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The Stages of an Audit – After Appointment – ACCA Audit and Assurance (AA)

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  1. Do you realise how beautiful a voice you have? Remarkably pleasant to listen to, I may continue to listen to these lectures after I have set my exam! 🙂

  4. Hi Ken,
    Does The stages of Audit appointment overview diagram shows whole planning (not stage of action) for the audit and approaches for whether or not internal controls effective or ineffective ?

    Many thanks in advance

      • Sir,

        Just very simple but very confusing for me is something like, why we need to test control of the whole processes of cash payments and receipts procedure while we can simply check the bank statements and cash count at the end of period to verify the cash section.isn’t it? is that because of Fraud consideration which might happened during the year not at the balance? If so, audit opinion is still the same even though auditor found that there was fraud during the period, right?

        Regards

  6. Hello Sir,

    please can you kindly confirm whether the benchmark percentages for materiality has really changes as i’m using the BPP textbook and i have a different percentages to what is in the lecture not

    value %
    profit before tax 5
    gross profit and revenue 1/2 – 1
    total assets 1-2
    net assets 2-5
    profit after tax 5-10

    thank you

  7. hi, i still dont understand about the performance materiality. the 0.5% to 1% of revenue, 1 to 2% total assets, 5 to 10% of profit before tax. what does it indicate for? how do i apply it on exam questions? i did try apply many times, but get the wrong answer so i think i might understand it wrongly. pls reply. thank you 🙂

    George

    • If revenue is $1m, then that implies a materiality level of 5,000 – 10,000 (0.5% to 1%). Similarly for the other measures.

      If there are misstatements in the FS that exceed these amounts, then the misstatement is material and the FS would not show a true and fair view unless the errors are corrected. Note there is a range and this requires judgement to be applied by the audit partner. If the error in, say expenses was $15,000 this is above the upper part of the range and this would almost certainly be regarded as material.

      If the error was only $3,000 this is immaterial in amount, but could still be material because of its nature. For example, there is not reason why directors’ emoluments or cash shouldn’t be accurate to the last cent.

      Performance materiality is set at a lower level than the above materialities. This is because several errors of, say, $3,000 all in the same direction could easily add up to more than $10,000 if they were all in the same direction. Performance materiality means errors that should be regarded as material in the performance of the audit. So audit staff keep details of these errors and the partner then makes a judgement as to whether, taken separately and together, there are material errors in the FS.

      If performance materiality had been set at $4,000, and there was one error of +$4,500 and another of -$4,300 recording revenue or expenses there is little net effect and the FS could still be T&F. If both errors were in the same direction the total error is $8,800, towards the upper end of the materiality range and the partner might conclude that this effect made the FS not show a T&F view.

      • Hello Mr. Gromit,

        Could you please explain what is an error “in the same direction”? Also, what does the term direction means in the context of auditing, as we usually see it?

        Nice and very useful videos, really.

        Thank you in advance.

    • Think of 0.5% to 1% of revenue, 1 to 2% total assets, 5 to 10% of profit before tax as indicating that a misstatement is material.

      Think of performance materiality as set lower than those figures to indicate which errors the partners wants to be told about. Several small errors could add up to a material effect.

      You apply materiality in exam questions by working out the amounts according to 0.5% to 1% of revenue, 1 to 2% total assets, 5 to 10% of profit before tax. You will not have to estimate the lower performance materiality levels.

    • Continuous audits are usually technology driven so that computer programs report on ‘odd’ transactions etc. This tends to be used internally by the company and the internal audit department.

      An interim audit is carried out by external auditors allowing them to bring forward audit work to part way theough the year. It is then that the accounting system can be documented and many of the tests of control can be carried out.

    • I don’t know where you live; some countries block videos. If you are accessing through a company’s system, some companies block videos. Otherwise our normal advice is to try a different browser, such as Chrome.

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