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Auditing Summary: Materiality
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Detailed easy to understand auditing summary regarding materiality. Includes theory, calculation, examples and past paper questions.
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1AUDITING SUMMARY
PART 3
TOPICS COVERED
1. MATERIALITY
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, 2
Materiality
Materiality at the planning and evaluating stage
Materiality in planning and performing the audit ISA 320
◦ Setting a materiality level to assist in the planning and performance of the
audit
◦ Misstatements or omissions that influence economic decisions is material
◦ Judgements on materiality must:
Consider the circumstances and the size and nature of the
misstatement
Consider the common financial information needs of users
◦ Evaluation of misstatements identified during the audit ISA 450
Nature of materiality
Subjective and relative
Not absolute
Both quantitative and qualitative
Materiality at the planning stage
Setting planning materiality levels
◦ Using planning materiality in a general way help to develop audit strategy
and the audit plan
Setting planning materiality
◦ Influence the nature, timing and extent of audit procedures
Planning of qualitative misstatement
◦ Inadequate or improper descriptions of accounting policies
◦ Litigation with the client
◦ Failure to disclose possible cancelation of a manufacturing licence
Quantifying planning materiality
◦ Use of benchmarks
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