Question
Your audit team has set the following benchmarks and percentages for the calculation of materiality for the financial statement as a whole of a client
Your audit team has set the following benchmarks and percentages for the calculation of materiality for the financial statement as a whole of a client you are auditing:
Value %
Profit before tax 5
Profit after tax 5 10
Gross Profit 0.5 1
Revenue 0.5 1
Total Assets 1 2
Net Assets 2 5
During the audit the following items listed (1 5) below were considered for their materiality, given that the clients account values were: Revenue GHS3.00m; Total Assets GHS2.50m; Total Liabilities GHS1.50m; Cost of Sales GHS1.8m; Profit before tax GHS0.40m; and Tax GHS0.10m.:
1. An invoice for GHS18,000 worth of goods sold could not be found.
2. Goods purchased in December, GHS7,500, have been excluded from stocks.
3. Cost of electricity for the month of December, GHS10,000, has been omitted from the expenses.
4. An investment of GHS40,000 cannot be retrieved from a defunct Savings and Loans company.
5. A contingent liability of GHS15,000 has not been provided for nor noted.
Required: Determine the materiality of the items listed in Nos. 1- 5 above and explain your
decision.
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