Modern Auditing and Assurance Services

Running head: MODERN AUDITING AND ASSURANCE SERVICES
Modern auditing and assurance services
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1MODERN AUDITING AND ASSURANCE SERVICES
Table of Contents
Question 1........................................................................................................................................2
Part 1............................................................................................................................................2
Part 2............................................................................................................................................2
Part 3............................................................................................................................................3
Question 2........................................................................................................................................4
(a) Perceived and actual independence and their importance................................................4
(b) Professional standard and regulatory requirements..........................................................4
Question 3........................................................................................................................................7
Question 4........................................................................................................................................9
Question 5......................................................................................................................................11
Answer (a).................................................................................................................................11
Answer (b).................................................................................................................................12
Reference.......................................................................................................................................14

2MODERN AUDITING AND ASSURANCE SERVICES
Question 1
Part 1
Changes in AASB 1031 from 1995 to 2015
At the time when AASB 1031 issued framework for preparing an presenting the financial
statement included limited guidance on materiality as compared to the latest issue in 2015. As
per initial implementation of the policy of financial reporting council to adopt the standard of
IASB in context of application of reporting periods starting after 1st January 2005, it was decided
by AASB for retaining AASB 1031 in revised format for assuring that meaning of the term
materiality will be well explained (Aasb.gov.au 2019). However, in absence of the provision of
local guidance it was decided by AASB to withdraw AASB 1031 and in December 2013 re-
issues the same as interim standard for cross reference in context of other pronouncements.
AASB 2014-1 that is amendments to AAS deleted some of the references of AASB 1031 and
finally AASB 2015-3 completed withdrawal of the references related to AASN 1031 in context
of all AAS as well as interpretations and allowed the standard to be withdrawn
(Legislation.gov.au 2019).
Part 2
a. Definition of materiality
In context of information, materiality determines that the information that is misstated
omitted or has not been disclosed has potential to impact the decision adversely regarding
allocation the limited resources made by the users of financial report or discharging

3MODERN AUDITING AND ASSURANCE SERVICES
management’s accountability or the entity’s governing body (Lai, Melloni and Stacchezzini
2017).
b. Quantitative as well as qualitative guidelines of materiality
Qualitative guidelines – accounting information is accounted as material if the misstatement or
deletion of same will impact or change judgment of any individual who is reasonably relying on
those information. Hence, the term materiality provides guidance to the accountants regarding
determination of the information those shall be disclosed (Abou-Seada and Abdel-Kader 2017)
Quantitative guidelines – without the externally developed criteria for materiality, accountants
need to depend on the professional judgments or the rules-of-thumb generated internally. The
said rules are developed through the years of practice. These thumb-of-rules are as follows –
 5% of the normal pre-tax income where income is more than $ 2 million
 5% to 10% of the normal pre-tax income where income is less than $ 2 million
 1% of the gross revenue (Edgley 2014)
However, for the non-profit entities, ½% of the normal gross revenue is generally used as
normal rule-of-thumb.
c. Materiality concept’s influence on the professional judgments of auditors
Materiality concept is directly associated with the professional judgments of the auditors.
If the materiality level is high the auditors will carry out the audit procedure for more items and
vice versa. On the other hand, level of materiality helps the auditors to plan the audit accordingly
and the level to which they can rely on the data provided by the entity (Aasb.gov.au 2019).