Question

While testing investments of Cosmic Creations Ltd for the year ended 30 June 2018, your audit assistant found the following monetary errors:

Recorded Amount ($)	Correct Value ($)	Difference ($)
135,000	139,323	4,323
76,800	86,700	9,900
59,290	95,920	36,630
24,683	26,483	1,800
147,000	182,220	35,220
141,706	147,106	5,400
Total		93,273

The recorded value of investments at 30 June 2018 is $2,500,000. The total sample size was 100 items, with a total dollar value of $900,000. Each of the errors is a result of a transposition error in recording the investment or when calculating the effect of discounts or accrued interest, or a failure to adjust for interest or discounts.

The audit assistant compared the total misstatement to the population total and concluded: ‘Given that the total error is less than 5 per cent of the balance, investments are not materially misstated.’

Indicate whether you agree with the audit assistant’s conclusion, justifying your opinion.

Answer 1

NO, the auditor should not agree with the audit assistant’s conclusion because:

The misstatements in total is less than 5% of the total balance is a wrong way of comparing & analysing for determining materiality.

The Misstatements are 10.36% of the sample of 100 investments tested.

If the Individual misstatements are at this level of %. The Aggregate level of misstatements will be very high % in total of the Investments balance.

So, the identified misstatements are material. And the Investments are materially misstated.