Case Study 2:
You are reviewing your audit assistant’s work for Orange Pty Ltd for the year ended 30 June 2015, and note the
(1) Your audit assistant undertook a test of controls for 50 sales transactions. This test resulted in three
errors. When planning the test, a tolerable error of 5 per cent had been established. The audit assistant’s
working papers noted that none of the errors found were materials, either individually or in aggregate,
and she therefore concluded that the controls were reliable.
(2) Your audit assistant’s working papers on the accounts payable testing contain the following notes and
a) In order to test accounts payable, I selected all balances over $100,000 and vouched these to
supporting invoices. The sample selected comprised $2,565,650 of total accounts payable of
$5,168,000. One invoice for $102,500 had been incorrectly recorded on the accounts payable listing,
as the goods were not actually received until after year end.
b) Given the error relates to only 4% of accounts payable tested, which would be a total error of
$206,702 of the overall accounts payable balance, it is not material as this is less than the materiality
level set for this audit and, therefore, no further work has been performed. I am satisfied that the
accounts payable balance of Orange is fairly stated.
Comment on the appropriateness of your audit assistant’s conclusions in each of the above situations.
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