Auditing and Ethics: Materiality Determination, Analytical Review, and Cash Flow Assessment

Running head: AUDITING AND ETHICS
Auditing and Ethics
Name of the Student
Name of the University
Author’s Note

1AUDITING AND ETHICS
Table of Contents
Section 1..........................................................................................................................................2
Materiality Determination and Audit Scope................................................................................2
Draft Notes and Disclosure Review............................................................................................4
Section 2..........................................................................................................................................5
Financial Statement Analytical Review.......................................................................................5
Section 3..........................................................................................................................................9
Review of Cash Flow...................................................................................................................9
Going Concern Risk Assessment...............................................................................................10
Review of Auditor’s Report.......................................................................................................10
References......................................................................................................................................12

2AUDITING AND ETHICS
Section 1
Materiality Determination and Audit Scope
The main aim of this assignment is to gain understanding about the audit procedures of
Woodside Petroleum Limited (WPL) in order to review the materiality that the auditors are
needed to consider in the detection of material misstatements in the financial reports. Materiality
is a crucial concept for audit scope and helps the auditors in considering the fact that which
misstatements are major and which misstatements are minor as they can have significant effects
on the company financials (Legoria, Melendrez & Reynolds, 2013). The auditors judge the
significant missstements based on the level of materiality and the process as well as level of
impact of these aspects on the decision-making process of the investors and others users of the
financial reports. WPL is one of the leading energy companies having operation in the Australian
regions (Woodside.com.au, 2018).
Materiality is a major fundamental concept of auditing as it is needed for the auditors to
take into account the material aspects and whether the managements of the companies have
correctly reported them or not. In order to set the materiality level of business, the auditors are
needed to apply their materiality judgment. The auditors of the companies consider both the
qualitative and quantitative characteristics as the basis for determining materiality (Christensen,
Glover & Wood, 2013). Under the qualitative dimension of materiality, the auditors consider the
factor like business inventory, net profit, changes in the accounting methods along with major
accounting policies. Under the dimension of quantitative aspect of materiality, the auditors take
into consideration the estimated percentage that needs to be charged at appropriate basis for the
determination of level of materiality for financial items of the annual reports of the companies. It

3AUDITING AND ETHICS
depends on the judgment of the auditors to consider the percentage that needs to be charged for
the determination of materiality level; and the auditors are needed to consider the size as well as
nature of the business organizations. In the initial stage of audit planning, the auditors consider
the computation of materiality; after that, the auditors consider the computation of materiality of
different financial items after the materiality determination in the initial stage (Eilifsen &
Messier Jr, 2014). Thus, the above discussion indicates towards the importance of materiality
computation in the auditing process.
Under the estimation of materiality in quantitative basis, the auditors need to consider
different materiality base for the planning of materiality and the materiality of business
performance. At the time to consider different bases for materiality, the auditors are needed to
take into consideration significant items from the Profit or Loss statement as well as balance
sheet of the entities (Ruhnke & Schmidt, 2014). According to the Profit or Loss statement, the
considered bases for materiality determination are net profit before tax, total revenue and total
sales or revenue. In the balance sheet, the considered base for materiality is total assets of the
businesses (Ruhnke, Pronobis & Michel, 2014).
The 2017 Annual Report of WPL is taken into consideration in order to estimate the
materiality level of the business for the year of 2017. It can be seen from the 2017 Annual Report
of WPL that there has been major drop in the operating revenue of the company. At the time of
the determination of the level of materiality, the common practice is to consider the highest value
as the base for the determination of materiality (Edgley, 2014). In case of WPL, the total asset of
the company is considered as the base of materiality determination and the value of total asset in
2017 Consolidated Statement of Financial Position is $25,401 million (Woodside.com.au, 2018).