Auditing and Assurance Report 2022

Running head: AUDITUING AND ASSURANCE
AUDITUING AND ASSURANCE
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INTRODUCTION:
The report discusses about the level of materiality that Australian petroleum and oil and
Gas Company, Carnarvon Petroleum uses in representing their 2019 annual report. In order to
identify the financial positions of the company various financial ratios are also being
incorporated. The report also indicates the total amount of cash inflows and total amount of cash
outflows from the financial statements of the company.
Carnarvon Petroleum is an Australian company which was founded in late 1983. The
company mainly deals with petroleum, oil and gas. The company is famous for innovating new
products that suffice the demand of oil and petroleum. The company spends considerable amount
of investments in technological development, so that they can discover more new products. The
company is a listed company in the Australian Stock Exchange under the name CVN. As per the
2018 annual report the company gained total $14.25 million. Though certain uncertain
circumstances the income turned into loss in the year 2019. In spite of facing loss the company
still possess current assets of $74,667,000. In order to identify more on the financial positions of
the company financial ratios are being measured.
MATERIALITY OF CARNARVON PETROLEUM:
Materiality is considered as the concept of convention in auditing and accounting. The
convention of auditing is mainly related to the transaction or any kind of discrepancies of the
amount. Materiality of auditing comes into play when the auditor checks the financial statements
of the company (Cohen & Simnett, 2015). There are several levels of materiality that auditor
mainly uses to measures the materiality present in the financial statements of the company. The
first and foremost level of materiality is the planning materiality. In this level the auditor needs

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to assume that the financial statements that the company has to offer contain some fraud or
unknown error, which can affect the decisions of the financial statement user. Thus, the primary
level of materiality guides the auditor to create a specific design of auditing procedures. The
second form of materiality is the performance materiality. In this step the auditor determines the
allowance for known and unknown error and fraud that is present in the financial statements of
the company. The auditor also multiplies the percentage of risks that presents in the financial
statements of the company with planning materiality. Thus, in this way the auditor can tolerable
misstatement. It can also be stated that 50% to 70% of planning materiality are mainly based on
the moderate risk at the financial statements level. The lower misstatement in the financial
statements enables the auditor to conduct the auditing by 100%. In case of Carnarvon Petroleum
the same thing happened.
As per the declaration made by the auditor, Ernst & Young, the materiality in the 2019
annual report of Carnarvon Petroleum is zero. The auditor checked the materiality of the
financial statements of Carnarvon Petroleum based on AASB 101 Presentation of Financial
Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. In
order to identify the materiality of the financial statements of Carnarvon Petroleum, Ernst &
Young firstly uses planning materiality. In this step the auditor designed the auditing procedure
for analysing any kind of materiality in the financial statements of the company (Brown et al.,
2019). In the next step the auditor tries to identify the performance materiality, which in this case
was nowhere to be found. These are the reasons due to which the auditor of Carnarvon
Petroleum, Ernst and Young passed an unqualified audit report. As per auditor’s report of 2019
annual report of Carnarvon Petroleum, there was no act played by the company that may
compromises the auditor’s independence requirements, as mentioned in Corporations Act 2001.