留学生作业会计平衡表格指导 MATERIALITY LEVEL CALCULATION - EXAMPLE

MATERIALITY LEVEL CALCULATION - EXAMPLE   [email protected](1455780998)
 How is materiality level calculated?   
Account balance Balance Rate % Materiality level 
Total revenue  $    50,000,000.00  0.25  $   125,000.00  
Total expenditure  $    38,000,000.00  0.25  $      95,000.00  
Total non-current assets  $  500,000,000.00  0.3  $1,500,000.00  
Profit before income tax  $    20,000,000.00  0.5  $    100,000.00  
Equity  $    80,000,000.00  0.5  $    400,000.00  

How is materiality level selected?    
Auditors typically choose the lowest amount which in this case is $95,000 as materiality level for this audit.
The $95,000 would typically be chosen as materiality level for audit of not-for-profit organisation. 
However, auditors can also choose the $125,000 when auditing a for-profit organisation. 
Using professional judgment, auditors decide to choose $125,000 in this example as materiality level.
    
How is materiality level applied?    
Revenue account   Accounts Payable 
Account balance  $    50,000,000.00   Account balance  $                1,000,000.00
Number of transactions                       10,000   Number of transactions                  400
Sample size                           400  Sample size     48
Tolerable errors                            10  Tolerable errors       4
Number of errors found                                8  Number of errors found       3
$ value of errors found  $               8,000.00   $ value of errors found  $     2,000.00
Projected back to population                         200  Projected back to population     25#p#分页标题#e#
Projected back to population ($)  $          200,000.00   Projected back to population ($)  $   16,666.67 

How are test results evaluated?    
Revenue account    
Sampling test done on revenue account balance a projected 200 errors on population of 10,000 transactions.
The total $ value of the projected errors is $200,000. As this amount is more than the $125,000 materiality level, auditors
recommend management to correct the errors and adjust the account balance. If management refuses to correct
the errors, the audit may issue a qualified audit opinion as the revenue account balance is materially misstated.
Accounts payable    
Sampling test done on Accounts Payable balance shows a projected 25 errors on population of 400 transactions.
The total $ value of the projected errors is $16,667. As this amount is less than the $125,000 materiality level, auditors
conclude the test result as satisfactory.