Homework Class 3 Materiality

For this homework, I decided to analyze Sporting Clube de Portugal. Since it is a

football club, the reporting dates are different, as the fiscal year is determined
by the football calendar. Consequently, clubs release their yearly reports by
June. The report analyzed refers to the 2013/2014 period.
As we learned in class, there are several methods/procedures to determine the
level of materiality. Ultimately it depends on a professional judgement along
with some factors such as the existence of internal controls and the years of
the relation between the club and the audit firm. Hence, it is important to
mention that the club has several internal controls and that the audit firm has
been with the club for several years. Thus, there is a reasonable room to
increase the level of materiality.
In my nave opinion, Football clubs, besides the achieved results, are judged on
their ability to balance the spending in new players and the gains in
sponsorship, merchandising, tickets, etc. Thus, I decided to use a % of the
pretax income, considering the operational results (accounting for player
transactions).
In 2014, this result was 4.263.000. Defining a materiality level of 5%, I got a
value of 213.150.
I recognize that this value might be distorted as the criteria level might not be
the most appropriate one. Furthermore, as it is stated in the report, in 2013
there was a loss of 36.678.000. Consequently, this benchmark account might
not be the best one.
If we consider that the best benchmark account is a % of total assets (which
can make sense, as the club is truly as valuable as its fixed intangible assets
the players), using a value of 121.675.000 and a 1% level, we reach a value of
1.216.750. This is a considerable higher value, which indicates that
materiality can differ a lot, depending on the professional judgement of the
auditor.

Source:
http://www.sporting.pt/incscp/pdf/investor_relations/ir_relatoriocontas20132014
aprovadoAG1Out14.pdf