Peter, an audit senior at PTA Partners (PTA) is currently reviewing the materiality level for one of his clients, Summit Ltd (Summit).

In March 20X6, Summit decided to move from the BeaconA IT system to the BeaconB IT system. The expected completion date of the transition was June 2022. Due diligence was performed on the new system and another auditor (ATP) was engaged to perform data migration work. PTA liaised with ATP on several occasions to obtain access to their workpapers in order to obtain sufficient appropriate audit evidence around the data migration. No major issues were noted.

Ten well-regarded staff members of Summit were made redundant in April 2022, and as a result, staff morale is very low at Summit. Employees are wondering who will go next, and do not feel that their jobs are safe. Most of them are putting in extra hours, but despite this, the lack of motivation is seriously impacting the quality of their work. Some senior staff members have decided to search the current job market for another suitable position. It is now 9 July 2022 and the audit team is currently finalising its substantive testing and tests of controls. Peter becomes aware of the following events:

Description 1Summit’s finance manager abruptly resigned in June 2022, and no replacement has been found. 2Summit’s HR manager resigned in June 2022, and a replacement was found in July 2022. 3While performing a full reconciliation of data on BeaconA to data on BeaconB as at 30 June 2022, two material variances were discovered. Peter inquired with management who confirmed that these were errors that will be fixed. 4While finalising the controls testing of the unlisted investments, the audit team note an issue with one of the 40 samples selected for testing: Description of Issue: No purchase document on file for Dune Ltd which makes up 14% of the unlisted investments. Response by Summit: The purchase occurred on 29 June 2022, and most entities take a week to provide the associated documentation. We made an urgent request to Dune Ltd, obtained the purchase document, and sent them to the PTA office on 7 July 2022.

REQUIRED: Based on the above background, determine the impact of each event on the materiality amount (increase, decrease, no impact). Explain your answers

Answer rating: 100% (QA)

Answer To assess the impact of each event on the materiality amount we need to consider the significance of these events on the financial statements a... View the full answer