Income Statement Assignment

Income Statement Assignment

One of the audit clients Airtel has presented the income statement below to the audit firm Earnest and Young where you work as an assistant auditor.

Airtel Income Statement for the year ended December 31, 2018                                   ZMK

Revenue                                                                                                                          1,392,000

Cost of goods sold                                                                                                              680,480

Gross profit                                                                                                                         711,520

Distribution Administration expenses                                                                                367,200

Profit from Operation                                                                                                         344,320

Other income

Gain on sale of equipment                                                                                                   56,000

Income before taxes                                                                                                           400,320

Income taxes                                                                                                                      118,400

Net income                                                                                                                         281,920

The audit partner has decided that 5% income before taxes benchmark is appropriate for overall materiality and tolerable misstatement has been estimated to be 60% of overall materiality.


a) Explain what overall materiality is and state some factors that the partner would have considered in deciding the 5 percent benchmark (5 marks)

b) Explain what tolerable misstatement is and state some factors that the partner would have considered in deciding the 60 percent benchmark.(5 marks)

c). Calculate the overall materiality, and tolerable misstatement. (2 marks)

d). During the course of the audit, the auditors discover that the revenue account has an invoice which was misstated by K8,200 explain the action that the auditors will take

e) Further, the auditors discover that in the distribution and Administration expenses account some invoices have been misstated by K17, 500.Explain the action that the auditors will take (3 marks)

f) Taking into account the two errors in (d) and (e) above, state the recommendations and explain the final decision that the auditor will make (7 marks) Get Finance homework help today

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