Page 94 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
(CNO-SA315-ICS.040) Risks Because Of IT Systems
(First Comes IT Personnel)
• The possibility of IT personnel gaining access privileges beyond those necessary
(Then comes Data)
• Unauthorised access to data that may result in destruction/Loss of data or improper changes to data, including
the recording of unauthorised or non-existent transactions, or inaccurate recording of transactions.
(Then happened processing)
• Manual Intervention / Inaccurate Processing / Processing Inaccurate Data
(If required Changes)
• Failure to make necessary changes to systems or programs.(Boss shifted to Office 365, Rest of the office on
Office 2007)
• Unauthorised changes to systems or programs.
• Unauthorised changes to data in master files.

SA 320

MATERIALITY IN PLANNING AND PERFORMING AN AUDIT

(CNO-SA320.020) Benchmarking
• It is a method of computing materiality.
• Materiality Level= Benchmark (Base) x Percentage
• Determining materiality involves the exercise of professional judgment. A percentage is often applied to a
chosen benchmark as a starting point in determining materiality for the financial statements as a whole.
Following Steps are involved:
Step 1 : Decide Benchmark
Factors affecting identification of benchmark: (Shortcut :- Item in OVEN)
• I - Attention of User of FST on Items of FST
• O - Ownership Structure, Financial Structure
• V - Relative Volatility of benchmark
• E - Elements of Financial statements
• N -Nature of Entity, Economic Environment, Industry, Life Cycle
Examples of benchmarks:
• Categories of reported income such as profit before tax, total revenue, gross profit and total expenses, total
equity or net asset value.
Note: Profit before tax from continuing operations is often used for profit-oriented entities.
• When profit before tax from continuing operations is volatile, other benchmarks may be more appropriate,
such as gross profit or total revenues.
Step 2: Normalization
Financial Data for Benchmarking comes from:
• Prior period FST & positions
• Budget, forecast of current period
Adjusted for:
• Chg. in Economic Environment
• Chg. In Industry
• Chg. In Circumstances
And further changes for:
• Exceptional Items

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