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Dear tutor,
I understand that in auditing, we have to assess the specific materiality and the specific performance materiality for class balance, i.e. trade debtors.
The specific performance materiality is expressed in numerical figures, say, and $10,000. Any items above performance materiality, say, those above $10,000, will be selected for testing.
However, in the textbook, to check for the completeness of sales, on one hand, using the materiality method, 30 items will have to be selected, and on the other hand, the test started from the goods delivery notes, and in selecting the samples every tenth item has been selected without reference to the sales transaction amount.
I was wondering if we pick samples from the GDNs selected randomly without reference to the sales amount, how could hose items above performance materiality be covered in the test.
Could you kindly give me some guidance on this? Thanks.
Picking GDNs and tracing them through is likely to be part of a test of control or a test of detail. You are concerned that the correct procedures have been applied to every item irrespective of size.
Materiality really becomes important when you are looking at the FS assertions i.e. the figures that end up on the FS. So there you would,for example, look at every receivable over 10,000 and perform a receivables circularisation.
Dear Gromit,
Thank you very much for your kind help
Am I to understand that picking GDNs is a part of test of control, and so I am concerned about the procedures instated of balances?
However, in testing for the completeness of income, if I am also concerned about the materiality of the transaction amount, are there any alternative procedures that I can take to test for the completeness of the sales transactions above the performance materiality?
May I look forward to receiving your kind guidance again?
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