1: As part of your planning process, you are considering whether you will need to use the services of an expert in the audit of Double Ink Printers Ltd (DIPL).
Based on the background information contained in the case, explain whether it will be necessary to use the work of an expert in the audit of DIPL.
(a) Referring to the background information contained in the case, identify five factors that would influence your determination of the preliminary figure for overall materiality for the 2017 audit of DIPL.
(b) Explain why the factors identified in (a) above are relevant to your calculation of the preliminary figure for overall materiality.
(c) Describe how the factors identified in (a) above will influence your preliminary figure for overall materiality in the audit planning process.
1: Requirement for proficient expert
The main need for the expert advice has been seen with the following types of the requirements:
- Oil reserve service estimation
- Appraising of the liabilities pertaining to environmental liabilities and cost
- Evaluation of typical tax and complicated issues pertaining to compliance issues
- Valuation of the complicated financial tool for equipment, pant and antiques
- Actuarial computation and liabilities of the firm
The audit process of the accounting has been seen to be taken into consideration with the types of the factors has been seen with direct influence of obtaining the sufficient evidence of the audit process and ascertain the utilization of the various types of specialist. Some of the other type of the consideration of the audit process has been further seento be taken intoaccount with competence objectivity. The varioustypes of the considerations associated to the enquiry process has been taken into account with the engagement in the enquiry process and referencing of the interests with the objectivity of the specialists. Furthermore, the assessor needs to ascertain the various types of the factors which has been seen to be directlyrelated to the different types of the considerationwhich has beenwith the determination of the objectivity of the work and in addition to this the different types of the consideration of the work has been based on the different factor related to necessary competence and capabilities of the audit. The external review of the objectivity has been seen to be basedon the various types ofthesignificant consideration which has beento be associated to objectivity of the specialist. It has been further seen to be the assessor needs to ascertain the significant number of the cases which has been related to determination of the assessment scope(Ahmed Haji and Anifowose 2016).
The company has been seen to reveal the various aspects of the inventory purchase which has been considered with the obsolescence of the inventory and decreased anticipation of the storage vulnerability. The obsolescence value has been taken into consideration with the differenttypes of the factors which has been seen to be directly concerned with the obsolescence value and inventory obsolescence. Moreover, the pecuniary report has reflected on the depreciation which is taken into account with the fixed assets done on straight line basis(Ghafran and O’Sullivan 2013).
2 (a): The materiality assumption has been able to indicate on the fair presentation of the financial statement which has been seen to be based on the significant types of the factorrelated to the fair presentation of the financial statements and this has been further seento be taken into considerationwith the functionalities associated to the business concerns. The assessment of the five types of the materiality aspects of the study has been able to highlight on the various type of the significant consideration which has seento be based on the various facets associated to materiality. The material misstatements have been able to put light on the errors pertaining to fraud. The originating financial misstatements has been taken onto account with the various types of the considerations with the factors such as:
Fraud Risk affecting materiality
This can particularly influence the material misstatement consideration discerned with the loss as per the fraud. The non-satisfaction among the workforce has been considered with fraud involvement. The main nature of the financial outcomes has been seen with the guarantees of the financial outcomes. The significant complications of the initial materiality considerations have been seen to be directly taken into account with the influencing factors for the determination of initial figure(Ruhnke and Schmidt 2014).
Policies of accounting affecting materiality
The fraud risk aspect has been seen with the main form of the depiction which is based on main operation of the company. The accounting system has been taken into consideration with the use of novel accounting system. There has been further seen to be significant pressure for the assessment of the employee pressure with the installation of the new IT system thereby leading to the main instance of fraud.Based on the given situation the important case for the transactions has been considered with the omission of the accountants. The sequential inconsistencies have been evident with the data planning and information depiction as per the sales activity. The assessment of the various types of the other reporting considerations has been taken into account with profit gathered from the sales. The significance of the computation of the material misstatement has been taken into account with the various types of the other factors which has been seen to be associated to the IT issues. DIPL in particular is not considered self-sufficient for handling of the execution process and carrying the relevant reconciliation with the new arrangement made at the end of the financial year(Christensen, Glover and Wood 2013).
Environmental facets influencing materiality
In general, there are several business transactions which is generally not regarded during the preparation of the financial assumption for making the deliberate administration for DIPL. The effective planning in the marketing process and sales activity. The evaluation of the varied range of the macro and micro intentions. This has been seen to be based on the socio-political economic aspects(Kubuabola 2013).
Materiality influenced by the difficulty of the procedure of selection of CEO
The appointment CEO in the given organisation is particularly intricate in nature. The appointment procedure of the CEO related to the commencement of the various types of the activities which has been seen to bedirectly related to engagement with the various typesof the risks activities pertaining to the conformation with the requisite stratagems. The main process has been seen to be initiated at a later time and the conformation for the same has been related to the requisitestratagems. The process of the appointment of CEO has been seen at a later date with the exposure of the company with significant risk(Christensen, Glover and Wolfe 2014).
Factors associated to novel schemes of cataloguing accounts
The materiality aspect for the data has been further seen to be taken with novel accounting system which related to the maintenance of the data by the cash receipts collected form the cashier of the corporation. In expenditure of the corporation has been taken into account with the electronic system of payment. However, the recording of the receipt is done with the reconciliation and presentation of the data by assistant accountant. The announcement for the reconciliation process has been based on the presentation given by the assistant accountant. The reconciliation is seen to be carried out by the end of the month. The reconciliation announcement has been prepared at the end of period. DIPL has seen to be generating the revenues by means of marketing particularly in e-book republishing and printing of the text books which may influence the materiality aspect(Duncan and Whittington 2014).
(b): Causes behind relevance of detected factors
The mistakes in the crop up procedure has been seen to betaken into consideration with the assertion of the different types of the information which has been based on the pecuniary pronouncement. The various types of the accountingestimationhave been further seento be based on the use of the different type of the relevant information amounting to the main categorization of disclosure and reflections. In addition to this, the various types pf the frauds pertaining to the use of informationis based on the implementation of the specific types of the accounting procedure which has been discerned with the main assumption of the financial aspect which has seen with direct relevance to the material misstatement and financial declarations. The conception of the auditor has been further seen to be taken into account with the varioustypes of factors which has been seen to behaving a direct relevance of the use of thevarioustypes of the informationrelating to the reflection and disclosure in the financial statement. The risk of the fraud has been further seen with the main form of the assumption which has been seen with the assumption anddirectrelevance of the use of financial declarations. The conception of the auditor has been seen to bebased on the main form of theassumptionwhich has been seen to be associated to the internal control and concerns of material misstatement(Kend, Houghton and Jubb 2014).
The inherent forms of the risk can be seen with the important factors with the materiality effect. The administrative integrity of DIPL has been considered with the objectivity. The status of the corporation has been seen to be taken into account with the misleading of the materiality consideration. The fraudulent action has been further seen to be based on the different aspects ofpressure on employees and procedures of execution of novel accounting system.
The complexity with the appointment of CEO can be also considered as a n intricate process for the existing factors. The accounting process has been seento be based on the several types of the significant factors which has been seen to be based on the accounting process assisting the raw material and comprehending with the appropriate financial accounts. The integration of the environmental aspects has been further base on the factors affecting materiality.
(c): Illustration of the manner the recognized facets that can influence preliminary figures
Fraud risk affecting materiality:
The function of the IT division has been considered to be vital for the various types of the aspectswhich has beenseento be based onimplementation of new machines for the organisation. In addition to this, there has been significant pressure on the workers and the business concerns for the reconciliation and examination of the novel system.
Policies of accounting influencing materiality
The valuation of the inventory has been seen to be based on the assessment of the various types of the factors which has been seenwith the over substantive accounting process. In particular, this has been seen to affect the substantiation of the stratagem of audit(Schmidt, Wood and Grabski 2016).
Environmental facets influencing materiality
The inability of the management for the assumption of the micro and omissions of the specific financial factors has been directed with the improper financial assertions. The financial information may fail to attain the entire procedure required for the carrying out and planning of the overall assessment.
Materiality influenced by the intricacies of the procedures of CEO appointment
As the CEO appointment process is complicated in nature, it is often seen to include meticulous transparent process for appointment.
Factors associated to recording accounts in the novel system
The expenditure based on the electronic payment affects the overall performance for maintaining the details for the preparation and presentation of the reconciliation assertion. The incapability of the corporation has been based on the reconciliation directing the collapse of the administration to comprehend with the significance of the particular business transaction.
Calculation of Materiality
- 5% of pretax income
- 5% of total assets
- 1% of equity
- 5% of total revenue
5% of Pretax Income
0.5% of Total Assets
1% of Equity
0.5% of Total Revenue
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Schmidt, P. J., Wood, J. T. and Grabski, S. V. (2016) ‘Business in the Cloud: Research Questions on Governance, Audit, and Assurance’, Journal of Information Systems, 30(3), pp. 173–189. doi: 10.2308/isys-51494.