One of the clients of MMM Chartered Accountants operates a restaurant. From January of the current year, the business has consistently paid its suppliers late, well in excess of the suppliers' normal credit terms. This has resulted in some suppliers requesting cash on delivery from the business. The auditor has reviewed the correspondence between the business and its bank and finds that the business has been experiencing cash flow problems for two years. Required: (a) Explain why determination of materiality is a matter of auditor judgment. Refer to both qualitative and quantitative materiality assessments. (150 - 200 words) (b) Explain whether (and, if so, how) the information provided impacts on the auditor's assessment of preliminary materiality. (250 - 300 words)
One of the clients of MMM Chartered Accountants operates a restaurant. From January of the current year, the business has consistently paid its suppliers late, well in excess of the suppliers' normal credit terms. This has resulted in some suppliers requesting cash on delivery from the business. The auditor has reviewed the correspondence between the business and its bank and finds that the business has been experiencing
Required:
(a) Explain why determination of materiality is a matter of auditor judgment. Refer to both qualitative and quantitative materiality assessments. (150 - 200 words)
(b) Explain whether (and, if so, how) the information provided impacts on the auditor's assessment of preliminary materiality. (250 - 300 words)
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