- This topic has 3 replies, 2 voices, and was last updated 4 years ago by
.
- Posts
Hi,
I was doing Question 2 (a)(ii) in the Sep/Dec 2019 exam, and got a little confused regarding which figure to use to determine materiality. I noted the issue regarding surplus under IAS 16 ($25k) vs investment income gain to P/L ($5k), so assumed that materiality needed to be calculated based on the misstatement of $25k. However the answer gives the following:
“The carrying amount of the investment property represents 2·6% ($353,000/$13·8 million) of Lifeson Co’s total assets at the reporting date and is material to the financial statements.”
So it looks like I should have calculated materiality based on the total value rather than the misstatement? I can see that (b) gives the misstatement materiality – would it be correct to say that materiality re: matters are the total value, whereas materiality re: audit report/ opinion implications are the misstatement value?
Hope this makes sense!
Thanks
You could certainly have calculated $25k misstatement which should have been included in OCI has a % of profit – but at only 1.2% you would have concluded that this misstatement is material.
The answer is considering the materiality of the possible misstatement in the classification of the entire building – i.e. should £353k be included in the line that is PPE – or separately as investment property.
Materiality calculation clearly depends on which misstatement you are considering – if your only calculation is immaterial then perhaps that is a clue that you have missed some other material misstatement.
Ah I see! Yes I was just looking at whether the gain had been allocated correctly, but should also have considered the overall classification of the investment property (in which case I would use $353k).
Thanks!
- You must be logged in to reply to this topic.