SHAHNANG

&
CO

3
0
A5

L
A
T
N
E
M
A
G
D
N
N
I
IT
FU
D
U
OF A

PREPARED
BY :
1. SITI FAIRUZ BINTI OSMAN
10DAT13F1051
2. MOHAMAD KHAIRUL NAIM BIN
MOHD FOZI
10DAT13F1150

CASE
STUDY
( PART 4 )

A) DIFFERENT MATERIALITY

BASES CONSIDERED WHEN

DETERMINING PLANNING
MATERIALITY.
Financial information is prepared for multiple
users for different purposes and thus not all
elements of the financial statements are equally
relevant to all users.

B. DIFFERENT MATERIALITY THRESHOLDS

RELEVANT
FOR
DIFFERENT
AUDIT
ENGAGEMENTS.

Materiality is a relative concept rather than an

absolute concept.
Generally, the materiality of a misstatement of
a given magnitude would be greater for a small
company than for a large company.

C) MATERIALITY BASE RESULT IN

THE
SMALLEST
THRESHOLD
GENERALLY USED FOR PLANNING
PURPOSES.
The auditor must consider the possibility of misstatement of
relatively small amounts that, cumulatively, could have a
material effect financial statement.

D) Why is the risk of management

fraud considered when determining
tolerable misstatement?

A high likelihood of management fraud makes it

more likely that individual account misstatements will
have the same directional effect on net income(i.e.,
asset accounts will be overstated and liability account
will be understated).

E. THE AUDITOR NOT USE THE SAME

TOLERABLE
MISSTATEMENT
AMOUNT
OR
PERCENTAGE
OF
ACCOUNT
BALANCE
FOR
ALL
FINANCIAL STATEMENT ACCOUNTS.
The objective of an audit
to provide reasonable assurance that the
clients financial statements are fairly
presented in all material respects at the
lowest possible cost.
The nature and cost of evidence available by
account varies.

F) The combined total of individual

account tolerable misstatements
commonly exceed the estimate of
planning materiality.
For many audits it is not likely to expect that every account will be
misstated by an amount equal to its tolerable misstatement.
The sum of tolerable misstatements should not exceed three times
planning materiality.
Additionally, it is not likely that all account misstatements will have the
same directional effect on net income.

CASE
STUDY
( PART 5 )

INTERNAL
CONTROLS
The auditor should not accept managements
description
The auditor of
should
not acceptinternal
managements
the companys
control without
description of evidence.
the companys internal control without
corroborative
evidence.
corroborative
The auditor must assess the effectiveness of the
companys
The auditorinternal
must assess
the effectiveness of the
controls.
companys internal controls.
Internal Control Questionnaire
Internal Control Questionnaire

INTERNAL CONTROL
QUESTIONNAIRE
yes

no

Audit approach
compliance
approach

INTERNAL
CONTROLS
o The companys operating system is effective and
efficiency.
o All transaction are occurrence and completely
recorded.
o The company followed the laws and regulations.