ACCY 305 You are nearing completion of the 31 December 2015 audit of ABC Wholesales Ltd.

You are nearing completion of the 31 December 2015 audit of ABC Wholesales Ltd. The figures below have been extracted from the final draft financial report.‘000Operating profit before income tax5 722Operating profit after income tax3 541Total revenue718 635Current assets253 881Non-current assets216 752Total assets470 633Current liabilities103 333Non-current liabilities132 760Total liabilities236 093Equity234 540During your review of the audit files, you note the following items recorded on the summary of audit differences.1. ABC Wholesalers has been involved in a long-running dispute with the taxation authorities in relation to the amount of sales tax payable on certain lines of merchandise. The case was resolved this year in favour of the taxation authorities. The court ruled that ABC wholesalers, as well as paying the outstanding taxes, must pay a non-tax-deductible fine of $420 000.2. Sales cut-off at one of the ABC Wholesaler’s stores was incorrect, resulting in a large sale of inventory made early in January 2015 being recorded in the 31 December 2014 year-end. The cost price of the inventory sold was $250 000. ABC Wholesalers marks up inventory by 40%.3. Purchases cut-off in the same store was incorrect, resulting in a large purchase of inventory made in late December not being recorded until January 2015. The invoice price of the inventory purchased was $5 950 000.You also note that the planning materiality level was set by the audit manager at $200 000.Required:(a) Consider items 1-3 independently. State whether the amounts involved would be considered material of the purpose of issuing an auditor’s report. Give reasons.(b) Explain the relevance, if any, of the planning materiality level to your decisions in (a).

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