Intellicence Consulting Limited
Preparation for audit of the year ended 31 December 2022
Determine materiality
Objective
To determine materiality in preparation for the audit of financial statements for the year ended
31 December 2022. We have made use of ISA 320 as a guide even though this exercise is not
meant for an ISA audit.
Intellicence Consulting Limited
Final audit for the year ended 31 December 2020
Determine materiality
Objective
In accordance ISA 320.A3, the auditor is required to select an appropriate benchmark by considering the following:
1. The elements of the financial statements (for example, assets, liabilities, equity, revenue, expenses);
2. Whether there are items on which the attention of the users of the particular entity’s financial statements tends to be fo
evaluating financial performance users may tend to focus on profit, revenue or net assets);
3. The nature of the entity, where the entity is in its life cycle, and the industry and economic environment in which the en
4. The entity’s ownership structure and the way it is financed (for example, if an entity is financed solely by debt rather tha
emphasis on assets, and claims on them, than on the entity’s earnings); and
5.The relative volatility of the benchmark.
Conclusion
We have concluded on selecting revenue as the appropriate benchmark, see documentation below
1. Evaluation of primary users
These are the most important users of the Company's financial statements as the C
Shareholders
The Company does not have any borrowings and do not currently have plans to sec
future, hence, these set of users are not a primary focus of the entity's financial sta
Lenders
The Company currently has short-term debts owed to her creditors and also a N15
We believe that the Company's creditors are important users of the financial statem
given the amount owed by Intellicence to her sister company.
Creditors (short-term finance
Intellicence Consulting Ltd is a start-up and still in its early stages of existence, ther
grows, there will be need for funds to fund innovative ideas, hence, we have identi
equity) as FS users that are relevant to Intellicence Consulting Limited.
Potential investors (debt and equity)
2. Selection of benchmark
Revenue Based on our understanding of the entity from both prior year and current year, in
observed that the shareholders incessantly pay close attention to the Company's re
on the profit earned. More so, we believe that potential investors would most likel
revenue genrating ability than any other FS element especially considering that it's
term creditors may be interested in working capital stability, we also believe that re
creditors will be looking at in conjunction to working capital.
Gross profit The shareholders and other relevant users identified do not mostly deliberate on th
we gross profit is less applicable compared to revenue. This is most likely due to th
and gross profit margin are fairly stable, hence, the users concentrate on evaluatin
topline.
Total assets This is less evaluated by the users. Especially because the Company is not financed
not identified this as a relevant benchmark for Intellicence Consulting limited.
Net assets As a start-up company, less attention is on this line item. This is also as a result of th
financed. Therefore, we have evaluated this element of financial statements as not
determining materiality for Intellicence Consulting Limited.
Total expenses Total expenses is not regarded as a pivotal line item when compared to revenue.
Profit before tax (PBT) We believe that PBT is a key line item for any business and shareholders will regula
sidering the following:
expenses);
ncial statements tends to be focused (for example, for the purpose of
environment in which the entity operates;
nced solely by debt rather than equity, users may put more
below
s financial statements as the Company is wholly financed by equity.
not currently have plans to secure any long term debt in the nearest
cus of the entity's financial statements.
o her creditors and also a N153m debt owed to it's sister company.
nt users of the financial statements especially her sister company
ompany.
early stages of existence, therefore, we believe that as the Company
e ideas, hence, we have identified potential investors (both debt and
onsulting Limited.
prior year and current year, including review of Board meetings, we
attention to the Company's revenue generation with less emphasis
tial investors would most likely emphasis more on the Company's
especially considering that it's a start-up Company. Although, short-
tability, we also believe that revenue is part of the items that
capital.
do not mostly deliberate on the Company's gross profit level, hence,
e. This is most likely due to the fact that the Company is a start-up
sers concentrate on evaluating how the Company is growing its
the Company is not financed by long-term debt. Therefore, we have
cence Consulting limited.
em. This is also as a result of the fact that the Company is not debt-
of financial statements as not being relevent for the purpose of
mited.
when compared to revenue.
s and shareholders will regularly pay close attention to this metrics,
Intellicence Consulting Limited
Final audit for the year ended 31 December 2020
Determine materiality
Objective
The objective here is to determine materiality in accordance with ISA 320.
Selected benchmark Revenue <See assessment in Tab 2>
Input factor 1.25% A
Revenue 156,678,675.34 B
Materiality 1,958,483.44 <computed>
% for PM 90% C
Performance materiality 1,762,635.10 <computed>
Clearly Trivial Threshold (CTT) 97,924.17 <computed>
Selected benchmark Input factor range
Revenue 0.5% - 2%
Total assets 1% - 2%
Gross profit 1% - 2%
Total equity/Net assets 2% - 5%
Profit before tax 5% - 10%
Tickmark Explanation
A
<We have selected the higher end of the range of 0.5%-2% because based on our evaluation of
the entity's control environment, we did not identify any issues. The engagement risk was also
assessed as being low, hence, the selection of the higher end.
B Figure obtained from the client's trial balance.
C We have used 90% because the Company has a strong control environment and few audit
adjustments from prior audit.
