Auditing Professional Practice Report - Finance Module, Semester 1

This report, focused on auditing professional practice, delves into key concepts such as planning materiality and its calculation, and the importance of materiality to auditors. The report computes planning materiality based on a business's profit before tax, highlighting the auditor's flexibility in choosing estimates. It emphasizes the significance of materiality as defined by International Standards of Auditing (ISA) 320, underscoring its role in identifying material misstatements and influencing stakeholder decisions. The report also discusses how auditors use materiality at the planning stage to identify potential misstatements and ensure financial statements accurately reflect a company's financial position. The role of materiality in the judgment of the auditor is also highlighted.

Running head: AUDITING PROFESSIONAL PRACTICE
Auditing Professional Practice
Name of the Student:
Name of the University:
Author’s Note

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AUDITING PROFESSIONAL PRACTICE
Table of Contents
Part A...............................................................................................................................................2
Computation of Planning Materiality..............................................................................................2
Part B...............................................................................................................................................3
Importance of Materiality to Auditor..............................................................................................3

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AUDITING PROFESSIONAL PRACTICE
Part A
Computation of Planning Materiality
Particulars Amt $ Amt $
Revenues
Stores 2,764,163.00$
Wholesales 45,594,829.00$ 48,358,992.00$
Other income
Proceeds from Disposal 1,576,859.00$
FX gain or Loss 70,006.00$
Other revenue 9,971.00$ 1,656,836.00$
Total Revenue 50,015,828.00$
less: Cost of Sales
stores 805,991.00$
wholesales 20,695,493.00$ 21,501,484.00$
Salaries and Employee Benefits 6,395,361.00$
Rent
Storage 209,638.00$
Warehouse 3,722,228.00$ 3,931,866.00$
Distribution expenses 2,601,503.00$
Telephone 125,202.00$
Computer and It costs 317,562.00$
Advertisement &Promotion-Print 2,263,587.00$
Trade Shows 412,173.00$
Advertisement &Promotion-TV 1,200,374.00$
Advertisement &Promotion- Sponsorship 2,006,788.00$
Rent expenses offi ce 388,881.00$
Bad Debt 95,232.00$
Depreciation
furniture and equipment 1,081,510.00$
Leasehold improvements 337,616.00$ 1,419,126.00$
Entertainment 334,406.00$
Professional Fees 400,247.00$
Insurance Expenses 2,571,450.00$
Recuritment 443,303.00$
Profit Before Interest and Tax 31,504,128.00$
Add/Less: Finance Cost
Interest expense-loan from Bank 569,289.00$
Interest expense-Director 59,410.00$ 628,699.00$
Profit Before Tax 30,875,429.00$
In the Books of Cloud 9 PTY Ltd
Statement Showing Income and Expenses during the year
Planning Materiality= Profit Before Tax* Percentage
1,543,771.45$

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AUDITING PROFESSIONAL PRACTICE
Planning Materiality may be defined as the estimate which is taken by the auditor which
is on the basis of a fixed percentage and using the same for computing performance materiality.
In other words, planning materiality is the misstatement amount which is set by the auditor at the
planning stage for the audit. As per the above calculations, planning materiality is computed by
taking into consideration the profit before tax of a business. In addition to this, it is further
assumed that the percentage which is to be taken for computing the materiality is shown to be
5% in the above table.
In order to compute the planning materiality of the business, total revenue of the business
is computed and all the costs which is incurred by the business are deducted from the revenue of
the business to get Profit before tax which is used as an estimate for the computation of planning
materiality of the business. The auditor has the option to choose any estimate in order to
computer the planning materiality and generally the largest value in the financial statements are
taken as the amount which will be multiplied by a predetermined percentage to get the
materiality estimate. The planning materiality in this case is computed to be $ 1,543,771.43, on
the basis of which various performance materiality can be computed by the auditor.
Part B
Importance of Materiality to Auditor
Materiality refers to the significance of an item in the financial statement and also how it
influences the results which are depicted by the financial statements as a whole. The concept of
materiality is stated in International Standards of Auditing (ISA) 320, where misstatement which
are considered to be material are to be considered by the auditor as unfavorable. The materiality

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AUDITING PROFESSIONAL PRACTICE
of any item depends on the circumstances and also depends largely on the size, complexity and
nature of the business.
ISA’s requires auditor to effective apply audit procedures in order to gain an assurance
that the financial statements are free from material misstatements and errors. The materiality of
an item decides whether the item is worth giving consideration upon or not. Therefore, it can be
said that the concept of materiality is fundamental in auditing. The auditor generally applies
materiality estimation process at the planning stage of the audit and thus are able to identify
material misstatements or areas where material misstatements are more likely to occur. The
auditor must consider the impact of misstatement of an item which is material on the financial
statement and how the same will be influencing the decisions of the stakeholders. Therefore, it
can be said that materiality plays a vital role in the judgement of the auditor.