James is the audit manager responsible for the audit of Adam Food plc. The draft consolidated...

 

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James is the audit manager responsible for the audit of Adam Food plc. The draft consolidated financial statements for the year ended 31 March 2020 show revenue of £ 4.22 million (2019 £4.18 million), profit before tax of £ 0.18 million (2019 £ 0.22 million) and total assets of £ 3.07 million (2019 £ 2.34 million). In March 2020, the management board announced plans to cease offering "Party & Gathering Direct Food Supply" services from the end of the month. These sales amounted to £60,000 for the year 31 March 2020 (2019 £ 80,000). A provision of £20,000 has been made at 31 March 2020 for the maintenance of the company's supply chains, which are exposed to the epidemic situation in recent years. Requirements: a) Explain what criteria can be appropriately used in this case to evaluate the materiality of the "Party & Gathering Direct Food Supply" services. b) Analyze and determine how the discontinued business affects the auditor's judgement on materiality. c) Explain what criteria can be appropriately used in this case to evaluate the materiality of the provision for supply chain maintenance. d) Analyze and determine how the provision affects the auditor's judgement on materiality. James is the audit manager responsible for the audit of Adam Food plc. The draft consolidated financial statements for the year ended 31 March 2020 show revenue of £ 4.22 million (2019 £4.18 million), profit before tax of £ 0.18 million (2019 £ 0.22 million) and total assets of £ 3.07 million (2019 £ 2.34 million). In March 2020, the management board announced plans to cease offering "Party & Gathering Direct Food Supply" services from the end of the month. These sales amounted to £60,000 for the year 31 March 2020 (2019 £ 80,000). A provision of £20,000 has been made at 31 March 2020 for the maintenance of the company's supply chains, which are exposed to the epidemic situation in recent years. Requirements: a) Explain what criteria can be appropriately used in this case to evaluate the materiality of the "Party & Gathering Direct Food Supply" services. b) Analyze and determine how the discontinued business affects the auditor's judgement on materiality. c) Explain what criteria can be appropriately used in this case to evaluate the materiality of the provision for supply chain maintenance. d) Analyze and determine how the provision affects the auditor's judgement on materiality.

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