GMB is auditing one of the clients which manufacture domestic electrical appliances. 0.5 % of total revenue has been set as the benchmark of materiality, while performance materiality has been set at a percentage , between, 50% of materiality in relatively high risk situations such as for complex financial instruments that are included in net assets and, 90% in lower risk situations such as revenue and expenses.

The following figures have been extracted from the draft financial statements of the client together with respective audit verified figures.

Item	Value in Client Financial statement	Audit Verified Value
Total Revenue	$1,010m	$950m
Profit Before Tax	$150m	$160M
Net Assets	$1,500M	$1,250M

Due to Covid 19 several credit customers have failed to settle their balances resulting in the increases in provisions for doubt debts compared to last year, the increase in doubt debts accounted for K15m of expenses in the current year. A related provision for the write-down of inventory of K8m has been made in the current period.

Required.

a) Explain the decision that the auditor is likely to reach in respect of revenue profit and net assets and on the overall financial statement .clearly explain the factors that the auditor will take in to account to come up with the decision

b) Explain the factors you will take into account when considering the effect that provision for doubtful debts and the write-down of inventory will have on the audit reports.

Answer rating: 100% (QA)

athe decision that the auditor is likely to reach in respect of revenue profit and net assets and on ... View the full answer