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Dear Mike,
The below answer has been provided in your previous post.
“The board has minuted that they consider the amount to be ‘trivial’
But the concept of materiality is a two-way street – what is ‘trivial’ for Basking Co could well be material for Mrs Angel”
I am not sure why we need to mention the loan could be material for Mrs Angel. Regardless whether the loan is material to Mrs Angel, the loan is immaterial to financial statements by value.
If this is not a related party transation (ie. the transation is not material by nature), the financial statememt will not contain material mistatement even if the accounting treatment for the loan is incorrect as the loan is not material to Basking.
Therefore, the auditor would still issue unmodified audit opinion.
My question is if the loan is material to Mrs Angel, how would this change the audit opinion.
Thank you.
Regards,
MarthewThese are the three appropriate sentences that I wrote in my last response:
“But the concept of materiality is a two-way street – what is ‘trivial’ for Basking Co could well be material for Mrs Angel
Furthermore, as a member of the senior management team, Mrs Angel is a related party
As such, quantitative considerations are irrelevant – the company should instead be considering the qualitative materiality”
Basking Co is treating the matter as non-disclosable on the basis of its immateriality / triviality
My answer addresses first the matter that materiality is two-way
It then goes on to explain that, trivial or not, the matter requires to be disclosed because Mrs Angel is a related party
You also ask: “My question is if the loan is material to Mrs Angel, how would this change the audit opinion.”
We are not in any position to discover whether the loan is or is not material to Mrs Angel but, as stated in my previous response, that consideration is irrelevant
Strictly to answer your question, the audit opinion would not require any further amendment beyond what I have already written – material or not to Mrs Angel, this transaction must be disclosed
However, if we were to tweak the scenario, if Mrs Angel were not a member of the senior management team then she’s probably no longer a related party. But if the $75,000 is material to Mrs Angel, then it would still require disclosure
If:
– the matter is NOT material to Mrs Angel and
– she were not a member of the senior management team and
– she were not in any way connected with a senior member of staff at Basking
then the matter would not need to be disclosed
But then, as the auditor, you would ask yourself “Why?”
Why has Basking leant $75,000 to a person that doesn’t need it, isn’t a member of the management team and is not in any close personal relationship with any senior member of the management team … WHY?
And if there is no apparent logical reason for this loan to have been made, can you let me know the contact details for Basking Co? I too could happily use a $75,000 loan 🙂
OK?
- The topic ‘Material by Nature (Sep/Dec 2017 Q5 (b2)) – Part 2’ is closed to new replies.