You are the audit partner working on the audit of Adventure Travel Ltd (ATL) for the 2018 financial year, and you are reviewing the audit papers prepared by your audit team. The net profit after tax of ATL for the year ended 30 June 2018 is $8 693 431, while net assets total $120 942 149. The audit team has noted the following three items of interest:

Item 1: During testing of the credit limits for ATL’s wholesale customers, the IT application system failed to reject the processing of sales to several wholesale travel agents who had exceeded their individual credit limits. Your audit procedures reveal that the IT application system processed sales in excess of customer credit limits by $69 475.

Item 2: Due to the IT system being down during a rare blackout in Adelaide, all invoices for travel packages sold to ATL’s wholesale travel agents on 15 and 16 April had to be manually prepared. A number of the manual invoices from this period omitted some packages that were sold to the travel agents. Based on your audit procedures, the projected misstatement based on a sample of invoices is $23 184.

Item 3: A review of the training and development expense account balance has revealed that some of the key executive team have been claiming reimbursement for courses including beginners’ French cooking and advanced yoga. ATL has paid all invoices and all invoices were dated within the year ended 30 June 2018. Based on your audit procedures, the projected misstatement is $3975.

Required: Explain which item(s) you should report to management as material misstatements and which you would identify as being clearly trivial.

Answer rating: 100% (QA)

Answers Material misstatement is a judgment wherein there is an omission or misstatement of information that could influence the economic decision of ... View the full answer