One of the audit clients Airtel has presented the incomestatement below to the audit firm Earnest and Young where you workas an assistant auditor.
Airtel Income Statement for the year ended December 31,2018Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â ZMK
Revenue                                                                                                                         1,392,000
Cost of goodssold                                                                                                             680,480
Grossprofit                                                                                                                        711,520
Distribution Administrationexpenses                                                                               367,200
Profit fromOperation                                                                                                        344,320
Other income
Gain on sale ofequipment                                                                                                  56,000
Income beforetaxes                                                                                                          400,320
Incometaxes                                                                                                                     118,400
Netincome                                                                                                                        281,920
The audit partner has decided that 5% income before taxesbenchmark is appropriate for overall materiality and tolerablemisstatement has been estimated to be 60% of overallmateriality.
Required
a) Explain what overall materiality is and statesome factors that the partner would have considered in deciding the5 percent benchmark
b) Explain what tolerable misstatement is and statesome factors that the partner would have considered in deciding the60 percent benchmark.
c). Calculate the overall materiality, and tolerablemisstatement.
d). During the course of the audit, the auditorsdiscover that the revenue account has an invoice which wasmisstated by K8,200 explain the action that the auditors willtake
e) Further, the auditors discover that in thedistribution and Administration expenses account some invoices havebeen misstated by K17, 500.Explain the action that the auditorswill take
f) Taking into account the two errors in (d) and (e)above, state the recommendations and explain the final decisionthat the auditor will make
