Audit Procedure: Understanding Materiality and Financial Performance

AUDIT PROCEDURE

Contents
Introduction........................................................................................................... 3
Part-1..................................................................................................................... 3
Requirement-1.................................................................................................... 3
Requirement-2....................................................................................................... 5
Section-2............................................................................................................... 5
Analytical review................................................................................................ 5
Key risky areas, audit assertion for risk, and other audit procedure..................7
Sec-3...................................................................................................................... 8
Cash flow statements......................................................................................... 8
Type of audit opinion............................................................................................. 9
Conclusion........................................................................................................... 10
References........................................................................................................... 11

Introduction
This report reveals the key understanding on the audit assertion and financial performance of
the company. The reporting brings out a discussion on understanding of materiality concept
in relation to financial statements of the organisation. This concept will help in examining the
auditing risk model of the Macquarie Group (Lakis, & Masiulevičius, 2017). In the initial
stage, this report has the description and significance of materiality in relation to audit of the
financial reports. Further, an analytical review of the Macquarie Group`s financial statements
are assessed. Further, cash flow statement of the Macquarie Group has been reviewed in
order to examine the maximum and minimum cash inflows and outflows of particular items
in the financial records (Barman, & Sengupta, 2017).
Part-1
Requirement-1
Description, nature, and significance of the materiality concept in
relation to Audit of the financial statements
Materiality depends on the size of the financial information. Materiality concept is well
known for the ability of the data to change the decisions of the user from the decision, which
was taken in the absence material data (Macquarie Group, 2017). The significance of material
concept regarding the set of financial reports have increased when the audit is being
conducted. Audit does not mean to monitor the whole information, which is given in the
financial statements, but it is also conducted on the basis of sample (Ussery et al., 2019). The
finding of sample has been from the total population which have higher importance and the
risk associated with it. This importance is determined by the calculating the materiality for
the financial reporting (Macquarie Group, 2018).
Different basis and consideration to compute the materiality

While quantifying the materiality, different basis are previewed and selected from the
financial statements are used-
Base account % applied
Gross profit 1% to 2 %
Net profit 5% to 10%
Total asset 1% to 2%
Gross revenue 0.5% to 1%
Shareholder’s equity 2% to 5%
The percent and volatility of base accounts is selected on the basis of account
balances. For each account, least volatility has been adopted. The amount calculated after
observing the specific account balance and amount observed in regards to trend in business.
An uncertainty business often call for low amount in relation to materiality, as every amount
is sceptical to huge risk (Macquarie Group, 2018). Company has been facing high fluctuation
its share capital which reflects that it has increased its business costing throughout the time.
Materiality for Macquarie Group
Chosen amount for Net profit- $29, 82,000
Due to huge stability as compared to other accounts for the last two years, this amount has
been chosen for materiality base because the company is profit generating.
Percentage selected- 5 percent