Audit: Evaluating Materiality and Key Assertions in Financial Statements

This audit report provides a comprehensive analysis of materiality and key assertions in financial statements. It explores the evaluation of materiality and its impact on the quality of financial reports. The report also delves into the analysis of provisions and contingencies in the annual report of Ansell Limited. Additionally, it covers financial statement analysis, the detection of key assertions, the cash flow statement, and the audit report for Ansell Limited.

Running head: AUDIT
Audit
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Introduction:....................................................................................................................................2
Section 1:.........................................................................................................................................2
Section 2:.........................................................................................................................................7
Section 3:.........................................................................................................................................9
Conclusion:....................................................................................................................................12
References:....................................................................................................................................13

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Introduction:
The overall assessment directly aims in evaluating audit materiality which is present in
the financial statement of an organization. Moreover, adequate calculations are conduct for
detecting the level of materiality present in an organization. For the more the items significant to
audit are also discussed such as contingencies, and provisions. Besides preliminary analytical
review are also discussed India relevant financial performance of the organization is evaluated to
identify the presence of material misstatement and key assertions. Henceforth, relevant cash flow
statement evaluation has been conducted for identifying the current cash position of the
organization. The auditor's report is also evaluated to detect the relevant carrying values and
other accounting measures taken by the company.
Section 1:
Materiality level is a significant Measure which is used by auditors for analyzing
financial statement of the organization. The main objective of the material level is to evaluate the
financial report and enable concerns for the financial report which might incur during the
formulation. Adequate relationship between audit risk and materiality risk, which relatively
increases the risk of material and hence hampers the quality of the financial report. Material is
considered to be one of the major factors which negatively e affects the financial report of
organization. Furthermore, the presence of material ATI and Audit risk helps in determining the
extent timing and nature of the audit procedures that has been conducted by the auditors for
evaluating the current financial position of the organization (Coetzee & Lubbe, 2014).

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The below information provides the overall level of materiality that is allowable under
different segments of the financial report. The preliminary level of activities that is conducted
financial statement is considered planning material which is relatively allows the auditors to
analyses and identifies the mistakes statements in the annual report. The process directly allows
your detail to detect the level of fraud or errors that has been included in the financial statements
of the organization. However, establishing the preliminary assessment of materials is considered
by gathering adequate management information, qualitative factors, and other deviations from
normal activities. Moreover, the material is computed on the basis of the following estimates,
where the values need to be within the range of the defined materiality value.
 0.5% to 1% of the gross revenue
 1% to 2% of the total assets
 2% to 5% of the shareholder’s equity
 5% to 10% of the net profit
Basis Amount Materiality
Lowest Highest
0.5% to 1% of the gross revenue 1489.8 7.449 14.898
1% to 2% of the total assets 2522.5 25.225 50.45
2% to 5% of the shareholder’s
equity 1550.2 31.004 77.51
5% to 10% of the net profit 486.2 24.31 48.62
The above table provides information about the overall materiality level of Ansell
Limited for the financial year of 2018. The calculations direct indicated that the overall
percentage of 7.49 need to be the lowest cross value and 14.98 needs to be the highest gross
value values that can be material in state. The material misstatement conditions of total assets are
also calculated where people use of the total assets can alter Between 25.225 and 50.45, where

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increment in the materiality value higher than the specified numbers we directly result in audit
risk. Moreover, the values of the material needs to be within the bracket of 31.004 to 77.51 for
detecting the lowest level of material misstatement conditions present in the annual report of
Ansell Limited. Lastly, the net profit of the company can be materiality stated within the range of
24.31 to 48.62, as depicted in the above calculations
(Ansell2018anse1163.mdminteractive.com.au, 2019).
There are specific items, which are significant for the audit process and are depicted in
the annual report of Ansell Limited. The relevant items that were found in the annual report of
Ansell Limited were contingencies and provisions. The relevant analysis of the following items
is conducted as follows.
Provisions:

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The annual report of Ansell Limited directly represents all the relevant provisions that are
depicted in the liability section of the organization. The above figure provides information about
the provision conditions that has been maintained by the organization in the annual report. The
most significant estimates and assumptions needs to be conducted by the organization for
recognizing the provisions regarding the future cost that might affect profitability of the
organization. The provisions regarding the Employee entitlements, restructuring cost, and
rationalization relatively conducted by the organization in their annual report. Moreover, the
organization also provides information about the recognition and Measurement methods that has
been used for identifying the provisions for relevant expenses in future (Kharisova & Kozlova,
2014).
Moreover, adequate audit procedures can be followed by the organization for identifying
the significance of the provisions that were made in the annual report. The auditor's need to
ensure the amount provided in the provision is relevant to the expected expenses that is intended
by the organization. Furthermore, the auditor's share also examine the discussions of the
meetings that were conducted by board of directors and verify that the provisions for made
through by defeating profit and loss statement. In addition, adequate information about the
provisions is disclosed in the financial report of the organization which needs to be evaluated by
the auditor's.
Contingencies:

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The above figure provides information about the contingencies that is maintained by
Ansell Limited in their annual report of 2018. The organization is directly provided contingency
configuration of 1.5 million payable after 4 years to the acquisition cost of grammaSupplies. In
addition, under the recognition and Measurement of business combinations adequate condition
see liabilities has been assumed by the organization at fair value. Moreover, adequate audit
procedures can be followed by the auditors for analyzing the contingencies that is faced by the
organization in future years. The auditor's needs to identify the likelihood of the future event to
occur which might have negative impact on the financial conditions of the company. Moreover,
adequate footnotes and information needs to be provided by the company to the investors in their
annual report. The auditors need to also have adequate concentration on the contingent liabilities
under the probable categories that is mentioned by the organization. The adequate journal entries
need to be passed by the Accountants for identifying the relevant levels of contingencies in
future (Ansell2018anse1163.mdminteractive.com.au, 2019).

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Section 2:
Financial statement analysis:
The above figure provides information about the financial ratios of Ansell Limited from
2018 to 2015. The analysis directly indicated that the overall return on assets of the organization
mainly improved from 2015-2018. This directly indicates about the overall financial
performance of the organization was adequate, where the required level of revenues are
generated to support its operations. From the relevant valuation it could be identified that the
overall net profit margin of the organization increases despite the decline in the gross profit
margin. This relevant increment in profit was achieved due to the profits obtained from

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discontinued operations. Without the profits from discontinued operations the net profit margin
of the organization would decline in comparison to 2015 (Byrnes et al., 2015).
The analysis of the return on equity and financial leverage has directly indicated
improvement in the performance of the organization. The company has been increasing its return
on equity over the period of 4 years which indicates the efficiency of the management to utilize
the available resources. Moreover, the financial leverage of the company has declined, which
indicates about the improving financial stability of Ansell limited. Moreover, changes in the
gross margin and operating margin section of the organization are also detected, where revenues
have declined over the period of the four financial years. Therefore, it could be understood that
the overall total equity of the organization was relatively increasing with the reduction in total
debt over the period of 4 years.
Detecting the presence of key assertions:
Relevant key assertion can be present between the cash and Interest bearing loans of the
organization, which is relatively altered due to the changes in the current operations of Ansell
Limited. Moreover, adequate analysis can be conducted for reviewing the accounts their
creations can be involved. The materiality conditions in cash can be identified by using adequate
key assertions such as completeness of the cash transactions while preparing the accounts,
detecting the existence of the cash balance shown in the accounts of the balance sheet. With
adequate audit procedures cash transactions can be reconciled with the bank balance for
identifying any kind of alterations or material misstatement in the cash balance (Leung et al.,
2014).
The second key assertion that can be considered by the organization is the detection of
interest bearing liabilities of the organization. Adequate method of evaluating can be used such

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as the current loans and borrowings of the organization with the listed balances in the balance
sheet. Moreover, relevant borrowing and loans needs to be evaluated on the basis of connect to
measure and identify whether it is already paid or needs to be included in the balance sheet.
Auditors can use relevant audit procedures for adequately e detecting the level of amounts that
has been borrowed and used by the organization to support it operations. These procedures was
also help in detecting the repayment schedule the interest rates and lending institutions that is
involved in the loan process.
Section 3:
Cash flow statement:
The above figure provides information about the cash flow statement of Ansell Limited,
which relatively depicts about the changes in operating activities, financing activities, and

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investing activities of the organization. From the element analysis it could be identified that the
operating activities in cash flow of the organization declined from 2017 to 2018. This decline
was due to the reduction in receipts from customers. Moreover, the investing activities of the
organization relatively increased to positive in comparison to negative values in 2017. This was
achieved by disposing discontinued operations of the organization during the financial year of
2018. The company sold its assets to acquire the required cash to support its operations during
the financial year of 2018. Furthermore, the financing activities of the organization remained
negative where relevant proceedings from repayment of borrowings were conducted by the
company to adequately reduce the debt levels. Hence, the sale of assets and reduction in debt
accumulation by the organization relatively help in improving the cash availability of Ansell
Limited for the financial year of 2018 (Ansell2018anse1163.mdminteractive.com.au, 2019).
Audit report:

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The above figure provides information about the overall audit report of Ansell Limited
for the financial year of 2018. The auditor's report directly provided adequate information
regarding the financial report of the organization. In addition, the report also indicated that the
company's financial report is in accordance with the Corporation Act 2001. Moreover, the
Australian accounting standards of cooperation regulations 2001 has been maintained by the
organization by preparing the annual report. There is a relatively no adverse or wrong
information that has been provided by the organization in their annual report as per the
independent auditor's report published in the financial statement.

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Conclusion:
After analyzing the information presented in the above assessment it could be identified
that materiality is considered to be a major concern for auditors which needs to be at rest for
identifying the misconduct and manipulations conducted by organizations. Moreover, adequate
analysis of the overall financial report of answer limited has been conducted for identifying the
relevant provisions and contingencies liabilities that is depicted in the annual report. However,
the auditors can follow adequate audit procedures for detecting the material misstatement
conditions of the organization and make adequate assumptions on its current financial positions.
Therefore, auditors could adequately analyze the level of materially misstatement if Ansell
limited to detect the viability of the financial report.

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References:
Ansell2018anse1163.mdminteractive.com.au.
(2019). Ansell2018anse1163.mdminteractive.com.au. Retrieved 14 May 2019, from
http://ansell2018anse1163.mdminteractive.com.au/?iid=160950#folio=68
Byrnes, P.E., Al-Awadhi, C.A., Gullvist, B., Brown-Liburd, H., Teeter, C.R., Warren Jr, J.D. &
Vasarhelyi, M., (2015). Evolution of auditing: From the traditional approach to the future
audit. Audit Analytics, 71.
Coetzee, P. & Lubbe, D., (2014). Improving the efficiency and effectiveness of risk‐based
internal audit engagements. International Journal of Auditing, 18(2), pp.115-125.
Kharisova, F.I. & Kozlova, N.N., (2014). Applying the category of «Assertions (or
preconditions)» In audit of financial statement. Mediterranean Journal of Social
Sciences, 5(24), p.180.
Leung, P., Coram, P., Cooper, B.J. & Richardson, P., (2014). Modern Auditing and Assurance
Services 6e. Wiley.