Reliable Auto Insurance Case Study Help
Risk of material misstatement:
As a result of recalculating the premium earned and performing audit procedures on a population size of 29, it was evaluated that the organization had misstated the premium. As per IFRS 17, Insurance contracts and IFRS 15, Revenue from Contracts, the revenue shall be recorded when it is earned i.e. when the performance obligation is fulfilled. However, the premium earned by the management was incorrectly calculated and despite difference in vehicle size and auto monthly rates, the premium recorded for each offer was same for instance, the premium recorded under offer 3 amounted to 575 US dollars despite different variations in the monthly auto premium rates and vehicle size.
It is concluded that the management had recorded the premium earned incorrectly and the revenue figures shown in the financial appears to be misstated by 5283 U.S. dollars which is considered to immaterial as the total errors represents 0.106 percent of the revenue. In addition, a performance materiality level of 0.5 percent has been set considering,, the level of performance materiality should be below the overall materiality threshold of financial statements. As errors representing 1 to 2 percent of revenue appears to be significantly material, the performance materiality level is set below 1 percent.
However, the tests and procedures have been performed on a population size of 30 samples which is significantly low as compared to the risk of misstatement the organization is exposed to and it is evaluated when the population size will be increased the total sum of the errors will represent a significant portion of revenue and might exceed the materiality threshold of 2 percentof revenue, 5 percent of profit before tax and 1-2 percent of total assets. (Shown in Appendix 2)
Conclusion:
It is concluded that the premium recorded by the management of the Reliable Auto Insurance was overstated significantly as the risk of material misstatement exceeded the materiality threshold.. Furthermore, the premium earned was falsely stated, as it was evaluated through the audit procedures that various entries were recorded twice and the premium earned was wrongly calculated considering, the premium earned for the population size of first 30 customers was immaterial overstated by 600 dollars.
It was further concluded that the sample size on which the audit tests were performed was less as compared to the total size of the transaction recorded was 29147 therefore, the total errors will increase the materially threshold if the sample size is increased. This indicates that the financial statements of the organization does not show a true and fair view................................
This is just a sample partical work. Please place the order on the website to get your own originally done case solution.
