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The auditor of Sharp Co, a wholesaler, has set a materiality level for the audit of $15,000 at the planning stage. The planning memorandum directs the audit team to review the directors' loan accounts scrupulously even though the nominal ledger currently reveals that the sum total of these accounts is only $2,500 (debit). What is the principal justification for this careful scrutiny? A. Although the balances at present are well below the materiality limit in total, they might individually or in total exceed the materiality level at the year-end and any errors might then result in material misstatement of receivables or payables. B. None - this is a bad planning decision which directs the audit team to an immaterial audit area. C. The auditor is paying attention to IAS 24 Related party disclosuresto disclose the information required by the IAS in respect of transactions with directors where the directors fail to do so. D. The auditor is placing this emphasis purely for tax purposes because there are possible implications for income tax and distributions. |