Auditing: Materiality, Audit Procedures, Sampling Plan

Running head: AUDITING
Auditing
Name of the student
Nam of the university
Student ID
Author note

1AUDITING
Table of Contents
Answer A...................................................................................................................................2
Answer B....................................................................................................................................3
Answer C....................................................................................................................................7
Reference....................................................................................................................................9

2AUDITING
Answer A
Materiality regarding account balance and its calculation
Materiality is considered with regard to quality as well as quantity. Both amount
(quantity) as well as nature (quality) for misstatements is taken into consideration while the
materiality is considered. In auditing not only the quantified amount is considered as
material, but the impacts of that amount in different context are also taken into consideration.
During the planning process for audit the auditor determines the materiality level by
considering entire financial statement subject to audit (Legoria, Melendrez and Reynolds
2013). Materiality is associated with content of the financial statement as well as the type and
level of testing required. The decision regarding materiality is based on the judgements
regarding size, nature and specific circumstances of the misstatement. Once the auditor
recognizes and assesses the materiality regarding the financial statements the auditor set up
the tolerable misstatement that is the performance materiality for the financial statements.
However, the planning materiality shall be higher than the tolerable misstatement
(Christensen, Glover and Wood 2013). The below mentioned quantitative factors are
considered for computing the materiality for any account balance –
 1% to 5% of sales revenue
 1% to 2% of total assets
 5% to 10% of net profit
 2% to 5% of shareholder’s equity (Eilifsen and Messier 2014)
In case of Qantas Airline, the materiality calculation will be as follows –
 1% to 5% of sales revenue - $ 17,600 *1% = $ 176 million to $ 17,600 *1% = $ 880
million

3AUDITING
 1% to 2% of total assets - $ 18,647 *1% = $ 186 million to $ 18,647 *2% = $ 372
million
 5% to 10% of net profit - $ 980 * 5% = 49 million to $ 980 * 10% = $ 980 million
 2% to 5% of shareholder’s equity = $ 3,959 million * 2% = $ 79.18 million to $ 3,959
million * 2% = $ 197.95 million
Generally, the benchmark for tolerable misstatement is set up at 50% to 75% of the
materiality. Therefore, in the given case if total asset is considered for materiality, then
tolerable misstatement will be considered for around $ 250 million.
Answer B
Table format
Account
Balance
Amount Assertion (s) Audit Procedures Audit Evidence
Assets
Cash and
cash
equivalents
$ 1,694
million
Valuation – it is
related to the
valuation that the
all the cash related
transactions are
recorded at proper
valuation.
Existence – all the
account balance for
cash balance exists
on balance sheet
date
All the cash related
transactions shall
be matched with
the cash register.
Cash shall be
reconciled with
the bank books
(Edgley 2014)
Cash register,
bank statement,
bank
reconciliation
statement
Receivable
s
$ 908
million
Existence – all the
account balance for
receivables exists
on balance sheet
date
Valuation – it is
related to the
valuation that all
All credit sales
transactions shall
be matched with
the sales voucher
and sales register
Debtor ageing
analysis shall be
performed for
Sales register,
debtor register
with details like
name, amount due
and credit period
allowed