Audit Report on Trial Balance of Fulvous Enterprises

Auditing
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Contents
Introduction................................................................................................................................3
Materiality..................................................................................................................................4
Income statement items from trial balance................................................................................4
Risk of material misstatement....................................................................................................5
Audit procedures........................................................................................................................5
Fraud risk...................................................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8
Appendix....................................................................................................................................9
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Introduction
This report is prepared for the purpose of conducting an unbiased and independent audit
report on trial balance prepared by Fulvous enterprises that is registered under proprietorship
business structure. There are various factors in respect to external audit that will be
considered in this report such as materiality of financial statements, analytical review of
financial statements, risk of material misstatement, audit procedure and fraud risk. Main
purpose of this report is to get an understanding of all the activities that are required to be
conducted in independent evaluation of financial statements.
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Materiality
Materiality in financial statements can be defined as the level of acceptable material
misstatement in financial statement of a company. It is true that auditor of a company cannot
conduct an audit that covers 100% data presented in financial statements. All the financial
transactions recorded by business organisations are conducted over 12 months of time,
therefore it is not practically possible for an auditor of such business organisation to review
these transactions in limited period of time. There are specific commonly acceptable rules
and regulations in respect to giving a monetary value to materiality in financial statement
(Lakes and Masiulevičius, 2018). One of these commonly acceptable formula to calculate 5%
of total net profits (Calculation of net profit shown in appendix 1) earned by the company and
consider such amount as materiality of financial statement.
In the case of Fulvous Enterprises, total net profit of the company in financial year ending
2016 is $94407. Therefore materiality in this case would be $4720 which indicates that
material statements up to $4720 will not be considered as material from the perspective of
stakeholder’s decision making process. Materiality decided by the audit partner at the start of
financial year is 15000 whereas it should be around $5000. It can be said that auditor of the
company is required to increase the efforts toward the audit procedure in order to decrease
audit risk (Christensen et.al, 2018).
Analytical Review
Particular Last year
Proportiona
l Eleven
month of
last year
First
Eleven
months
of
current
year Analysis
Sales
244500.0
0 224125.00
232671.0
0
Increase in sales of the company is
a positive sign for the company
but it is important that other
variables move in same direction
(Scarborough, 2016).
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