MATERIALITY
Materiality
Factors
Affecting
Preliminary
Materiality Judgement (Arens, Elder,
Beasley, 2014)
Performance Materiality
The amount or amounts set by the auditor at
less than materiality for the FS as a whole to
reduce to an appropriately low level the
probability that the aggregate of uncorrected &
undetected misstatements exceeds materiality
for the FS as a whole.
If applicable, performance materiality also refers
to the amount or amounts set by the auditor at
less than the materiality level or levels for
particular classes of transactions, account
balances or disclosures.
How to Calculate
Materiality?
Percentage of revenue
Percentage of gross profit
Percetage of gross assets
Percentage of equity
Blended methods combining the above & finding
an average
Sliding scale methods which vary with the size of
the entity.
Quantitative Factors
Qualitative Factors:
a) nature of the item involved
b) impact of the item involved
2.
2.
Three Types of
Misstatements
Factual Misstatements
Judgemental Misstatements
Projected Misstatements
Anomalous Error
Reasonable Assurance
ISA 200 examines the concept of reasonable
assurance.
It is explained that it means a high, but not
absolute, level of assurance is being given.
Note:
The inherent limitations in an audit that affect the
auditors ability to detect material misstatement,
such as:
fraudulent
Revision of Materiality
When the auditor becomes aware of information
that would have caused the auditor to determine
a different level of materiality previously, the
auditor must revise materiality for the FS as a
whole.
Consider
the
audit
procedures
already
performed
Determine whether the nature, timing and
extent such as procedures still remains
appropriate.
Documentation
1.
2.
3.
4.
Material Misstatements
Material
(cont.)
Misstatements
Communication
Appropriate level of management on a timely
basis & consider the need to report the
misstatement.
TCWG in accordance with ISA 260.