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Correios De Portugal, S.A., Known as Ctt

Autor:   •  April 7, 2019  •  Case Study  •  3,130 Words (13 Pages)  •  1,584 Views

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Group Assignment

Auditing – T3

Professor: Gonçalo Rebelo da Silva & Mário Freire


Afonso Pessanha – 34444

João Ferreira da Silva – 34071

Matilde Lança – 34046

Rita Coimbra – 34453

Table of Contents

1.        Company Overview        3

2.        Materiality        3

2.1.        Performance Materiality        4

2.2.        Clearly Trivial Threshold        5


3.1.        Test of Controls        5

3.2.        Test of Details        7

4.        Revenues        8

4.1.        Test of Controls        8

4.2.        Test of Details        9

5.        Conclusion        10

6.        References        12

  1. Company Overview

Founded in 1520, CTT – Correios de Portugal, S.A., known as CTT, is the national postal service of Portugal. With almost 500 years of activity, the company is one of the most iconic brands in Portugal and it is recognized both nationally and internationally by the quality of its services.

The mission of the company is to remain a worldwide reference as a postal operator, defending commitment, professionalism and innovation. Moreover, the actual goals are to ensure the provision of universal postal services and to render postal services and financial services.

Despite the fact that the company’s core business is the courier delivery services, the company also has several other business areas like Banco CTT - whose main activity is to perform banking activities -, and Payshop - a platform for payments -, among others.

In addition, the company is listed in the Euronext Lisbon (PSI-20) and the consolidated and individual financial statements are prepared according to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

  1. Materiality

Misstatements are considered to be material if, individually or in the aggregate, they could influence the economic decisions of the users of financial statements. Since CTT is a listed company, which has a wide variety of investors, it is extremely important to determine the right amount of materiality. This analysis was based on a consideration of the common financial information needs of users as group and, therefore, any possible effect of misstatements on specific individual users (whose needs may vary) is not considered.

According to the ISA 320, the three steps to determine materiality are:

  1. Choice of an appropriate benchmark

For being listed in the Euronext Lisbon/PSI-20 (the main stock market index of Portugal) since 2013, we can affirm that the entity is in a clear mature stage. Moreover, since this is a profit-oriented company, the caption Earnings Before Taxes (EBT) presented in the Income Statement of the consolidated Group can be used as an appropriate benchmark since the indicator is valued by the users of the financial statements, mainly by the actual and potential investors.

  1. Determination of a level for the benchmark

The Earnings Before Taxes (EBT) in 2017 were 42.092.714 million euros. Since this caption is a net measure, the usual level to be chose is between 3% and 10%. Also, the level for the benchmark depends on the auditor’s judgment and on prior-periods’ financial statements. Taking this into consideration, as Earnings Before Taxes (EBT) have varied in recent years, a level of 5% can be seen as an appropriate choice for the benchmark level. As a consequence, an amount of 2.104.636 million euros (42.092.714*5%) has been chosen as materiality.

  1. Justifying the choices

Despite the reasons presented above for having chosen the Earnings Before Taxes (EBT) as a benchmark and 5% as the level for this benchmark, we also conducted a research in order to find similar companies in UK and Netherlands (countries where the materiality used by the auditors in each company is published). In this research, TNT Express was the most similar company to CTT. In fact, TNT Express is an international courier delivery services company with its headquarters in Hoofddorp, Netherlands, but they are also operating in Portugal. Based on this example, the PricewaterhouseCoopers’ auditors used 5% of the adjusted profit before tax as materiality.

  1. Performance Materiality

According to the same ISA the performance materiality (or working materiality) is the amount set by auditors at below overall materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. So, the higher the assessed risk, the lower is the percentage. In general, the percentages range from 75% (low risk) to 50% (high risk). Based on this, knowing that there were no errors in previous financial statements and, assuming that the company has an efficient control environment like in the recent years, we classify the company as a low risky business. Therefore, a level of 75% of the overall materiality has been chosen. Thus, the working materiality for CTT should be 1.578.477 million euros (2.104.636 *75%).

  1. Clearly Trivial Threshold

The clearly trivial threshold is the level below which misstatements are deemed to be trivial. Usually this number is between 3%-4% of the overall materiality. Since, the company is perceived as a low risky business, a level of 4% has been chosen. Therefore, the clearly trivial threshold for CTT is 84.185 million euros (2.104.636 *4%). This means that misstatements below this amount should be ignored if they are isolated and if it is not probable that it would be happen again.

  1. Cash & Cash Equivalents

Usually, the term cash & cash equivalents includes physical cash as well as cheques and other cash-equivalent documents. At CTT this rubric corresponds to the value of cash, sight deposits, term deposits and cash investments on the monetary market, net of bank overdrafts and equivalent short-term bank financing[1].


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