Audit & Material Misstatement

Audit & Material Misstatement

Table of Contents
Preliminary assessment of materiality for the financial report based on trial balance....................3
A discussion of appropriateness of this figure for your client.........................................................3
Possible impact of the changing the preliminary assessment on the audit budget..........................4
2.......................................................................................................................................................4
Analytical review in the form of Trend analysis for the items of income statements.....................4
3.......................................................................................................................................................5
Three income statement accounts that appear to be at-risk of material misstatement.....................5
4.......................................................................................................................................................6
Appropriate Audit procedures to be followed for the identified accounts:.....................................6
5.......................................................................................................................................................7
Comment on audit partners’ suggestion:.........................................................................................7
Reference:........................................................................................................................................8
Appendix:........................................................................................................................................9

1.
Preliminary assessment of materiality for the financial report based on
trial balance
The concept of materiality of a financial statement requires that as per ISA 200 , as a whole
objectives of an independent auditor is to conduct audit in accordance with the requirements of
International Standards on Auditing. The ISA 200 defines that the intention of a fair audit is to
improve the degree of confidence of intended users of a financial statements being published by
a business organization. This can be achieved by an auditor by giving an opinion regarding
whether the financial statements is being prepared in all material respects in accordance with an
applicable financial reporting framework or not(Mock et al.,2012).
In the present case scenario after thoroughly studying the given trail balance it can be seen that
the trial balance for the period “July-1, 2016-March-31-2017” is holding a debit balance of
$148448 and that of the period of July-1, 2015-June-30-2017 is holding a debit balance of
$129808.
Thus the materiality for the financial report as a whole is much more than $15000 and the trial
balance is violating the basic requirement of the framework of a trail balance that is describing
that a trial balance is not balanced.
A discussion of appropriateness of this figure for your client
The figures of the trial balance especially the debit balance is not appropriate as there is every
possibility that the debit balances of the trial balance has been over reported. More over the trail
balance is missing the common items of “Accounts payable”, “Common stock”, “Long term
liabilities”, “Income tax payable”, “Retained earnings” that supposed to appear in the trial
balance as credit balance(Gay and Simnett, 2005).
So there is every possibility of material misstatement and the cause of risk arises due to the
reason that the financial statements of the organization have been misstated to a material degree.