Ques on requirement
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Define and explain materiality and performance materiality. (Kil 210)
Explain the addi onal factors Amethyst & Co should consider during the audit in rela on to
Aquamarine Co's use of the payroll service organisa on (KIT 216)
Explain why it is important for auditors to communicate throughout the audit with those charged with
governance; and Iden fy TWO examples of ma ers which the auditor may communicate to those
charged with governance. (Kit 230)
Describe the factors which the audit engagement partner would have considered in determining
that this issue is a KAM, and Describe the content of the KAM sec on of the auditor's report for
La e Co. (Kit 239, 242, 243)
Iden fy what a key audit ma er (KAM) is and explain how the auditor determines and communicates
KAM (Kit 252)
Explain whether the 20X5 financial statements of Heron Co require amendment in rela on to the
outstanding balance with Sparrow Co. and Describe TWO audit procedures which should be
performed in order to form a conclusion on any required amendment. (K# 240, 248)
Discuss the issue and describe the impact on the auditor's report, Enny, should this issue remain;
unresolved. (Kit 241, 245, 246, 250, 251, 253)
Discuss the issue and describe the impact on the auditor's report of Purrfect Co of both adequate
AND inadequate disclosure of the con ngent liability (Kit 244, 249)
Iden fy and explain THREE poten al indicators that Marlin Co is NOT a going concern (Kit 247)
Describe the audit procedures the auditor should perform in assessing whether or not Marin Co is a
going concern (Kit 247, 249, 254, 255, 257)
Repor ng
Discuss the issue and describe the impact on the auditor’s report, if any, should this issue remain
unresolved.
Iden fy the issue + what should have been done + Impact (over or understatement)
Whether it is material (The error is material as It ---% of PBT and ---% of total assets)
How management needs to make an amendment (The management should amend -----)
Opinion (If management refuses to amend this error, then the auditors opinion will be
Modified/unmodified)
• Pervasive (Here the error is material but not pervasive, then a ------- opinion would be necessary
Following the opinion paragraph the auditor should provide basis of ------- opinion paragraph. In order
to give the reason for giving ----- opinion
The opinion paragraph would be -------(qualified ‘except for’ - In case of qualified opinion)
Marks are awarded for a discussion of the issue (1 mark), assessment of the materiality of the issue (1
mark), a descrip on of the type of modifica on (2 marks) and the resultant impact on the auditor’s
report (1 mark).
(i)
Describe the factors which the audit engagement partner would have considered in
determining that this issue is a KAM, and
(ii)
Describe the content of the KAM sec on of the auditor’s report for Spinach Co.
Factors
 As ------- Co is listed, a key audit ma ers (KAM) sec on will be required in the
auditor’s report.
 The audit partner would have considered whether the ma er was communicated to
those charged with governance as KAM are selected from ma ers communicated to
those charged with governance.
 The audit partner would also have considered whether the issue rela ng to the
(claims) was an area of higher assessed risk of material misstatement or a
significant risk and as it is an accoun ng es mate the level of judgement involved.
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The audit partner would have also considered whether, in their professional
judgement, the ma ers regarding the (valua on of inventory) were of most
significance in the audit of-----for the year ended -------
Content
The KAM sec on of the auditor's report should include a reference to the audit risk in rela on to the (valua on
of inventory) and the level of judgement required in making this assessment. The KAM sec on of the auditor’s
report should provide a descrip on of the issue. It should detail why this issue was considered to be an area of
most significance in the audit and therefore determined to be a KAM. It should also explain how the ma er
was addressed in the audit and the auditor should provide a brief overview of the audit procedures adopted as
well as detailing that a review was undertaken of any related disclosures.
Discuss the issue and describe the impact on the auditor’s report of Purrfect Co of both adequate AND
inadequate disclosure of the con ngent liability.
State the issue (first paragraph)
As the issue may be significant, this issue represents a ma er which is fundamental to users’ understanding of
the financial statements. The impact on the auditor’s report depends on whether
this ma er is deemed to be adequately disclosed in the financial statements. (second para)
Adequate disclosure
If --------Co adequately discloses the issue, then an unmodified audit opinion should be given but the auditor’s
report should include an emphasis of ma er paragraph / Material uncertainty rela ng to going concern. This
would draw a en on to the disclosure in the financial statements by cross referencing the user to the note in
the financial statements which discloses the -----(issue)-----emphasising that the audit opinion is unmodified.
Inadequate disclosure
If there is no disclosure in the financial statements or the disclosure is considered to be inadequate, then this
indicates that the financial statements are materially misstated. As this lack of adequate disclosure is likely to
be material but not pervasive, then a qualified opinion will be given. A basis for qualified opinion paragraph will
be added to the auditor’s report discussing the ma er and the opinion paragraph will be modified to state that
‘except for’ the failure to adequately disclose the ma er, the financial statements give a true and fair view.
For this requirement marks are awarded for a discussion of the issue (1 mark), and the impact on the auditor’s
report of adequate disclosure (2 marks) and inadequate disclosure (2 marks).
Explain whether the 20X5 financial statements of Heron Co require amendment in rela on to the --------------;
and Describe TWO audit procedures which should be performed in order to form a conclusion on any
required amendment.
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Issue + Whether it is adjus ng or non-adjus ng event (Therefore it is an event which provides / Not
provides evidence of (------a condi on-----) at the year end and so this is an adjus ng/Non adjus ng
event.
Calculate materiality
Based on materiality consider whether an adjustment is needed (As a material Adjus ng/ Non
adjus ng event -------)