1.1 In the audit of sales account, the amount presented on the financial statement is $5,000,000. You are the auditor and you have determined the level of materiality of sales account to be $50,000.

Required:

a. Based on your understanding, how would the auditor have done to determine this amount (You answer should only explain how the auditor actually does in order to determine this amount). (3 marks)

b. What does this materiality level of $50,000 mean to the auditor and the audit. Explain in details. (5 marks)

c. Assuming you have checked the sales account and have detected that client recorded a sale transaction of $40,000 that did not actually occur during the year. (5 marks)

- What management assertions is violated (i.e. at risk)

- What would you do if you have determined that this is an error (an unintentional mistake)

- What would you do if you have determined that this is intentionally done by the clients sales manager to achieve the sales target. Also indicate the type of fraud in this situation under Australian auditing standards (ASAs).

1.2 One of your friends who has not studied auditing tells you that accounting and auditing are the same as they all involve financial statements and accounting standards. Please explain to him based on your understanding in this unit (5 marks)