You are an auditor in a small firm of accountants, Azlan Wong and Partners. You have been allocated the audit of Gregens Ltd and the partner calls you in to her office to discuss some planning issues. She states the following in relation to the audit: “The materiality level will be set at a level consistent with last year. The figure we used last year was

£500,000. We felt that the figure was appropriate for both the profit and loss accounts and the balance sheet accounts. The implications of this materiality level are that all balance sheet items less than this figure should be ignored in the audit and accepted as not material.

Similarly with the profit and loss items, for any items less than £500,000 just compare them to the prior year’s figure to evaluate whether they seem reasonable. Finally, unless you find the controls within the system have deteriorated substantially from last year, I do not want to make any amendments to the preliminary level of materiality.’

Required

Critically evaluate this statement made by the audit partner.