You have been asked to prepare a presentation on materiality which will provide
guidance to members of staff in conducting limited company audits.
Include in your presentation
A definition of materiality and performance materiality
The alternative measures that could be employed to determine a materiality limit for an
audit.
When an auditor has decided that it is necessary to issue a qualified audit report there
are four forms of qualification available.
State the four forms of qualified audit report and give the circumstances in which each
one would be used and outline what additional information should the auditor give in an
audit report, when the report is qualified?
Outline the relationship between audit risk, materiality limits and audit planning
The audit of your client Sprightly plc revealed a major control weakness in the
management of investments. The company recently recruited a financial analyst, as an
employee, to manage the investment of surplus funds. Company policy is to invest in
the shares of large quoted companies. The audit discovered a number of situations
where the financial analyst had made substantial profits for the company by speculating
in risky investments such as derivatives. Such investments could result in massive
losses. The matter was reported in writing to the chief financial officer four months ago
but no action has yet been taken.
What action should the auditors take in respect of this discovery?
Explain in no more than 200 words The Theory of Rational
Expectations developed by Professor Limperg
Explain in not more than 500 words why the auditors would not consider an aircraft
landing on the main office building and totally destroying it after the year end to be a
non adjusting event?
List three advantages and three disadvantages to firms’ outsourcing
Based on the information above explain the additional problems the auditors face when
considering the use of audit software at Hung Lo Ltd. For each problem, explain how it
might be resolved.