Auditing & Ethics: Materiality, Analytical Procedure, Cash Flow Analysis

Auditing & Ethics
Auditing & Ethics
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Auditing & Ethics
Contents
BRIEF ABOUT COMPANY.......................................................................................................................3
SECTION 1:- MATERIALITY.....................................................................................................................3
SECTION 2:- ANALYTICAL PROCEDURE..................................................................................................5
SECTION 3:- CASH FLOW ANALYSIS.......................................................................................................7
OPINION................................................................................................................................................7
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Auditing & Ethics
BRIEF ABOUT COMPANY:
The company Magellan is engaged in the business of global investment. It invests the client’s
capital in the global market and generates the higher returns to its clients as compared to its
competitors. It has a team of professionals which analyze the best possible companies for the
purpose of investment and provide the better return to its clients for their invested capital in
the company.
SECTION 1:- MATERIALITY
The responsibility of an auditor in the audit of the financial statements of an organization is to
express an opinion on the financial statements that whether the financial statements have
been prepared according to financial reporting framework and also give the opinion on the
true and fair view of the financial statements. To complete the task of an audit, the auditor
should review the entire records of the company which leads to more time taken in the audit.
The new concept of materiality has been introduced for the completion of the audit in the
reasonable time (PWC, n.d.).
ISA 320 describes the ‘Materiality in planning and performance of Audit’. In the
performance of audit, the concept of materiality is used. Materiality is decided by the auditor
by its own professional judgment and professional experience. Auditor uses such materiality
during the audit and to give the report on the financial statements as a whole. As such,
materiality is decided not for a particular operation but it is decided for the company as a
whole.
An auditor decided the materiality level, to get an understanding of the nature, timing, and
extent of the audit procedure and to amend the audit plan accordingly if required. This level
may vary from case to case. There are quantitative factors for the determination of materiality
level in an organization, which may be useful for the auditor to decide the materiality during
the audit. Some of these factors are as under:
a) Profit after tax
b) Gross profit reported
c) Equity
d) Income of the organization
e) Expenses incurred in an organization
f) Net assets of an organization
In the present case, the company engaged in investment business and purpose thereof is to
generate the more revenue to their customers. Users of the financial statement of that
company will be most concerned with the investment made by the company in the global
market as this is the source of revenue to the company. The auditor will decide the materiality
on the basis of the quantitative factors of materiality. The quantitative estimate of the
materiality of the company is as under:
Particulars Year 2017 ($ ‘000) Year 2016 ($ ‘000)
Revenue 3,38,268 3,33,805
Net profit after tax 1,96,225 1,98,357
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