Professional Documents
Culture Documents
Hence we have calculated materiality and tolerable error for both XYZ (chief entity) and XYZ consolidated.
For Revenue/Expenses, materiality is determined at 1% of total expesnes as per 2004 budget. The rationale for choosing total expenses is that XYZ as a whole is materially a budget dependent agency although ABC derives some revenue from commercial activities but we do not expect any material adjustments coming from ABC. Hence total budgeted expenses is considered appropriate as basis for calculating materiality as users would expect potential misstatement would occur in expenses. Consolidated: 1% of 585m = $5.8m For Balance Sheet items, materiality is determined at 5% of net assets. Consolidated: 5% of 87m = $4.35m (Note: materiality may be influenced by considerations relating to individual account balances, such as legal and regulatory requirements. For example the expected degree of accuracy of note disclosures (e.g. executive remuneration, commitment notes etc) will make normal materiality irrelevant (qualitative materiality).
The audit manager should review the SUD and ensure that the audit team has properly accumulated and evaluated the results. The engagement manager should always consider qualitative factors when evaluating the impact of unadjusted differences. Qualitative factors may, in certain circumstances, result in misstatements of relatively small amounts having a material effect on the financial statements. For example, misstatement that have the effect of altering performance trends or turning operating losses into operating income could well be considered material, even though they may be less than our quantitative measure of materiality. Previous years' SUD items should also be evaluated to determine if they have a material effect on current year's results. Individual unadjusted differences (with explanation) should be included in the closing report as wellas in the management representation letter.