Auditing Assignment Question : Worth 10 marks

Phil, an audit senior at KMC Partners (KMC) is currently reviewing the materiality level for one of his

clients, Sali Ltd (Sali).

In March 20X6, Sali decided to move from the SuperD IT system to the SuperB IT system. The expected

completion date of the transition was June 20X7. Due diligence was performed on the new system and

another auditor (PGD) was engaged to perform data migration work. KMC liaised with PGD on several

occasions to obtain access to their workpapers in order to obtain sufficient appropriate audit evidence

around the data migration. No major issues were noted.

Ten well-regarded staff members of Sali were made redundant in April 20X7, and as a result, staff

morale is very low at Sali. Employees are wondering who will go next, and do not feel that their jobs are

safe. Most of them are putting in extra hours, but despite this, the lack of motivation is seriously

impacting the quality of their work. Some senior staff members have decided to search the current job

market for another suitable positions.

It is now 8 July 20X7 and the audit team is currently finalising its substantive testing and tests of

controls. Phil becomes aware of the following events:

Event Description

1 Sali's finance manager abruptly resigned in June 20X7, and no replacement has been found.

2 Sali's HR manager resigned in June 20X7, and a replacement was found in July 20X7.

3 While performing a full reconciliation of data on SuperD to data on SuperB as at 30 June 20X7,

two material variances were discovered. Phil inquired with management who confirmed that

these were errors that will be fixed.

4 While finalising the controls testing of the unlisted investments, the audit team note an issue

with one of the 40 samples selected for testing:

Description of Issue:

No purchase document on file for Dune Ltd which makes up 14% of the unlisted investments.

Response by Sali:

The purchase occurred on 29 June 20X7, and most entities take a week to provide the associated

documentation. We made an urgent request to Dune Ltd, obtained the purchase document, and

sent them to the KMC office on 7 July 20X7.

REQUIRED:

Determine the impact of each event on the materiality amount (increase, decrease, no impact). Explain

your answers.