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Focus Notes-Audit Materiality

This document discusses the concept of materiality in auditing. Materiality refers to information that could influence economic decisions of financial statement users if omitted or misstated. The auditor must establish a materiality level to detect quantitatively material misstatements and consider materiality at the overall financial statement level and for specific accounts and disclosures. There is an inverse relationship between materiality and audit risk - the auditor uses materiality to select procedures that reduce audit risk to an acceptable level. Materiality and audit risk may need to be reassessed if actual results differ substantially from expectations.

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Rhea Calooy
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116 views

Focus Notes-Audit Materiality

This document discusses the concept of materiality in auditing. Materiality refers to information that could influence economic decisions of financial statement users if omitted or misstated. The auditor must establish a materiality level to detect quantitatively material misstatements and consider materiality at the overall financial statement level and for specific accounts and disclosures. There is an inverse relationship between materiality and audit risk - the auditor uses materiality to select procedures that reduce audit risk to an acceptable level. Materiality and audit risk may need to be reassessed if actual results differ substantially from expectations.

Uploaded by

Rhea Calooy
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Calooy, Rhea Noemi

BSA3

TTh9:00-12:00

March 5, 2012

PSA 320:AUDIT MATERIALITY

INTRODUCTION Materiality Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. depends on the size of the item or error judged in the particular circumstances of its omission or misstatement provides a threshold or cut-off point which information must have if it is to be useful

MATERIALITY EVALUATING THE EFFECT OF assessment of what is material is a matter of MISSTATEMENT professional Judgment If the auditor concludes that the The auditor must: aggregate uncorrected misstatements - establish an acceptable materiality level may be material the auditor needs to so as to detect quantitatively material consider reducing audit risk by extending PSA 320: misstatements audit procedures or requesting - consider the possibility of misstatements AUDIT MATERIALITY management to adjust the financial of relatively small amounts statements. In any event, management - consider materiality at both the overall may want to adjust the financial financial statement level and in account statements for the misstatements balances, classes of transactions and identified. disclosures. THE RELATIONSHIP OF MATERIALITY AND AUDIT RISK inverse relationship The auditor's assessment of materiality enables the auditor to select audit procedures that, in Combination, can be expected to reduce audit risk to an acceptably low level. Materiality and Audit Risk in Evaluating Audit Evidence If actual results of operations and financial position are substantially different, the assessment of materiality and audit risk may also change.

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