Question 3 a) ISA 320 Materiality in Planning and Performing an Audit deals with the auditor's responsibility to apply the concept of materiality in planning and performing an audit of financial statements. Required Define materiality and explain how 'overall materiality' is determined. (2 marks) b) ISA 300 Planning an Audit of Financial Statements indicates that adequate planning benefits the audit of financial statements in several ways. Required State TWO benefits of adequate planning of the audit. (2 marks) c) You are the audit senior on Nova Ltd, a distributor of disposable medical supplies. Nova has been an audit client for three years. During the current year, one of the warehouses was undergoing repairs when a water pipe broke and flooded the warehouse, damaging a significant amount of stock. The stock was not insured. To undertake the warehouse repairs the company took out a material loan, with covenants requiring the company to maintain a positive working capital and current ratio of 3:1. With the high demand for medical supplies worldwide, Nova's major suppliers have increased prices while based on your risk assessment analytical procedure, cost of sales have declined over prior year. Required (i) From the information provided describe FOUR audit risks you should consider as you plan the audit of Nova Ltd. (4 marks) (ii) As the audit senior, describe the appropriate responses to each risk identified in (i) as you plan the audit of Nova Ltd. (4 marks)