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- The Percentage is from 5% to 10% for Profit Before Tax. The Detection Risk is Low, thus the Materiality is set to low, which is 5% of Profit Before Tax = $ 5,000,000.
- Planning Materiality (Materiality Basis, Percentage Applied, Dollar Amount of Planning Materiality)
- The Discussion Between Auditor A and Auditor B.Therefore, all transactions above $ 5,000,000 are regarded as material
- Profit Before Tax on 30 June 2022 ($ 100 million) will be the Basis of Materiality. It is appropriate for companies that consistently earn profits every year.
- The Revenue will probably be overstated, as well as the Inventory, since there is a high probability that there will be errors in valuation and recognition
- Significant Accounts and Risk of Material Misstatements
- The Auditor Team decided that the Significant Accounts are Sales Revenue, with assertions: Occurence, Accuracy and Cut-Off, and Inventory (Current Asset) with assertions: Accuracy, Valuation and Allocation
- The Auditor Team : The Client has a relevant internal control, The Audit Strategy will examine the effectiveness of those controls. If the controls are effective, auditor will lower their dependence on thorough substantive process, and vice versa.
- Audit Strategy
- Since the Detection Risk is Low, There will be Raised Dependence on Thorough Substantive Tests of Transactions and Account Balances
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