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Here is a question—
The chairman’s report states that investment property rental forms a major part of revenue. However, notes to the fs shows investment property rentals only represents 1.6% of the total revenue for the year.. Senior audit is satisfied and he stated that, this has no effect on the auidt report..My Answer,
Since investment property rental represents 1.6% of revenue, this is material. However, auditor can decide what the threshold of what may be regarded as major part..
Audit report–
I am agreeing with the auditor that the chairman is correct. Therefore, this has no impact on the auditors report and no need for ‘other information para’Please, critically evaluate my answer, I think I am wrong
Yes you are wrong.
If you asked “the man on the street” the meaning of “majority” as opposed to a “minority”, I think he would more than 50%. Obviously it depends on context – if you had $100m of revenue which came from 5 sources: A $50m, B $30m, C $15m, D $3.4m and E $1.6m and asked which is the major source – the answer is A – but if you asked what are the major sources – you might get the answers A & B or even A, B & C. But the qualitative description of E as “major” is clearly a contradiction of 1.6%. You seem to have correctly identified that what is being examined here is the auditor’s responsibility for “other information” (i.e. information in the annual report other than the financial statements and auditor’s report).
What you have overlooked is that there is an “error” (albeit qualitative) in the other information. Although it has no impact on the financial statements or the audit opinion, the contradiction could compromise the credibility of the financial statements and the audit opinion – so the auditor has to draw attention to it in a separate para in the auditor’s report headed “Other information”,
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