Auditing and Assurance: Materiality, Analytical Review, and Cash Flows

AUDITING AND
AUSSRANCE
Module Number-
[DATE]
HEWLETT-PACKARD
[Company address]

Table of Contents
Introduction............................................................................................................... 2
Section 1................................................................................................................... 2
Requirement 1......................................................................................................... 2
Requirement 2......................................................................................................... 3
Section 2................................................................................................................... 4
Analytical review..................................................................................................... 4
Key risk area, audit assertion at risk and audit procedure....................................................7
Section 3................................................................................................................... 8
Statement of cash flows............................................................................................. 8
Review of audit report............................................................................................... 9
Conclusion........................................................................................................... 10
References.............................................................................................................. 11

Introduction
This report reveals the key understanding on the Materiality in respect to financial
statements of the company and helps in evaluating the auditing risk model of the Mineral
resources Company. In the starting of this report nature, description and importance of
materiality in respect to audit of financial statements has been taken into consideration. After
that, analytical review of the undertaken financial statement have been assessed. Afterward,
cash flow statement of the company have been reviewed to evaluate the minimum and
maximum cash outflow and inflow from the particular items recorded in the books of account
of company.
Section 1
Requirement 1
NATURE, DESCRIPTION AND IMPORTANCE OF MATERIALITY IN RESPECT
TO AUDIT OF FINANCIAL STATEMENTS
Materiality in respect to financial statements reflects the importance attached to any financial
information be in respect to its size or nature. Materiality is defined as the ability of an
information to change the user’s decisions from the one which would have been taken in
absence of that material information (Lakis., & Masiulevičius, 2017). The importance of
identification of materiality for a set of financial statements increases when its audit it to be
conducted. Audit cannot be undertaken by checking the entire information available in
financial statements, but has to be conducted on sample basis. The determination of sample
has to be from the population which has high importance and risk attached to it. This
importance and risk is determined by computing and quantifying materiality for financial
statements (Noreen, Brewer, & Garrison, 2014).
DIFFERENT BASIS AND CONSIDERATION FOR COMPUTING MATERIALITY
For quantifying materiality, different basis can be selected from financial statements listed as
follows:
Base account % applied

Total asset 1% to 2 %
Gross revenue 0.5% to 1%
Gross profit 1% to 2%
Net profit 5% to 10%
Shareholder’s equity 2% to 5%
The base account is chosen by looking at the volatility of account balance. The account
balance with least volatility is adopted. The amount obtained by applying % of specific
account balance to that account balance is then adjusted for the trend observed in business. A
risky business calls for a lower amount attached to materiality, as every amount even small is
exposed to high risk and vice versa (Ruhnke, Pronobis, & Michel, 2018).
MATERIALITY FOR MINERAL RESOURCES LIMITED
 Chosen base account: net profit, $271,848,000
Because of highest stability in comparison to rest other account balances for past two
financial years. Also the company is profit making company making the profit figure a
material base.
 Chosen percentage: 5%
 Base amount: $13,592,400
 Materiality for Mineral resources Limited: $14,500,000
The base amount has reduced to reach materiality for audit for two reasons. Firstly by looking
at financial trends through analytical review, the risk observed is high, and also the figure has
been rounded off by this (Ussery, et al. 2019).
Requirement 2
SIGNIFICANT NOTES AND DRAFTS