The following financial information was extracted from MCL’s current draft financial statements and those of the...

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Accounting

The following financial information was extracted from MCL’scurrent draft financial statements and those of the previousyear:?
2017 ($M)
2016 ($M)
2015 ($M)
Revenue
220
260
240
Total assets
260
280
250
Net Profit before tax
19
(3)
17
The car parts and accessories industry has been very competitiveand consumer demand appears to be slowing in anticipation of changewith electric and driverless cars coming into the market. Thecompany has recently restructured its operations to outsource itsNew Zealand manufacturing to a new factory in China from May2017.
Required:
a) Select an appropriate benchmark fordetermining the preliminary figure for materiality for MCL andbriefly explain your selection.
b) Identify three risk factors andbriefly explain why they will affectaudit planning. Include in your explanation how such risks affectpreliminary overall materiality. (7 marks

Answer & Explanation Solved by verified expert

4.1 Ratings (552 Votes)

a Materiality is the amount that makes difference to the users An audit never provides 100 assurance it only provides reasonable assurance Also Materiality is a matter of proffessional judgement So no single method or assumption is correct Materiality is decided initially in the planning stage but it is extended to further procedures also it is a continual procedure So Materiality is an importantt tool in auditing and also preparation of financial statements It is professional judgement which one needs to use his owm knowlwdge and assumption There are many common bases or benchmarks for See Answer

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Transcribed Image Text

The following financial information was extracted from MCL’scurrent draft financial statements and those of the previousyear:?2017 ($M)2016 ($M)2015 ($M)Revenue220260240Total assets260280250Net Profit before tax19(3)17The car parts and accessories industry has been very competitiveand consumer demand appears to be slowing in anticipation of changewith electric and driverless cars coming into the market. Thecompany has recently restructured its operations to outsource itsNew Zealand manufacturing to a new factory in China from May2017.Required:a) Select an appropriate benchmark fordetermining the preliminary figure for materiality for MCL andbriefly explain your selection.b) Identify three risk factors andbriefly explain why they will affectaudit planning. Include in your explanation how such risks affectpreliminary overall materiality. (7 marks