Auditing and Ethics: Materiality, Draft Notes, Financial Statements, Cash Flow

Running head: AUDITING AND ETHICS
AUDITING AND ETHICS
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AUDITING AND ETHICS
Table of Contents
Section 1....................................................................................................................................2
Materiality and Scope of Audit.............................................................................................2
Review of Draft Notes and Disclosures................................................................................4
Section 2....................................................................................................................................6
Analytical Review of the Financial statements.....................................................................6
Section 3....................................................................................................................................9
Analysis of the Cash flow statement.....................................................................................9
Review of the Auditor Report.............................................................................................11
Reference.................................................................................................................................11

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AUDITING AND ETHICS
Section 1
Materiality and Scope of Audit
The assessment would be focusing on the materiality aspect of the business and the
different processes which is applied by the management of the company for the purpose of
reviewing the materiality of the business. The concept of materiality states that an item is
considered to be material if the same has important impact on the financial statements of the
business or is of complex nature or is of significant amount (Appelbaum, Kogan & Vasarhelyi,
2017). The auditor of a business decides whether an item of the financial statement is misstated
or not on the basis of the materiality of the items. Therefore, it can be said that the judgement of
the auditor relies on materiality aspect of an item. In this case the company which is considered
is Northern Star ltd which is listed in Australian Stock exchange (Nsrltd.com., 2019). The
company Northern Star ltd is listed in top 25 companies which are gold miners in the region.
The concept of materiality is a fundamental concept with in the scope of audit as the
auditor relies on the planning materiality of a business to determine whether a financial statement
is properly presented in the financial accounts of the business. In order to get an estimate of
materiality, the auditor needs to apply his judgement and consider a percentage on the basis of
which planning materiality of the business is computed. The auditor of the business needs to take
a base on which the percentage would be applied to compute planning materiality of the
business. The planning materiality of the business is computed considering either qualitative
factors or it can also be computed considering quantitative factors. The qualitative factors
include items which are significant for the financial statements while quantitative factors include
items which are of numerically of higher value (Müller-Burmeister & Velte, 2016). The
percentage which is to be charged for determining materiality are up to the judgements of the

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AUDITING AND ETHICS
auditor depending on the size of the business and nature of its operations. The planning
materiality is then used for ascertaining the performance materiality of each item.
The annual reports for 2018 is considered for Northern Star Ltd for the purpose of
computing the materiality of the business. As per the annual report of the business, there has
been significant increase in the total asset of the business which is an indication that the business
is moving forward with an objective of maximising the wealth of the business. The figure of total
assets is shown to be $ 12,16,870,000 which is highest and it is even more than the sales which is
achieved by the business. The materiality computation is generally done considering the highest
value which is presented in the annual reports of the business (Pike, Curtis & Chui, 2013). An
estimate for computing planning materiality of the business is considered to be 5% of the base
amount which is the total asset figure of the business. The computation of planning materiality is
shown in the equation below:
Planning Materiality=Total Asset∗5 %
¿ $ 1,216,870,000∗5 %
¿ $ 60,843,500
On the basis of the estimate which is computed above, performance materiality of the business
would be taken into consideration.
Review of Draft Notes and Disclosures
The draft notes and disclosures are appropriately shown in the annual reports of Northern
Star Ltd for the year 2018 which has significance of its own as they relate to complex treatments