Steylie Ltd. is a publicly listed company manufacturing tools for mining industries around the globe.
Steylie Ltd. has one major shareholder who controls its board of directors. The following financial information was extracted from its 30 June 2023 forecast, updated on October 2022 for actual year- to-date results.

ACCOUNTS/AMOUNTS ($M) FORECAST
30 JUNE 2023
ACTUAL
30 JUNE 2022
NET ASSETS 572 550
PROFIT BEFORE TAX 121 101
REVENUE 860 630
TOTAL ASSETS 700 650

You are responsible to audit the accounts receivable of Steylie Ltd. for the year ended 30 June 2023. Steylie Ltd.’s accounts receivable balance was recorded at $4,000,000 and comprised more than 15,000 customer accounts. However, Steylie Ltd.’s five largest customer balances comprised a high percentage of the recorded accounts receivable (more than $800,000, or 20%). You are responsible for deciding the best sampling technique. Based on prior audits and your experience, you have established the following parameters:

Risk of incorrect acceptance 5%
Tolerable error $200,000
Expected error $50,000
Required:

1. Calculate materiality thresholds set individually and in aggregate. (2 marks)
2. Explain the judgments you made in calculating the materiality threshold (2 marks)
3. Elect one particular sampling method and use that approach to calculate the necessary sample size. (1 mark)
4. Explain the judgments you made in calculating the sample size (1 mark)
5. Critically evaluate the audit risks in the materiality thresholds and the sampling size.

Answer rating: 100% (QA)

1 The individual materiality thresholds are calculated as follows Net assets 572 million x 5 286 mil... View the full answer