Auditing and Ethics: Analysis of Materiality, Performance Review, and Going Concern Risk

Running head: Auditing and Ethics

Auditing and Ethics 1
Contents
Introduction.................................................................................................................................................2
Section 1......................................................................................................................................................3
Analysis of the nature of materiality and considerations employed in arriving at materiality..................3
Section 2......................................................................................................................................................5
Review of the performance of the company and its business and the assertions and procedures of audit5
Section 3....................................................................................................................................................11
Reviewing the statement of cash flows and evaluation of the going concern risk of the company........11
Conclusion.................................................................................................................................................13
References.................................................................................................................................................14

Auditing and Ethics 2
Introduction
Auditing in materiality is amongst the significant concepts for auditors. The concept of
materiality in the audit consists of both qualitative and quantitative aspects.
ASA 320 deals with the accountabilities of the auditor to implement the concept of materiality in
planning and conducting the audit of the financial statements. ASA 450 is also implemented to
explain the way materiality is applied in analyzing the impact of identified misstatements on the
audit and the financial statements (Auditing and Assurance Standards Board, 2015).
So, in this report, different aspects of materiality would be discussed in the context of the annual
report of Orora Limited, a company listed on the ASX under the code ORA.
The key ratios of the company would also be discussed in the light of major risks confronted by
the company along with stating the relevant assertions and audit procedures to address the issues.
Furthermore, the going concern risks would also be analyzed on the basis of these and audit
procedures shall be recommended.Lastly, the opinions given by the auditors shall also be
discussed.
Section 1
Analysis of the nature of materiality and considerations employed in arriving at materiality
As per ASA 320, the framework of financial reporting discusses materiality which comprises of
misstatements containing omissions are often considered to be material if they impact the
choices made by the users in the context of the financial report.

Auditing and Ethics 3
ASA 450 deals with the accountabilities of the auditors to assess the effect of the recognized
misstatements on their auditing and of erroneous misstatements on the financial statements
(Auditing and Assurance Standards Board, 2015).
As per the Auditing and Assurance Standards Board (2010), ASAB 1031 introduces to the
concept of materiality. The information is material if its misstatement, omission and non-
disclosure has the probability to impact the economic decisions taken by the stakeholders on the
basis of financial statements.
The three steps of determining and apply materiality are Determination of the base and
calculation of numbers. The guidelines for calculating materiality are:
1. 5% of profit derived from continuous operations
2. 5% of the net income after tax.
3. ½ to 2% of the sales revenues.
After this, the qualitative items can be assessed such as misstatements due to fraud or illegal acts
and amounts which may violate the contractual agreements (Keune & Johnstone, 2012).
Secondly, auditors track the misstatements on the basis of a summary of unadjusted errors.
Thirdly, the likely misstatement is estimated and it is contrasted with the preliminary materiality.
As in the income statement of Orora Limited, the profit derived from continuing operations in
the year 2017 is $280.7 Million, so the level of materiality would be considered up to 5% i.e.
$266.67 and the profit of the previous financial year is $280.5, so it would be considered to be
normal