Audit And Materiality: Amazonite Enterprises Trial Balance

Overview of Amazonite Enterprises Trial Balance

The trial balance of the Amazonite Enterprises is given below.

The concept of the materiality is prevailing both in the auditing as well as the accounting and it relates to the significant and the important amount of the transaction or discrepancy. Any kind of the misstatement, error or omission in the financial statement, in the form of the individual or in cumulative manner has the possibility to change the mind-set of the stakeholders. The major assessment is on the basis of the material and the non-material transactions (Simnett, Carson and Vanstraelen, 2016). The assement of the materiality is given a range of the $15000 which is more than as determined by the IASB. There are certain guidelines which are prescribed by the board of the IASB to determine the range of the materiality. The benchmarks are set in the different manner as per the rule and regulations of the IASB. The range have been decided as follows. For the purpose of the gross profit the IASB has sent the range from 0.6 to 1.1%. The gross sales come under the bracket of the 1-3%. The net profit and the shareholder’s equity are in range 6 to 10% and 3 to 7 % respectively. In order to determine the auditor’s opinion on the financial statements there are few accounts that are not looked after by the auditor and therefore some of the accounts are missed by the auditor (Griffiths, 2016). The accounts which are left with the auditor to scrutinise are the assets account, liabilities account, miscellaneous accounts and the super annuation account.

The analytical review is again presented in the tabular format and depicts  the trend analysis of the Income Statement.

On the basis of the trend analysis there are numerous accounts that can be still possessing the factor of the materiality and it requires the assessment by the auditor in order to find out the variances and are prone to certain risks which needs testing, Some of the assertions are outlined below.

Sales have been increased from the year 2015 in comparison to the 2016 which recorded the sales at 223437.5. The auditor shall observe the change and verify whether the increase in sales was due to the more number of units produced or due to the existing units added back in the sales instead of the closing stock (Knechel and Salterio, 2016).

The cost of sales dropped by 7% as compared to the previous year and shall be scrutinised by the auditor to check if there is any fluctuation in the prices while purchasing the materials from the vendors or there is any change of the vendors (Arena and Jeppesen, 2016).

Concept of Materiality in Auditing and Accounting

The service income has decreased form the year 2015 to 2016 so that the clients shall be checked and also the auditor shall vouch for the rates of the services (Bumgarner and Vasarhelyi, 2018).

The depreciation on the contrary have increased from the last year despite any change in the list of the assets and this can be achieved when there is any change in the calculation method of the depreciation and henceforth, the auditor shall verify for any change in the depreciation method.

The interest expense and the printing expenses have decreased by 8% each and the main probable reasons could be due to the utilisation of the more digital media and that the debt has been paid off in the year due to which the interest expenses have lowered down (AICPA, 2017).

The sudden increase in the miscellaneous expenses accounts for the proper scrutiny by the auditor as there might be any expense of the 2200 which have been clubbed under the head if the miscellaneous expenses that are actually of material nature.

The wages have been decreased by 3% and the super annuation funds have been increased by the same percentage which may be due to the decrease in the labour count and the auditor shall check if there is any labour that has left the organisation and apart from this the super annuation increased for which the auditor needs to look after the employee register.

 The audit assertion shave been discussed in the detail and therefore there is an audit procedure which can be adopted by the organisation to eventually find a way out to solve the problem. Below are some of the solutions that can be employed in order to rectify the assertion stated above.

In case of the sales and the cost of sales a complete list of the customers and the vendors needs to be checked in order to find out the reasons of the variance. For this the same category of the customers and the vendors are clubbed together to see the variance according to the group. The products which are providing the maximum contribution can be placed under one head and the non-potential customers and the suppliers shall be kept under one group in order to cater their problems only. This will save the time and energy of the organisation (Chan and Vasarhelyi, 2018).

The expenses such as the wages and miscellaneous expenses shall be observed first because these small transactions are hidden under these heads. The rate at which the wages are distributed to the labours and the salaries that are given to the employees shall be taken into the consideration to avoid any mixing of the transactions (Kumar and Sharma, 2015).

Audit Assertions: Scrutinizing the Trial Balance

The value of depreciation increased and the auditor needs to vouch the same in order to find out the variances. The major cause of the variances is the change if the straight line method to written down value method and because of the change in the policy in the middle of the year there is unbooked profit and losses arising. The physical verification of the assets is necessary (Shu, Rosenberg, Upadhyay and Rao, 2018).

Conclusion

From the above analysis it can be concluded that the audit partner is not in the alignment with what the concept has been described in association with the auditors. The above analysis also helps in understanding the fact that the professional attitude will be the criteria of the judgement if the frauds are not taken into the consideration. There are several different criteria that can solve the problem yet it is necessary to make the book of accounts to get a good comparison of the company. The audit of the accounts is the mandatory practice and the furthermore, when the analytical review was done it was found that there are certain discrepancies which needs to be taken into consideration and shall be rectified. Due to the above factors and the increase and decrease in the expenses without any note and it would be typically unethical to not to have an analysis. Hence it is recommended that the analysis is necessary and mandatory.

References

AICPA, (2017) Audit guide: Audit sampling. United States: John Wiley & Sons.

Arena, M. and Jeppesen, K.K., (2016) Practice variation in public sector internal auditing: an institutional analysis. European Accounting Review, 25(2), pp.319-345.

Bumgarner, N. and Vasarhelyi, M.A., (2018) Continuous auditing—a new view. In Continuous Auditing: Theory and Application (pp. 7-51). Emerald Publishing Limited.

Chan, D.Y. and Vasarhelyi, M.A., (2018) Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.

Griffiths, P., (2016) Risk-based auditing. California: Routledge.

Knechel, W.R. and Salterio, S.E., (2016) Auditing: Assurance and risk. Routledge.

Kumar, R. and Sharma, V., (2015) Auditing: Principles and practice. Phillipines: PHI Learning Pvt. Ltd..

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., (2015) Auditing & assurance services. Boston: McGraw-Hill Education.

Shu, J., M. Rosenberg, J., Upadhyaya, S. and Rao, H.R., (2018) The Internet of Things and IT Auditing. Internet of Things A to Z: Technologies and Applications, pp.275-292.

Simnett, R., Carson, E. and Vanstraelen, A., (2016) International archival auditing and assurance research: Trends, methodological issues, and opportunities. Auditing: A Journal of Practice & Theory, 35(3), pp.1-32.

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