In the audit of accounts receivable at Montana (the client), the amount presented on the financial statement is $20,000,000. The profit after tax is $100,000,000. You are the auditor and you have determined the level of materiality for accounts receivable to be $50,000.

Required:

a. Based on your understanding, how would the auditor have done to determine the materiality for accounts receivable (Your answer should only explain how the auditor actually does in order to determine this amount limit to 40 words). (2 marks)

b. What does this materiality level of $50,000 mean to the auditor and the audit. Explain (limit your answer to 40 words). (2 marks)

c. Assuming you are checking accounts receivable and would like to send a request to a list of customers asking them to confirm the amount that they owed to the client at the end of the financial year. Based on the confirmation received, you have detected that the client included an amount of $60,000 owed by customer A, however customer A had paid this in full before the year-end.

- What type of audit procedure is used by the auditor? (1 mark)

- The client admits that customer A had paid 60,000 before the year-end and that this amount should not be included in the total amount of $20,000,000. What management assertions is violated (i.e. at risk) (1 mark)

- What would you do in this situation? (limit your answer to 80 words). (4 marks)