$1$ Final assessment of materiality$/$effect on auditor's report

You are nearing completion of the $30$ June $2023$ audit of Goodies

L$.$td$,$ a wholesaler of breakfast

foods and bakery supplies. Your manager has completed the working paper review and has compiled

the following list of errors.

Sales cut$-$off at Melbourne branch was incorrect. Three invoices dated $1$ July $2023$ were

processed with $30$ June $2023$ sales. These amounted to $$5600.$ Additional audit procedures

confirmed there were no other cut$-$off errors. Mark$-$up is a standard $70\%$ on cost price.

Year$-$end stocktake procedures revealed one stock line worth $$11250$ was counted twice. The

error was discovered and corrected by the client's accounting staff.

To carry out the debtors circularisation, the debtors ledger was divided into two parts as follows.

$($i$)$ All balances over $$8000.$ All these balances were circularised. The total value of the part

was $$41800.$

$($ii$)$ All other balances. A random sample of $15$ of these balances was circularised. The total

value of these balances was $$52650.$

Audit procedures revealed $$2510$ of overstatement errors in part $($i$).$ These errors were due to

customers being invoiced for goods they didn't order. Audit procedures also revealed $$2080$

of overstatement errors in part $($ii$).$ The errors in part $($ii$)$ resulted from customers being

billed twice. The corresponding entry to inventory was correctly recorded only once.

The loan confirmation from the bank revealed that interest payable for the month of June was

$$5200.$ The client has recorded an accrual of only $$4200.$

Audit procedures performed on related parties revealed one director$-$related transaction for

$$1200$ was not disclosed in the draft notes to the financial reports.

A clerical error resulted in the June rent accrual of $$5600$ being mistakenly recorded as a

noncurrent rather than a current liability.

You also have the following balances from the draft financial reports.

The manager has asked you to review the errors and prepare a summary working paper that will

enable her to assess whether the financial reports are materially misstated.

Required

$($a$)$ What do the auditing standards require in relation to estimating the final dollar error in the

financial reports before the signing of the audit opinion?

$($b$)$ Using the given information, prepare a summary of audit differences working paper for the

audit manager.

$($c$)$ Discuss how you would use the summary of audit differences working paper in determining

whether the financial reports are materially misstated. ${?}^8$