
segregate the number of loans given by the
owners & the public. The interests should be
calculated separately. Each & every interest
should have a note in the statements.
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a. Credit limits- Bad debts form a part
of the loss. An auditor has to consider
bad debts. Print on demand is
necessary to find out the cost of
books per order because sales are
increasing & cost of sales is
decreasing. The bad debts & sales are
increasing so it is essential to
determine the amounts actually
received from the electronic sale.
Value of debtors & bad debts is
increasing so the credit limits of the
buyers are important.
Such misappropriation can lead to errors
which would raise an issue.
The senior manager along with the others
named Stewart & Kathy. The company sells
certain units on credit but the credit limits of
the buyers are restricted. Still, it is seen that
the number of bad debts is increasing. The
audit manager should ask for a draft from the
bill receivable clerk Gay Chan. The draft
should contain the number of bad debts from
each & every customer. Then the auditor
should conduct the audit of the various sale
receipts separately (Whittington & Pany,
2010)
.
Electronic sale- the Electronic sale is a part
of the sale of the books of the company.
From the financial statement of the company,
it is found that the customers can order
online. This is an issue because there are
sufficient amount of bad debts but still, the
debtor's values are increasing.
In such a situation the audit manager along
with the others Stewart & Kathy should ask
for the numbers of orders online & offline
from the accounts manager. They should first
analyse the values & prepare a draft of the
debtors & then they should conduct the audit
(Whittington & Pany, 2010)
.
Question 2:
a. b. c.
Factors Details Materiality
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Management related
factor- The management
related factor are factors that
arise from the improper
working of the management.
These factors can affect the
overall figure for materiality.
The management related
factors are the factors of the
audit are factors that can
affect the proper audit
because the financial
statements are not
transparent. Due to these
factors, the audit manager is
not able to conduct proper
audit which can affect the
overall materiality. As
suggested by Accorsi, R.,
Sato & Kai (2008, p.375),
the provisions & the rate of
allowance of stock or any
other assets are done by the
management. If these are not
done properly then proper
audit is not possible due to
faulty management. In this
case, the print on demand can
be a part of a management
factor as this is determined
by the management of the
company.
The managerial factor is
somewhat related to the
calculation of the preliminary
figure for materiality. This is
because the business process
is decided by the
management of the DIPL
company. The managerial
factors constitute the rate of
depreciation of stocks & the
other rates which are
suggested by the
management. These rates are
changed by the management
from time to time. Similarly,
any change in these rates of
depreciation done by the
management can change the
figure for materiality which
would make a difference in
the audit results. So the
managerial factor is
considered to be a factor that
can influence the materiality.
The management related
factor will help the managers
of the DIPL company to
decide about the rates of
depreciation & other aspects
like the credit limit of the
debtors would help to find
the proper value solvency of
the debtor & sale. If the
management is able to
determine the proper value of
sale & debtors & decide
about the credit limits of the
debtors then the auditor
would be able to make proper
audit which can give an exact
evidence of materiality. In
this way, the management
factors would help to
influence the preliminary
materiality figure.
Internal factor- The revenue The internal factors like the The internal factors are the
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& the expenses of the
business are confidential to
the others. These are kept
within the business itself.
Such concepts often
contribute to the internal
factors that lead to the faulty
audit. The internal factor can
affect the internal audit
which is very necessary to
estimate the progress of the
business. Similarly, in case
of Double Ink printer's ltd,
the internal factors contribute
to the internal audit. These
are the business expenses &
the revenues. If such incomes
& expenses of the business
are not audited properly then
the auditor cannot conduct an
examination of the efficiency
of the business. In case of
DIPL depreciation of stocks,
amount of loans & interests,
electronic sale receipts & the
credit limits of the buyers
should be considered as an
internal factor.
revenue expenses & the
incomes of the business are
the internal factors which
comprise the financial
statements. The financial
statements are audited which
lays down a material
evidence of the performance
of the business (Sheldon et
al. 2016). If there are certain
errors in recording the
expenses & the revenues then
the financial statements are
faulty. Auditing such
financial statements can
affect the material evidence
so internal factors can affect
the overall figure for
materiality. Similarly in case
of DIPL if the internal factors
such as the revenues & the
expenses are not recorded
properly then the auditor or
the senior manager would not
be able to conduct proper
audit which would affect the
preliminary figure for
materiality.
number of expenses & the
revenues. The depreciation of
stock would help to
determine a proper material
value of the previous year’s
stock. The value of interest
will help to get a proper
material value of the loan &
determine the solvency of
DIPL. If these items are
recorded properly then the
audit would be accurate. Any
change or wrong recoding of
the items that are internal
factors can change the
evidence of the entire audit.
In this way, the internal
factors are the business
expenses & the incomes that
can affect the figure for
overall materiality.
Accounting factors- The
accounting factors are the
type of factor that is related
to the audit. As commented
by Neta Samet & Rajaraman
Accounting factors are the
treatment of revenues
(Sheldon et al. 2016).
Expenses are deducted from
the number of revenues to
The accounting factors can
help to measure the solvency
& the performance of the
enterprise DIPL. These
factors are the method of
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(2014, p.525), the accounting
is the treatment of various
revenues & the expenses. If
the revenues & the expenses
are not treated properly in the
books of the accounts then
the auditor will not be able to
make a proper audit of the
accounts or the financial
statements (Mason, 2014).
Such improper audit would
lead to misstatements &
misappropriations. Moreover,
the preliminary figure of
materiality is based on the
accounting values. If the
values of the expenses & the
incomes are not properly
mentioned in the accounts
then the materiality would be
affected. Similarly, in this
case, the variation in interest
amounts, the difference in the
allowance amounts of stocks
are accounting factors.
arrive at the net profit. If the
expenses & the incomes are
not treated properly the audit
manager would not be able to
conduct an error-free audit
(Aroles & McLean, 2016,
p.531). Any faults in the
treatment of the revenues &
the expenses can lead to
faulty audit which would
affect materiality. Such faults
can influence the preliminary
figure. In case of the DIPL
company if the expenses &
the incomes are not treated
properly then the senior
manager would not be able to
conduct proper audit & the
preliminary figure of
materiality would be
affected.
recording amounts of various
transactions. If the method
of recording is wrong then
the audit would be faulty
which can affect the
preliminary figure for
materiality (Franchetti &
Spivak, 2013).
Operational factor- The
operational factor is
considered to be the policies
of the business. Similarly in
case of the Double ink
printers ltd company the
company has adopted the
policy of print & demand.
Operational factors can affect
the preliminary figure
because the operational
factor can make variations in
the financial statements
(Domma, 2015). Variations
in financial statements can
lead to different audit results
Operational factors like Print
on demand will help to
determine the value of the
operations for DIPL. If such
values of operations are
misinterpreted then the figure
for materiality would change
(Rattan & Lewis, 2017).
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Such method is an
operational factor where the
preliminary sales figure,
depreciation of machines will
vary with the number of
orders.
which in turn can affect the
preliminary figure for
materiality. In case of DIPL
if there is any change in the
business operations of the
company the senior manager
would have to change the
audit procedure because the
financial results get changed
which can affect the
preliminary figure for
materiality.
Operational factors such as
print on demand can help the
auditor to decide about the
actual & exact amount of sale
from time to time providing
full material evidence of sale.
Technological factor-
Technological factor
represents the adoption of
better & new methods of
accounting. Adopting better
& efficient methods of
accounting can help the
auditor to perform risk &
error free audit. It can also
reduce the errors that can
arise due to inaccurate
figures of materiality (Basu,
2016). In this way can give
exact assumptions for the
company. For this company,
the adopting of newer
accounting methods &
auditing methods can
influence the materiality.
Adopting better auditing
techniques would help in
error-free audit & accurate
audit which can affect the
materiality figure because
efficient audit would provide
clearer & better evidence of
the company’s performance
(Franchetti & Spivak, 2013).
This is why the technological
figure can affect the
materiality. Similarly in this
case of DIPL if the senior
manager adopts new
technological methods of
auditing then the auditing
would provide more accurate
material evidence of the
company (Basu, 2016).
Technological factors
represent the adoption of new
& better methods of
technology. If Double ink
Printers Ltd is able to adopt
better methods of
technologies then the audit
would be accurate &
adoption of better technology
would help the senior
manager to give full material
evidence without any
loopholes (Rattan & Lewis,
2017). In this way, the
technological figure can
affect the overall preliminary
figure for materiality.
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Reference list
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risk. Wirtschaftsinformatik, 50(5), 375-382.
Aroles, J. & McLean, C., (2016). Rethinking stability & change in the study of organizational
routines: Difference & repetition in a newspaper-printing factory. Organization
Science, 27(3), pp.535-550.
Basu, S.K., (2016). Auditing & Assurance. Pearson Education India.
Domma, S.O., (2015). Local Government Expenditure Controls: A Case Study of Oye Local
Government Oye-Elite (Doctoral dissertation).
Franchetti, M.J. & Spivak, A., (2013). Concepts, methods, & strategies for zero-waste in
manufacturing. In Green Manufacturing Processes & Systems (pp. 73-102). Springer Berlin
Heidelberg.
Lapstun, P. & Silverbrook, K., Silverbrook Research Pty Ltd, (2004). Method & system for
printing a document. U.S. Patent 6,728,000.
Mason, J., (2014). Quality Management Systems: John Mason's Plain Text. Oberon NSW Pty
Limited.
Neta, G., Samet, J.M. & Rajaraman, P., (2014). Quality control & good epidemiological
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Rattan, R. & Lewis, K., (2017). Making Sense of Dental Practice Management. CRC Press.
Sheldon, M.A., Kuehn, M., Unzen, D.F., Sumant, A.S., Ramach&ran, R., Gangwar, R.K. &
Hulugegowda, S.M., Electronics For Imaging, Inc., (2016). Production planning &
monitoring in inkjet devices. U.S. Patent 9,417,829.
Whittington, R. & Pany, K., (2010). Principles of auditing & other assurance services.
Woodroof, J., & Searcy, D. (2001). Continuous audit: model development & implementation
within a debt covenant compliance domain. International Journal of Accounting Information
Systems, 2(3), 169-191.
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