Auditing Questions 2022

Running head: AUDITING
Auditing
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AUDITING
Table of Contents
Question 1: AASB 1031 Materiality...............................................................................................3
1.1. Changes in AASB 1031 Materiality from 1995 to 2015......................................................3
1.2. Materiality.............................................................................................................................3
a. Definition of Materiality......................................................................................................3
b. Qualitative and Quantitative Guidelines of Materiality.......................................................4
c. Influence of Concepts and Constructs in Audit Judgement.................................................4
1.3. Auditors Assessment............................................................................................................5
Question 2: Independent Situations.................................................................................................6
a) Actual and Perceived Independence............................................................................................6
b) Situation Analysis........................................................................................................................6
Question 3: Everyday Supplies Pty Ltd’s Internal Control.............................................................9
Question 4: Retro Pty Ltd’s Internal Control Weaknesses............................................................12
Question 5: MyPet Pty Limited Audit...........................................................................................14
References......................................................................................................................................16
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AUDITING
Question 1: AASB 1031 Materiality
1.1. Changes in AASB 1031 Materiality from 1995 to 2015
In 1995, the Australian Accounting Standards Board (AASB)’s 1031 materiality has been
revised, thereby developing three main features. In the initial stage, it defines the materiality in
the accounting books, which helps any organization to include materials in their records.
Secondly, AASB 1031 properly explained the valuable role of materiality and its use in creating
feasible and accurate financial reports. At last, an organization must follow up AAS 5 to
implement AASB 1031 in an effective manner. This rule was found to be in operation up to 1st
Jan 2005 (Commonwealth of Australia, 2010). After 2004, the AASB decided that the current
rule of materiality is not enough to decide a material in accounting books. Hence, they made an
amendment and stated that an organization must apply for AASB 1031 in each financial
statements and the internal auditor must put a cross-reference of other standards in order to
explain the materiality in a sufficient manner. AASB 1048 and other related framework was
included for the purpose of attaining proper guidance to the financial experts during the period of
material determination. It also helps in identifying the accounting errors in consideration of
AASB 101 and AASB 108 after the amendment. The validity of this amendment lasted till 1st Jan
2014 (Commonwealth of Australia, 2013). After this, the AASB 1031 was withdrawn in 2015 so
as to create proper financial statements for the organization (Commonwealth of Australia, 2015).
1.2. Materiality
a. Definition of Materiality
Materiality can be defined as the accounting standards, which help an auditor or financial experts
to divide financial activities into, materialistic and immaterialist information (Cameron, 2014).
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AUDITING
Fundamentally, various transactions are conducted in a business, which are recorded by the
financial experts in their financial books of accounts, wherein various misstatement and omission
can also be found to have been documented mistakenly. These mistakes can create a tremendous
impact on the organizational decisions and business operation because the wrong recordings may
get treated as a material in the financial books. The auditor can actually identify such issues by
making use of AASB materiality standards (ICAEW, 2017).
b. Qualitative and Quantitative Guidelines of Materiality
In relation to the quantitative guidelines, an auditor needs to properly monitor the financial
transactions and its classes. Account balances must also be evaluated with the disclosures in
financial statements. It is one of the foremost responsibilities of the auditor to calculate the rate
of materiality before the auditing process based on the organizational life cycle, industry, entity
nature, size, economic environment and volatility among others. Finally, the auditor must
calculate a cumulative result in association with an uncorrected misstatement. With respect to the
qualitative guidelines, the effectiveness of misstatement must be measured properly by the
auditor. Each misstatement must thus be judged properly so as to measure the magnitude in the
financial books (Commonwealth of Australia, 2006).
c. Influence of Concepts and Constructs in Audit Judgement
The concept of Audit can be considered as the standards, which are followed in order to design a
proper financial statement. It is also a financial reporting framework, wherein the auditors
provided an opinion on the financial activities and misstatements (Leung et al. 2012 p.6). On the
other hand, constructs is a broad interpretation of financial activities (Baldauf et al.2015).
Sometimes, an organization records an activity without proper evidence, wherein the auditors
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