Analyzing Financial Performance of Beautiful Products Ltd

Running head: AUDITING
Auditing
Name of the student
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Author note

1AUDITING
Table of Contents
Introduction................................................................................................................................2
Answer (a)..................................................................................................................................2
Answer (b)..................................................................................................................................3
Answer (c)..................................................................................................................................4
Conclusion..................................................................................................................................5
Reference....................................................................................................................................6
Appendix....................................................................................................................................8

2AUDITING
Introduction
Main purpose of the report is to analyse the financial performance of Beautiful
Products Ltd and establishing the materiality benchmark based on the given information. The
report will further carry out the analytical review and based on the outcome will identify the
control risk and inherent risks required to be considered while planning the audit for the
entity (Choudhary, Merkley and Schipper 2018).
Answer (a)
Materiality concept is regarded as the principle under financial accounting and
reporting that states that the firms may disregard the trivia matters however, they shall
disclose everything important for reporting to the audience. Items are considered as material
if they can influence economic decision of the users of financial statements. To be more
specific, materiality error may mislead the decisions makers (Eilifsen and Messier 2014).
As basis for auditor’s opinion, auditors are required to obtain the reasonable
assurances regarding whether financial statement are free from the material misstatement.
Hence, the materiality concept is fundamental to audit. The concept is applied by the auditors
at the stage of planning and while performing audit and analysing impact of the identified
misstatement or error on audit, if any (Knechel and Salterio 2016).
Planning materiality is referred to amount of misstatement set up by the auditors at
planning stage of audit on the basis of materiality to the financial statement. It is used by the
auditors for assessing whether misstatement in aggregate or individually misstated the
financial statement materially (Ruhnke and Schmidt 2014). The following table may be used
for establishing the appropriate parameters while calculating the materiality benchmark –