Calculate the range of quantitative materiality for zanex

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Reference no: EM132323492

Assignment

QN1. In 20X8 Zanex ltd produce toothpaste and other oral hygiene products, In the year ending 30 June 20X8. It recorded total revenue of $50 million and generated a new profit of $25 million for the year. No major audit issues were raised by the auditor during the completed audit reporting package which approved by the engagement partner and finalized on 17 August 20X8.

However when the auditors returned to Zanex ltd on 5 October 20X8, they were informed of the following events.

i. On 24 August 20X8, there was a flood in the storeroom of the Adelaide operations which caused significant damage to the finished good inventory. The damage is estimated to be approximately $9000000 maximum whilst there is an insurance policy which covers such incidents.

The director believes that the finished goods inventory is only partially covered by the insurance policy.

ii. On 30 August 20X8 an estimated fraud incident of $2600000 was discovered by the assistant accountant. The account payable officer was inappropriately the company's fund by processing payment to fictitious supplier over at least the last six months.

The Account payable officer was terminated and legal action is being taken to recover the misappropriated funds.

iii. On 2 September 20X8, Zanex ltd finalized the termed of an agreement, to direct part of its business to a foreign multinational company for $35 million. Whilst the director of the company are very optimistic about the business decision. It still requires approval.

Required:

a. Assuming materiality has been calculated with total revenue as the approximate base. Calculate the range of quantitative materiality for Zanex ltd.

b. What is the relative advantage of using total revenue as the base?

c. For each of the above events (i) to (v), state the appropriate action (A) to (D) that the auditor would require in order to issue an unqualified opinion for the situation and justify your response. The alternative actions are as follows:

(A) Client to adjust the 30 june 20X8, financial report.

(B) Client to disclose the information in the notes to the 30 June 20X8

(D) No action is required. The subsequent event is immateial

Reference no: EM132323492

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