Issues in Auditing Practice

Running head: ISSUES IN AUDITITNG PRACTICE
Issues in Auditing Practice
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ISSUES IN AUDITITNG PRACTICE
Executive Summary:
Trial Balance of an entity contains information about account balances as on the date of
which the Trial Balance relates. An auditor will be able to access significant amount of
information from the Trial Balance. The preliminary assessment about the financial state and
performance of an entity can be made from the Trail Balance and accordingly an effective
strategy for the audit can be formulated from the same. The preliminary assessment about the
materiality levels for certain accounts and balances have been made in this document for the
audit purpose of Fuchsia Enterprises. Analytical review has also been conducted with an
objective of understanding the areas where misstatements may have occurred.

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ISSUES IN AUDITITNG PRACTICE
Contents
Executive Summary:........................................................................................................................1
Introduction:....................................................................................................................................3
Appropriateness of Materiality level:..............................................................................................3
Analytical review:............................................................................................................................5
Possible areas of misstatement in income statement:......................................................................8
Audit procedures for identified accounts:......................................................................................10
Procedure for sales revenue:......................................................................................................10
Procedure for cost of sales:........................................................................................................10
Procedure for Depreciation:.......................................................................................................10
Fraud risk suggestion by audit partner:.........................................................................................11
Conclusion:....................................................................................................................................11
Recommendation:..........................................................................................................................12
References:....................................................................................................................................13

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ISSUES IN AUDITITNG PRACTICE
Introduction:
The audits of entities operating in the country are subjected to the auditing and assurance
standards issued by the Auditing and Assurance Standards Board (AAUSB). ASA 320 provides
guidelines for the auditor to be followed for determination of materiality level. It is the amount
that an auditor considers material for the purpose of the audit.
Appropriateness of Materiality level:
Materiality level has to be determined taken into consideration the nature of transactions
in an organization thus, for transactions of particular nature the standard benchmark might not be
the correct procedure to determine materiality level in an audit. To determine materiality levels
in an audit generally certain percentages are used on profit before tax, revenue, net assets and on
equity. However, specific account balances and classes of transactions for their nature might be
treated differently. 5% of revenue with little higher percentage for profit before can be used as
benchmark for determining materiality levels in audit of financial information.
In case of Fuchsia Enterprises the amount of gross revenue earned from sales for the financial
year 2016-17 is $162,104. Thus, the suggestion of setting $15,000 as material amount for the
financial report as whole seems quite high. Even if the standard benchmark of 5% is used for the
amount of revenue then the preliminary materiality level comes at (162,104 x 5%) = $8,105. The
following table would indicate the various standard benchmark and appropriate materiality levels
for Fuchsia Enterprises.
Particulars Amount ($) Amount
($)
Materialit
y level