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QUESTION 4: Materiality Prior to an audit assignment, the auditor will assess the risk to which he will be exposed to from a professional and legal perspective since he has a duty to provide a sound audit opinion. The concept of "Materiality" is fundamental to an auditor's risk-perception of the client: Required: a. Explain the concept of "Materiality" from an auditor' perspective: b. Turner Auditors are appointed as the auditors to Dexter Limited, a large timber products manufacturer in the UAE. During the course of the audit, the audit manager of the audit team discovers two issues that are materiality misstated in the accounts. You are required to advise the management on the accounting treatment of both items: 1- The Accounts receivable are overstated as a customer of Dexter is no longer in business and owes the company AED 10 million due to liquidation. 2- The lease agreement on a long-term finance lease related to a storage building that Dexter has acquired for its business needs is currently not on the balance sheet of the company. The lease is being treated as an operation lease. The lease agreement is for 10 years at a cost of AED 12 million. Advise the management of Dexter the correct treatment of the leases according to IAS 17 - leases, prepare the appropnate adjusting entry to record the lease as finance (capital) lease, and additional adjusting entry to record the related depreciation assuming a 10 year life, straight line depreciation, and no salvage value. C. The auditor is concerned that management has not given importance to the material misstatements in the financial reports. If management fails to act on the correct treatment of the issues in (ii) above, explain the alternate audit report that the auditor may be forced to issue to Dexter Limited assuming the misstatement are material to the financial statements