XYZ Ltd.‟s total turnover for the Finance Year 200X is Rs. 100 lacs and it includes Rs. 1.50 lacs of By-Product sales. Whereas, the by-product sales are included under the miscellaneous income of the financial statements and is not separately disclosed in the income head.

Auditing and Assurance Revision Questions and Answers

Answer
Materiality items as relatively important and relevant items, i.e. “items the knowledge of which would the decisions of the users of the financial statements”. Materiality is a relative term and what may be material in one circumstance may not be material in another. The decision to judge the materiality of the item whether the aggregation of items, presentation and classification of items shall depend upon the judgement of prepares of the account on the circumstances of the particular case.

In this case, income from sale of by-product shall be disclosed separately in the revenue item as the income from by-product is considered material items since it is more than one percent of total turnover of the company. Similarly, the auditor has to ensure that a material item is disclosed separately and distinctly or at least clear information about the item is available in the accounting statements. In this case, he is

required to make qualification in his audit report, as the income from by-product is material in giving or distorting a true and fair view of financial statements.



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