HA3032 Auditing| Determination of Materiality

   As stated in ASA 320; “The auditor’s determination of materiality is a matter of professional judgement, and is affected by the auditor’s perception of the financial information needs of users of the financial report.” (AUASB, 2015) With reference to the statement above from ASA 320, define materiality and discuss how the “needs of users” will affect how materiality is determined.   ANSWER:  ** Answer box will enlarge as you type What is the purpose of tests of controls? With reference to the three (3) main risk components of the Audit Risk Model, explain the circumstances where it is NOT appropriate for the Auditor to test the controls of the client entity.  A senior partner in a large incorporated accounting firm has 400 shares in a large client’s company. Whilst this ownership stake is considered an insignificant part of the partner’s total share portfolio, the firm has strict requirements about equity investments in clients based on s307C of the Corporations Act and the APES 110 Code of Ethics for Professional Accountants. Required: Has the partner violated the independence requirements of the firm? Discuss (3 marks) Explain whether the ownership is likely to affect the partner’s independence in fact. (4 marks)    Your firm Temasek, Smith & Partridge are currently auditing the financial accounts of Riddell Ltd for the year ending 30 June 2021. You are the Audit Manager on this engagement and one of your new graduates has performed the following audit procedures in relation to the sales and collection process of Riddell Ltd, as follows: Examined a sample of shipping documents to determine whether each document has a sales invoice number included on it. Added the columns on the aged trial balance and compared it to the total noted on the general ledger. Observed whether the financial accountant makes an independent comparison of the total in the general ledger with the trial balance of accounts receivable. Examined a sample of customer orders to see whether each order has a credit authorisation. Compared the date on a sample of shipping documents a few days before and after the balance sheet date with related sales journal transactions. Computed the ratio of the provision for doubtful debts divided by accounts receivable and compared it with previous years. Examine a sample of non-cash credit entries in the accounts receivable master file to determine whether the internal auditor has initialled each one. Required: For each audit procedure stated above from 1) – 7), identify the applicable type of audit evidence, type of test and provide an explanation of the purpose of the audit procedure. Please use the following table to complete your responses:
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