Auditing and Ethics

Running head: AUDITING AND ETHICS
Auditing and Ethics
Name of the Student
Name of the University
Author’s Note

AUDITING AND ETHICS1
Table of Contents
Introduction................................................................................................................................2
Section 1.....................................................................................................................................2
Determination of the Level of Materiality.............................................................................2
Review of Draft Notes and Disclosures.................................................................................4
Section 2.....................................................................................................................................5
Section 3.....................................................................................................................................8
Statement of Cash Flows........................................................................................................8
Audit Report...........................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

AUDITING AND ETHICS2
Introduction
The main aim of the audit profession is to inspect and examine the financial records
and financial reports of the audit clients with the aim of find any kind of material
misstatement in them. It is important for the auditors to determine the level of materiality for
the audit of the group accounts as this materiality level assists the auditors in identifying the
materially misstated accounts in the financial statements (Griffiths, 2016). This needs to be
done by the auditors after taking into consideration the analysis of the financial statements
and associated draft notes. After the determination of level of materiality, the auditors are
needed to apply preliminary analytical review for the identification of the areas of higher risk
in final audit. Ratio analysis is considered as a major preliminary analytical process that
needs to be undertaken. The auditors are also required to undertake the analysis of the cash
flows with the aim to assess the going concern risk of the business. The main aim of this
report is analyse the above-discussed aspects of CSL Limited. CSL Limited is one of the
leading global biotech companies involves in researching, developing, manufacturing and
marketing of products for treating as well as preventing serious medical conditions of
humans. More specifically, the company develops and delivers innovative biotherapies and
influenza vaccines which save lives and help people from life-threating medical conditions.
This report also considers Sonic Healthcare as the similar company for comparing ratios.
Section 1
Determination of the Level of Materiality
Materiality is a fundamental concept of auditing and its application can be seen in the
audit planning stage and the stage when the auditors determine the impact of identified
material misstatements. Three steps needs to be followed by the auditors in materiality
determination and they are as follows:

AUDITING AND ETHICS3
1. Relevant and appropriate benchmark or base selection.
2. Level of percentage selection.
3. Providing appropriate justification behind the above selections (Sunderland &
Trompeter, 2017).
These three steps need to be followed when determining the level of materiality of CSL
Limited for the year 2018; and the process is shown below.
Certain factors need to be considered at the time of the selection of the suitable
benchmark; nature of the business entity and the nature of the industry in which it operates
are two of the most crucial factors for the selection of benchmark. Expensive use of certain
benchmarks can be seen due to their suitability; they are profit before tax, gross profit, net
assets, total assets and others. It is suitable to take Profit before Tax (PBT) ($2281.1 million)
as the benchmark for the determination of level of materiality because it is a widely
acceptable benchmark in the industry in which the firm operates. After the determination of
suitable benchmark, it is needed for the auditor of CSL Limited to determine the suitable
percentage for materiality determination that needs to be charged on the selected base. It
needs to be mentioned that AASB 1031 Materiality is a crucial document that provides the
auditors with the necessary guidelines for the determination of materiality (Sarwoko &
Agoes, 2014). In case of the selection of the percentage, the auditor of CSL Limited can
select from the below options:
 The auditor can chose an amount which is equal to or greater than 10 percent of the
appropriate base amount as material unless there is any contrary; and
 The auditor can chose an amount which is equal to or less than 5 percent of the
appropriate base amount as material unless there is any contrary (aasb.gov.au, 2019).