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DEAR SIR.
I was doing a question were a theft from the previous year was detected in the current audit. The figure was material according % of total assets and profit of previous year but was immaterial according to total assets and profit of current year.
My reasoning is that the audit report is for the current year and only the profit(retained earnings) and inventory opening balances would be affected and given that the figure is immaterial this should not lead to qualification of opinion but maybe a mention in other matter paragraph).
Is it one of those instances were it is material by nature. Forgive the lack of reference but i hope the information i gave suffices
Please can you provide a reference to the Q scenario that you are referring to make sure you do not mislead me with your analysis.
I want to explain to you that this is not a material by nature situation.
What I can say now is that you must NEVER EVER EVER “mention” a matter elsewhere in the auditor’s (EoM or other matter) as some sort of “get out” or alternative to a modified opinion. Either the matter is material and the opinion should be modified – or it’s not and the matter will not be “mentioned” in the audit opinion NOR anywhere else.Question is Cooper June 14
The draft financial statements recognise profit for the year to 31January 20X4 of $15 million (20X3 – $20 million) and total assets of $240 million (20X3 – $230 million).
(b) Max noticed that a section of the audit file had not been completed on the previous year’s audit. The incomplete section relates to expenditure incurred in the year to 31 January 20X3, which appears not to have been audited at all in the prior year. The expenditure of $1.2 million was incurred in the development of an internally generated brand name. The amount was capitalised as an intangible asset at 31 January 20X3, and
that amount is still recognised at 31 January 20X4.
Required
Explain the implications of this matter for the completion of the audit, and any other professional issues
raised, recommending any actions to be taken by the auditor.This doesn’t bear much relation to your first post which refers to theft(!) Also, the failure to write off $1.2m expense last year is even more material to the current year (because profit for the year is less).
So going back to your original question which seems to be based on a made up scenario – you have to bear in mind that materiality %s are only guidelines. Something that was clearly material last year may be less material this year but the comparatives are a requirement of a complete set of financial statements (IAS 1). So even though you are reporting on the current period’s performance and position, the users of the financial statements will be looking at that alongside the corresponding amount.
Thank you. I could not find the original question so i was trying to reconstruct it. Now i see i misread the figures but still your explanation answered me.
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