Audit Issues of SCG

Running head: AUDIT ISSUES OF SCG
Audit Issues of SCG
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AUDIT ISSUES OF SCG1
Table of Contents
Section 1.....................................................................................................................................3
Section 2.....................................................................................................................................6
Section 3...................................................................................................................................11
Reference..................................................................................................................................13

AUDIT ISSUES OF SCG2
Section 1
Level of materiality to be used
For financial reporting materiality is the most important factor that is to be considered by the
auditor. The international standard of auditing highlight the following features
The material misstatements are considered if they could influence the decisions of users of
the financial statements.
The materiality can be judged based on the situation including the size and nature of the
misstatements.
The user’s common needs as a group is also considered as base for the judgement of the
materiality.
The importance of materiality from the viewpoint of the auditors is that the auditors
require reasonable assurance regarding the fact that the financial statement based on which
the auditor will give his report is free from any material misstatements. The concept of
materiality is the basic need for any audit work. It is applied by the auditors at the initial stage
of planning and the while performing the audit work and to assess the effect of the identified
misstatements on the audit and of uncorrected misstatements in the financial statements.
The guidance set by the international standard for auditing is the fundamental
principle for determining the concept of materiality. The auditors follow the guidelines of the
ISA requirements on materiality and uses practical examples to highlight good practices, key
challenges and common pitfalls. The rules and framework of the ISA is made with the
objective of helping the audit firms to better understand the materiality concept and to make
proper planning to evaluate any material misstatements in the financial statements (Graham
Bedard & Dutta 2018).

AUDIT ISSUES OF SCG3
There are no fixed formulae to determine the materiality but there are three basic steps
following which the auditors will be able to determine the materiality of the financial
statements these are stated below:
 Setting a benchmark
 Determining the level of the benchmark
 Choice justification
The framework of the IAS looks at these steps and the potential challenges that arise.
It provide rules regarding the fact that what might be appropriate to set specific level of
materiality for individual type of transactions and what to do with the long period
transactions where it is required to reassess the materiality concept. The framework also
explains what performance materiality is, providing the guidelines on how it can be
determined (Chen & Teng 2015).
The application of the materiality concept to identify the misstatements can be done
by following the guidelines
 Accumulating misstatements during the course of audit
 Categorising misstatement according to the nature
 Assessment of the materiality of the misstatements
 Impact of misstatements on the audit
Just like the audit of single entity group auditors the auditors of the group companies
must use judgement to determine the group materiality and group performance materiality.
the key difference between the group company audit is that the in group companies the
auditors also have to determine levels of component materiality for companies that have
audits for the purpose of the group audits. the framework of the international standard for
audit give the auditors an idea about the process to determine the component materiality and