Required: (a) Explain why determination of materiality is a matter of auditor judgment. Refer to both qualitative and quantitative materiality assessments (b) Explain whether (and, if so, how) the information provided impacts on the auditor's assessment of preliminary materiality
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
One of the clients of MMM Chartered Accountants operates a restaurant. From January of
the current year, the business has consistently paid its suppliers late, well in excess of the
suppliers' normal credit terms. This has resulted in some suppliers requesting cash on delivery
from the business. The auditor has reviewed the correspondence between the business and
its bank and finds that the business has been experiencing cash flow problems for two years.
Required:
(a) Explain why determination of materiality is a matter of auditor judgment. Refer to
both qualitative and quantitative materiality assessments
(b) Explain whether (and, if so, how) the information provided impacts on the auditor's
assessment of preliminary materiality
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