Auditing and Ethics

Running head: AUDITING AND ETHICS
Auditing and ethics
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1AUDITING AND ETHICS
Table of Contents
Section 1..........................................................................................................................................2
Materiality....................................................................................................................................2
Significant items for audit...........................................................................................................3
Section 2..........................................................................................................................................5
Reference.........................................................................................................................................9

2AUDITING AND ETHICS
Section 1
Materiality
Materiality is the threshold limit exceeding which the misstatement in the financial
statement is considered as material and is considered to have material impact on decision making
process of the financial statement users. As stated under AUS 202 the auditor’s main objective is
to express opinion regarding compliance of required framework and presentation of the financial
statement (Auasb.gov.au, 2019). Different factors are there those are also considered while
determining level of materiality like reliability of the information provided by internal sources,
environment of the entity’s business and other qualitative and quantitative factors. Planning
materiality is considered as estimate made by the auditor at planning state. It is the highest
amount that the auditor believes that the misstatement has taken place (Christensen et al., 2016).
Different bases used for determining the materiality level are as below –
Basis High level Low level
Net profit 5% 10%
Total revenue 0.5% 1%
Shareholder’s equity 2% 5%
Total assets 1% 2%
Based on the materiality level the tolerable misstatement level is set up. Generally, it
varies between 30% to 70% based on the entity’s nature of business and transaction carried out
by it. For SCG (Scentre Group Stapled Securities) based on its business nature it can be
established at 50% of materiality level (Scentregroup.com, 2019).
Rational for selecting the level

3AUDITING AND ETHICS
Though the establishment of materiality level is based on experience and professional
judgments of the auditor as the items mentioned above in the table are of significant importance
these items are taken as the base (Byrnes et al., 2015).
Quantitative estimate
Considering all the factors mentioned above materiality level for SCG will be computed
as follows –
Basis Amount (million ) Materiality
Low level High Level
5% to 10% of the net profit $ 2,295.90 $ 114.80 $ 229.59
0.5% to 1% of the sales revenue $ 2,149.20 $ 10.75 $ 21.49
2% to 5% of the shareholder’s equity $ 23,865.80 $ 477.32 $ 1,193.29
1% to 2% of the total assets $ 40,875.00 $ 408.75 $ 817.50
Generally the highest mount is considered for establishing the level of tolerable
misstatement. Hence, for SCG the tolerable misstatement will be = $ 1193.29 * 50% = $ 596.65
or $ 600 approximately (Scentregroup.com, 2019).
Significant items for audit
Scrutinizing the financial statements of SCG, it is observed that some of the items shall
be regarded as important for the purpose of audit as these items require significant level of
judgement, estimates and assumptions to be made by the management. These items are –
Contingent liabilities –
SCG provided guarantees for certain joint venture operation of Westfield Corporation
Limited in UK. Under the implementation deed of merger and restructure, the organisations of
SCG as well as Westfield Corporation Limited have the cross indemnified to each other for