Audits and Ethics

Running head: AUDITS AND ETHICS
Audits and ethics
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1AUDITS AND ETHICS
Table of Contents
Section 1..........................................................................................................................................2
Materiality level...........................................................................................................................2
Quantitative estimate for materiality.......................................................................................3
Rational behind choosing the level of materiality...................................................................3
Significant items to be considered for audit................................................................................4
Section 2..........................................................................................................................................6
Section 3..........................................................................................................................................9
Review of cash flow statement....................................................................................................9
Review of audit report...............................................................................................................10
References......................................................................................................................................11

2AUDITS AND ETHICS
Section 1
Materiality level
As basis for auditor’s opinion, auditing standards require the auditors for obtaining
reasonable assurances regarding whether as a whole the financial statement are free from the
material misstatements. Hence, the materiality concept is fundamental to audit that is applied by
the auditors at the stage of audit planning (Christensen, Glover & Wood, 2013). In accordance
with AUS 202 the main objective of carrying out audit for the financial statement is to express an
opinion on the same that will state whether the material aspects are taken care of in accordance
with the recognised framework for the financial reporting. Based on the level of materiality the
auditor determines the nature and timing of audit procedure and the extent of the same. Further,
the relationship between risk and the materiality level is taken into consideration while
determining the nature and timing of audit procedure and the extent of the same (Auasb.gov.au,
2019).
Planning materiality is the amount of misstatements that is set by the auditors at stage of
audit planning based on the materiality. It is used by the auditor for assessing whether
misstatements individually or in aggregate misstated materially in financial statements. To
ascertain the preliminary materiality assessment various factors are taken into consideration.
These factors are qualitative as well as quantitative information, reliability of the information
provided by the management and any other factor that may signify divergence from normal
activities (Coetzee & Lubbe, 2014). Materiality is calculated taking into consideration the
following bases –
 Net profit – 5% to 10%

3AUDITS AND ETHICS
 Gross profit – 0.5% to 1%
 Shareholder’s equity – 2% to 5%
 Total asset – 1% to 2%
Quantitative estimate for materiality
Applying the above mentioned bases for the performances of Boral Ltd for the year
closes at 30th June 2018 the materiality is calculated as follows –
Basis Amount
(million)
Materiality
Low level High Level
5% to 10% of the net profit $ 441.00 $ 22.05 $ 44.10
0.5% to 1% of the gross revenue $ 5,731.10 $ 28.66 $ 57.31
2% to 5% of the shareholder’s equity $ 5,730.80 $ 114.62 $ 286.54
1% to 2% of the total assets $ 9,510.30 $ 95.10 $ 190.21
It can be found from the above table that the high level of amount that can be considered
for determining materiality is $ 286.54 million. However, the tolerable level of misstatement that
is set by the auditor varies between the ranges of 20% to 70% based on the level of assumption,
judgement and amount involved in the financial statement. In case of Boral Ltd if the tolerable
misstatement is set at 60%, the amount of misstatement will be approximately $ 286.54 * 60% =
$ 172 million (Boral.com, 2019).
Rational behind choosing the level of materiality
As per the above computation the level of materiality is $ 172 million that is the level of
materiality is determined at quite higher level. Higher level of materiality signifies lower risk
level. This level of materiality is determined taking into consideration the report provided by the
auditor regarding previous year’s financial statement. In accordance with the audit opinion
expressed by the auditor the financial statement of the entity are prepared and delivered in true