Question 1
As per the specification provided by IASB, the different guidelines are maintained for the use of the auditors. During the planning of the financial reports the matters related to the auditing process has been seen to be based on the identification of material misstatements. The most significant factor taken into consideration by audit expert has been seen with the use of planning evidence of the audit process (Messier, Glover & Prawitt, 2014). In order the use the necessary information it has been discerned that the auditor needs to competent, capable and follow the objective which is necessary for using the appropriate audit information. The main work carried out by the auditors are listed as follows:
- During the planning about it is specialized expertise speeded pre-determined which is appropriate the audit evidence
- The expert advice on the receiving assisting information related to tax and compliance issues
- During the valuation of business assets such as plant, missionary, artwork and antiques auditor plays an important role in determining any sort of material misstatement in the aforementioned areas
- Expert opinion also assists in the assessment of liabilities which are required for contract of insurance and employee benefits
Similarly, the audit expert for the accounting has been identified with the obligations derived out of the appropriate audit evidence and know whether the expert advice need to be sought. The audit expert needs to have the capability for deeming the required services which is appropriate for the purpose of auditing. The external review of the books of accounts has been further seen to be important for assessing the competency of the auditors as this is related to the degree of expertise. The using of an audit expert has been seen with requirement for the various types of the reasons which has been seen to be in relation to the subject matter and considered to be impractical to the auditor (Meadley, Mrcog & Mrcog, 2016).
|
Necessary Issue |
Decision required to indulge in audit related to this issue |
|
Inventory and purchase of Inventory Obsolescence |
The analysis of purchase inventory has been seen with the obsolescence which is predominant with the last year to make up for the expect fall in the value. This has been further seen due to the shortage in the value. The determination of the estimated value has been further seen to be related to the assessor’s ability to obtain the important service for the audit expert with the main objective of reckoning the amount of inventory (Knechel & Salterio, 2016). |
|
Depreciation of fixed assets |
The depiction of the financial report of DIPL has been seen with the depreciation of the fixed assets with the application of “fixed line method”. The measurement of the overall depreciation has been taken with the impairment of the assets. The management of the organization is seen to undertake the services given by audit expert (Houghton & Campbell, 2013). |
The concept of materiality has been defined with the various types of the factors which are either considered to be aggregate or separate with the fair representation of the financial statements and which are seen to be in adherence with the various types of the required standards. The case study has been seen to be useful for the assessment of five different factors which are having an influence on the overall depiction of the materiality. In general, any misstatement of the financial report may lead to haven an effect on the fair presentation of the materiality considerations. The issues of misstatements are normally seen because of the errors and fraud which are done purposefully (Green & Zhou, 2013). The identification of the various types of the preliminary figures pertaining to the materiality has been stated below as follows:
|
2 A: Factors |
2 B: Explanations |
2 C: Influence up on preliminary overall materiality |
|
Risk associated to Fraud: This particular type of risk has been depicted as the most important element of risk which is seen to be having overall effect on the materiality of the financial statement of DIPL. Based on the given facts the operations of DIPL is seen to be under immense pressure due to the concerns of the IT segment. This segment has created a new accounting system which has exposed DIPL to numerous fraud risks (Earley et al., 2016). |
The various information on the errors pertaining to the material misstatements has been collected during the preparation of the financial report. The cased of irrational accounting projections has been evident from the miss-representation of various factors. |
Fraud risk impacting on the materiality: The IT division’s administrative function has been considered with the installation process of the machinery in the organization. It has been further discerned that due to the immense pressure from the employees there has been significant form of the pressure which has been recognised with the assessment of the suitability issues in the new system (Carson et al., 2014). |
|
Accounting policies influencing materiality: It has been evident from the report that the different types the consideration for the deployment of the average cost method has been conducive in the determination of the raw materials which cannot be considered to be suitable in nature. This is mainly due to the fact that the present cost of paper is undervalued as per the average cost of recording under the inventory. There has been further seen to be grater scope of influence on the inventory as the inventory is undervalued and this assentation has been put light on the fact that average cost method is not suitable in the given case. |
The existing form of the risk in the case has been seen to be impacting the overall aspect of the materiality. In particular, it has been discerned that DIPL is not successful in acting with objectivity and integrity. Due to the main from of the financial position for DIPL it has been identified that information pertaining to the materiality may not be true in nature (Wright & Wu, 2015). |
Accounting policies influencing materiality: The inventory valuation associated to the raw material has been seen to be depicted with the various factors specified under average cost method. However, this particular standard has been not seen to be ideal for valuation. |
|
Environmental factors influencing materiality: During the preparation of the audit report there has been significant factors found to be related to either purposeful omission or error during the recording of the transactions. This has led to the assessment of the various type of the factors which has been seen to be related to the micro and macro factors required to undertake the political and social factors. In addition to this, the facets relating to the environmental factors has been seen to be having an overall impact with inconsistent and ineffective accounting planning (García-Peñalvo et al., 2014). |
The factors pertaining to fraud is seen due to the growing pressure from the board and the execution of the new system which the accounting might have during the execution of the new system of accounting affecting the overall financial information. |
Environmental factors impacting materiality: The management has been seen to be incapable for the recognition of the micro and macro factors pertaining to the auditing. The financial transaction has been able to depict the adherence to the incorrect method. The users of the financial information may not get the fair and true information on the books of accounts. |
|
Materiality influencing the selection of CEO: The CEO appointment procedure has been discerned to be complicated in nature. The appointment of the CEO has been seen with the involvement of the risk by William Jackson. The appoint of CEO at a later date has exposed the operation of business to numerous risk factors. |
The intricate process of the appointment of CEO in general has been seen to be jeopardizing the overall procedure for the decision makers. This has been identified with the negative impact results pertaining to the materiality of DIPL. |
Complex appointment of CEO influencing the Materiality: The appointment process of the CEO is led to several issues pertaining to the materiality. |
|
Factors related in recording of cash receipts and expenses: This factors have been taken into consideration with the materiality aspect of recording the cash receipts for DIPL. A massive portion of the expenses is accepted through electronic. This gives the account the scope of downloading of receipts from mail and proceed with the reconciliation of the overall batch. As the sales revenue of DIPL is derived through e-book, this may have a significant impact on the overall materiality. |
The main factors associated to the bookkeeping of DIPL has been seen to be related to the various types of the factors affecting the materiality. In similar terms the accounting procedure helps in the determination of true and fair view of the books of accounts. |
Factors relating to the recording of the transaction in the new system: The payment of expense via electronic means has influenced on the accounting transactions for DIPL receipts and presentation reconciliation statements (Duncan & Whittington, 2014). |
- 5% of pretax income
- 5% of total assets
- 1% of equity
- 5% of total revenue
|
Single Rules |
Calculation |
Materiality Amount |
|
5% of Pretax Income |
5%*3059299 |
152965 |
|
0.5% of Total Assets |
0.5%*26147991 |
130739 |
|
1% of Equity |
1%*12250491 |
122505 |
|
0.5% of Total Revenue |
0.5%*43459500 |
217298 |
Reference List
Carson, E., Simnett, R., Trompeter, G., & Vanstraelen, A. (2014). The Impact of Group Audit Arrangements on Audit Quality and Pricing.
Duncan, B., & Whittington, M. (2014, September). Compliance with standards, assurance and audit: Does this equal security?. In Proceedings of the 7th International Conference on Security of Information and Networks (p. 77). ACM.
Earley, C. E., Hooks, K. L., Joe, J. R., Polinski, P. W., Rezaee, Z., Roush, P. B., … & Wu, Y. J. (2016). The Auditing Standards Committee of the Auditing Section of the American Accounting Association’s Response to the International Auditing and Assurance Standard’s Board’s Invitation to Comment: Enhancing Audit Quality in the Public Interest. Current Issues in Auditing, 11(1), C1-C25.
García-Peñalvo, F. J., Cruz-Benito, J., Maderuelo, C., Pérez-Blanco, J. S., & Martín-Suárez, A. (2014). Usalpharma: a cloud-based architecture to support quality assurance training processes in health area using virtual worlds. The Scientific World Journal, 2014.
Green, W., & Zhou, S. (2013). An international examination of assurance practices on carbon emissions disclosures. Australian Accounting Review, 23(1), 54-66.
Houghton, K., & Campbell, T. (2013). Ethics and auditing (p. 354). ANU Press.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.
Meadley, K., Mrcog, I. I. H., & Mrcog, S. I. S. (2016). Audit: quality assurance in the Colposcopy Clinic. European Journal of Obstetrics and Gynecology and Reproductive Biology, 206, e74.
Messier, W. F., Glover, S. M., & Prawitt, D. F. (2014). Jasa audit dan assurance: pendekatan sistematis. Jakarta: Sa-lemba Empat.
Wright, A., & Wu, Y. (2015). Jurors’ assessments of audit quality on assurance for fair values: The impact of audit quality indicators and task difficulty. Working paper, Northeastern University and Texas Tech University.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
