Auditing and Ethics: Analyzing the Annual Auditor Report for Air New Zealand Limited for the Year 2017

Running head: AUDITING AND ETHICS 1
Auditing and Ethic
Name
Institutional Affiliation

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Introduction
Air New Zealand (AIZ) is an airline company based on Auckland, New Zealand. It
operates flights in New Zealand and other international countries. The purpose of this paper was
to develop analytical analysis on materiality auditing, analytical review, audit procedures and
form an opinion based on auditing by reviewing the annual auditor report for AIZ Limited for the
year 2017.
Section 1
Materiality in auditing relates to the misstatements or omissions that are considered
material only if they impact the economic decisions of users based on financial statements either
independently or in total. Here, the auditor explains a judgment on whether the financial
statements are prepared in all material facets to gain assurance of the users. The nature of
materiality includes both quantitative and qualitative. The quantitative aspects include setting a
judgment of the materiality during the planning stage and the set a percentage of the net income.
Then consider the performance materiality on the amounts receivables or inventory
(“AccountingScholar.com”). Also, estimate the misstatements and the total aggregate in a cycle
and determine the overall materiality to determine whether they were misstated. Qualitative
aspects include factors like the company not disclosing acceptable dependent liabilities and its
transactions, incorrect description of accounting policy which are material. Similarly, minor
mistakes in financial statements lead to materiality violations. Different bases of materiality are
planning, performance and overall materiality. Planning materiality is the opening one where the
maximum amount believed by the auditors to be misstated by an error or fraud and still not affect
the decisions of the users. Performance materiality is the amount less than the overall materiality
set by the auditor to reduce the low level and the probability of the misstatements will exceed the

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overall materiality. Also, it is set to reduce the risks that the total undetected misstatements could
be material to the financial statements of a company. Overall materiality refers to that base of
materiality that is the highest amount of information not disclosed, omitted or misstated that
affects the economic decisions of the financial users or the accountability of the management as
a whole. The level of materiality is that of planning and overall materiality. The audit materiality
says that they primarily consider of the misstatements of consolidated financial statements of the
Group that economic decisions of an individual will be changed. This means that this is a
planning materiality which is done at the commencement of the business. Similarly, the planning
materiality is based on the quantitative considerations nature of materiality concept. In addition,
they consider whether other matters brought during materiality auditing affects their decisions or
judgment which is a qualitative aspect. The overall materiality is done through the evaluation of
the whole work for consolidated financial statements which was $30 million affected by some
factors of the airline industry. In this overall materiality, there was a profit tax of 6%, total equity
of 2% and an operating revenue of 1%.

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Section 2
Income statement of AIZ Company preliminarily analytical review 2014-2017 in million
terms.
A company’s revenue is the income that a company earns through its activities from the
sale of goods to their customers. The AIZ Company revenue increased from the year 2014-2016
and decreased in the year 2017. In 2014-2015 it increased from 4663 to 4925. In the year 2016, it
increased from 4925 in 2015 to 5231 (Carter, & Dawson, 2017). The revenue decreased to 5109
in the year 2017compared to the year 2016.
Operating expenses of a company are the costs that a company accrues through its activities
recorded in the income statement. These expenses of AIZ Company have been increasing over
time from 2014-2017. From the 2014-2015 the total operating expenses increased from 3184-
3413. Similarly, there was an increase in 2015-2016 from 3141-3711. Finally, the aggregate
expenses increased slightly from the year 2016-2017 from 3711-3781.
Operating income of a company is a measure of the amount of profit a firm gains after carrying
out its operations and deducting the operating expenses. The AIZ Company operating income
have been increasing since the year 2014-2016 but decreased in 2017. In 2014-2015 there was an
increment from 358-423. In the year 2015-2016, 423-674 (Carter, & Dawson, 2017). However,
the operating income decreased from 674-501 which was not good for the business as the
number of profit reduced.
Net income of a firm is that final profit or loss realized by a business after all expenses have been
deducted. AIZ Corporation has only earned net income profits over the years but a decrease in
2017. In the year 2014-2015, the net profit moved from 262-327. While in the year 2015-2016 it