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Dear Tutor, would you please help me out about this question?
Tolcon Co, has sent its auditors a copy of the draft financial statements for the year. these give the following information:
……………………….Current year………..prior year
revenue…………….7596300……………..4576200
total assets………..3594406……………..3129299
bedget revenue for the current year was $5,000,000
However, a new marketing campaign by the company aimed at teenagers has been incredibly successful, and sales in this sector have grown rapidly in the year.
What planning materiality (for the financial statements as a whole) is likely to be set?
many thanks0.5 – 1% revenue = 38,000 – 76,000 (approx)
1 – 2% assets = 36,000 – 72,000 approx.So you could set the materiality level at around 75,000.
Last year’s results and an out-of date budget are not very relevant.
Dear Gromit, thanks a lot for your response, i am still confused, the answer which i got from BBP CD saying that :
Average of (1/2% x$7596300)+(1%x$7596300)=$57000 (rounded)
Average of (1%x$3594406)+(2%x$3594406)=$54000 (rounded)
$57000+$54000=$111000
$111000/2=$55500
i calculated this following above fomula, i can’t reach that result.
would you please teach me.
many thanks
jingdongyuI can’t answer for BPP. To me is seems far too complicated and I’m not going to audit their answer. I wouldn’t do it like that and I am sure the examiner would not expect a huge mathematical exercise.
The preliminary estimates of materiality are not very scientific: they are estimates, mere indications to the audit staff of what size of errors might be important.
I promise you that the simple approach I used in my original reply is fine.
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