Auditing and Ethics: Materiality Consideration, Analysis of Disclosures and Notes, Analytical Procedures

Running head: AUDITING AND ETHICS
Auditing and Ethics
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AUDITING AND ETHICS
Table of Contents
Section 1..........................................................................................................................................2
Materiality Consideration in Audit..............................................................................................2
Analysis of Disclosures and Notes..............................................................................................3
Section 2..........................................................................................................................................5
Analytical Procedures in Auditing...............................................................................................5
Section 3..........................................................................................................................................8
Cash Flow Statement Analysis....................................................................................................8
Review of the Auditor’s Report.................................................................................................10
Reference.......................................................................................................................................11

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AUDITING AND ETHICS
Section 1
Materiality Consideration in Audit
The concept of materiality is covered in ISA 320 which is an auditing standard which
covers the significance of materiality while conducting an audit of a business. The materiality
aspect of an item which is shown in the financial statements of a company is based on the
judgement on the auditor which is generally done on the basis of complexity of the item or
relevance of the item in relation to the financial statement of the business. In an audit process,
the materiality of an item plays an important role as the auditor generally concentrates and
applies more audit procedures on items which are considered to be material in nature in respect
to the business of the client (Cox, Dayanandan & Donker, 2014). The assessment will be
considering the financial statements of Cornwell Group which is engaged in the business of real
estate management for clients (Cromwellpropertygroup.com, 2018). The purpose of the
assessment is to analyze the financial statements of the company to comment whether the same
is showing true and fair view or not. The assessment will also be computing planning materiality
for the business.
The materiality concept in audit has a much wider scope and covers both qualitative
material items and quantitative material items. Qualitative material items refer to those
significant items of a financial statement which are generally relevant and most likely to have
material misstatements. On the other hand, quantitative material items refer to which are of
significant value and are shown in the financial statements of the company. The presence of
material items in the financial statements determines the audit procedures which the auditor is
going to apply and also the timing and extent of the audit is also determined similarly

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AUDITING AND ETHICS
(Christensen et al., 2016). The auditor generally plans as to which item is to be considered as
material and which is not during the preparation of the audit program and plan.
In order to effectively deal with the materiality aspect, the auditor first computes planning
materiality which is base used by the auditor for considering tolerable errors and omission and
also determining performance materiality for different items. The planning materiality estimate is
computed by assuming a base which is then multiplies with a predetermined percentage to get
the estimate for planning materiality of the business (Todea, Joldos & Cioca, 2013). The base
which is considered for computing the planning materiality of the business are generally of
significant value such as net profit before tax, total assets, total sales revenue generated by the
business. In the case of Cornwell Group ltd, the base which is considered for the computation of
planning materiality of the business is total assets figure which is shown to be $ 3410.9 million
and the percentage which is estimated for computing planning materiality of the business is
considered to be 2%. The computation of planning materiality is shown below in equity form:
Planning Materiality =Total Assets × Predetermined Percentage
¿ $ 3410.9 million ×2 %
¿ $ 68.218 million
The planning materiality of the business refers to the materiality level which is used for
the purpose of deciding whether an item which is shown in the financial statements are material
enough for the purpose of estimating if there are any misstatements in the annual reports of the
company (Johnstone, Gramling & Rittenberg, 2013).