REQUIRED: evaluate the materiality of each audit that you detected during the audit of Clarke Limited for the financial year ended 28 February 2022.

QUESTION 1 (32 MARKs) You are employed at an Auditing Firm called ABC Auditors and are currently busy with the completion of the audit of Clarke Limited who has been a long-standing client of ABC Auditors. Clarke Limited is listed on the Johannesburg Stock Exchange (JSE) and specializes in the manufacturing of men's clothing. The Head Office and manufacturing plant of Clarke Limited are both situated in Gqeberha, in the Eastern Cape and with various distribution warehouses in the Western Cape, Mpumalanga, and Gauteng. Clarke Limited is planning to open more distribution warehouses in the other provinces in the coming months. The audit planning working papers indicate the following important dates and amounts: - Financial year-end: 28 February 2022 - Planning materiality based on revenue: R1.1 million - Final materiality: R1.5 million During the audit, and while conducting risk assessment procedures, the following unadjusted audit differences were identified: 1: Inventory During the first operating week in January 2022, an urgent order had to be manufactured and transferred to the warehouse in Mpumalanga. Due to the accounting staff still being on annual leave, the transaction wasn't accurately recorded. It was recorded as a sale transaction by the Manufacturing Clerk instead of a transfer within the entity. During the financial year-end inventory count, the entity forgot to count and include this inventory in the inventory figure in the financial statements. The inventory's value amounted to R850 000. 2: Property, Plant, and Equipment Clarke Limited bought another building during the financial year for R1 650000 . The business is growing and needs more warehouse space. The building purchased was budgeted and planned for in the 2023 financial year-capital budget. The transaction was consequently not recorded in the February 2022 draft financial statements since management rather want to include it in the 2023 annual financial statements. 3. Power outages During the 2022 financial year-end, Eskom announced and introduced a lot of maintenance on certain plants which caused numerous power outages which occurred throughout the year in the Gauteng area. Several accounting information was lost, as Clarke Limited has neither backup facilities nor an uninterruptible power supply (UPS). The accounting information lost relates to various transactions. Management could not identify and reconcile the lost accounting information to the transactions that occurred. 4: Income received in advance Clarke Limited received a huge order from their biggest customer. Due to the size of the order, Clarke Limited required a deposit before production could start. The customer made a deposit in November 2021 and the delivery of the order will only occur in March 2022. The full deposit amount of R1 850000 was recognised in the current financial year as revenue. QUESTION 1 (32 MARKs) You are employed at an Auditing Firm called ABC Auditors and are currently busy with the completion of the audit of Clarke Limited who has been a long-standing client of ABC Auditors. Clarke Limited is listed on the Johannesburg Stock Exchange (JSE) and specializes in the manufacturing of men's clothing. The Head Office and manufacturing plant of Clarke Limited are both situated in Gqeberha, in the Eastern Cape and with various distribution warehouses in the Western Cape, Mpumalanga, and Gauteng. Clarke Limited is planning to open more distribution warehouses in the other provinces in the coming months. The audit planning working papers indicate the following important dates and amounts: - Financial year-end: 28 February 2022 - Planning materiality based on revenue: R1.1 million - Final materiality: R1.5 million During the audit, and while conducting risk assessment procedures, the following unadjusted audit differences were identified: 1: Inventory During the first operating week in January 2022, an urgent order had to be manufactured and transferred to the warehouse in Mpumalanga. Due to the accounting staff still being on annual leave, the transaction wasn't accurately recorded. It was recorded as a sale transaction by the Manufacturing Clerk instead of a transfer within the entity. During the financial year-end inventory count, the entity forgot to count and include this inventory in the inventory figure in the financial statements. The inventory's value amounted to R850 000. 2: Property, Plant, and Equipment Clarke Limited bought another building during the financial year for R1 650000 . The business is growing and needs more warehouse space. The building purchased was budgeted and planned for in the 2023 financial year-capital budget. The transaction was consequently not recorded in the February 2022 draft financial statements since management rather want to include it in the 2023 annual financial statements. 3. Power outages During the 2022 financial year-end, Eskom announced and introduced a lot of maintenance on certain plants which caused numerous power outages which occurred throughout the year in the Gauteng area. Several accounting information was lost, as Clarke Limited has neither backup facilities nor an uninterruptible power supply (UPS). The accounting information lost relates to various transactions. Management could not identify and reconcile the lost accounting information to the transactions that occurred. 4: Income received in advance Clarke Limited received a huge order from their biggest customer. Due to the size of the order, Clarke Limited required a deposit before production could start. The customer made a deposit in November 2021 and the delivery of the order will only occur in March 2022. The full deposit amount of R1 850000 was recognised in the current financial year as revenue