Business Finance
ACG 4651 FNU Auditing Process & Evidence & Reporting Materiality Case Studies

ACG 4651

Florida National University


Question Description

I need help with a Accounting question. All explanations and answers will be used to help me learn.

This Midterm consists of three linked case studies. Each is to be approximately two pages long, prepared in APA format, and submitted as a Word document. To receive credit all content must be in your own words and all sources drawn from referenced and cited according to APA standards. Of particular importance is the correct citation of direct quotes - and there should not be more than a few of these. The learning materials assigned for Week #4 and prior weeks will be helpful and you are welcome to bring in additional scholarly sources

For each case below use a firm of your choice, either real or of your own creation. Your are to write from the perspective who has just been hired to conduct and audit of the firm that is to begin soon.

Case Study #1

Using the firm you have chosen, outline a thorough outline for the audit that includes descriptions of particularly important issues to be dealt with along the way.

Case Study #2

Using the firm you are auditing, thoroughly outline the evidence you will gather. Explain the importance of each type and how you will gather and evaluate it.

Case Study #3

Outline and describe how you will decide issues of materiality and how these shall/should be reported, analyzed, and acted upon by the firm being audited.

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Final Answer



Case Study #3

Student’s Name
Institutional Affiliation



Auditing and Reporting Materiality
Materiality is among the significant concepts of auditing. Misstatement and other related
mistakes can amount to materiality if they influence decision making from the users of the
financial statements. In other words, materiality is worth considering by auditing teams,
especially when the amount is sufficient to influence decisions. In this context, materiality
considers both the qualitative and quantitative aspects during evaluation. The role of the auditor
is to enhance the degree of confidence of the users of the financial statement. Auditing employs
concepts of materiality during the planning and performance phases. It is such concepts that are,
in turn, used to evaluate the effect of the misstatement.
Evaluating the effect of materiality
Auditing requires planning materiality to be set in advance before the testing phase
commences. This initial phase sets the preliminary judgment of materiality, which is subject to
re-assessment as the progress goes on. The figure to set as planning materiality is based on the
auditor’s assertion of the maximum amount misstated that won’t affect the decision making
process of the stakeholder. Next, performance materiality is determined in the course of auditing.
The level of risk in the financial statement is multiplied with the planning materiality to generate
the tolerable misstatements.
Performance materiality is the amount of misstatement that is acceptable by the auditor
without necessarily making adjustments. In using percentage factors, I would have arrived at
those figures from my assessment of the risk in financial statements (Arens, Elder, & Beasley,



2012). An inverse relationship exists between materiality and audit risk. This statement means
that the higher the risk, the lower the materiality that will be set and vice-versa.
Reporting materiality
Auditors have the responsibility in documenting materiality complete with the evaluation
and rational on misstatements. The audit team will communicate the materiality based on the
framework that accepts reasonable misstatements. I would lead my auditing team in reporting
materiality using the following framework;
a) Determining of planning materiality
b) Set performance materiality
c) Evaluation of the set materialit...

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