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Philippine Standards On Auditing Focus Notes

The document discusses the auditor's responsibilities regarding materiality in planning and performing an audit of financial statements. It defines materiality as misstatements that could reasonably influence users' economic decisions. The auditor determines materiality levels to plan the nature, timing and extent of audit procedures. Materiality is revised as needed during the audit based on new information, and documentation includes the materiality amounts and factors considered.

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59 views2 pages

Philippine Standards On Auditing Focus Notes

The document discusses the auditor's responsibilities regarding materiality in planning and performing an audit of financial statements. It defines materiality as misstatements that could reasonably influence users' economic decisions. The auditor determines materiality levels to plan the nature, timing and extent of audit procedures. Materiality is revised as needed during the audit based on new information, and documentation includes the materiality amounts and factors considered.

Uploaded by

Isabela Ceniza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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PSA 320 Focus Notes

Scope

 auditor’s responsibility to apply the concept of materiality in planning and performing an audit
of financial statements

Materiality in the Context of an Audit

 Explanations for materiality


o Misstatements, including omissions, are considered to be material if they, individually or
in the aggregate, could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements
o Judgments about materiality are made in light of surrounding circumstances, and are
affected by the size or nature of a misstatement, or a combination of both
o Judgments about matters that are material to users of the financial statements are
based on a consideration of the common financial information needs of users as a
group. The possible effect of misstatements on specific individual users, whose needs
may vary widely, is not considered
 Auditor’s assumptions
(auditor’s determination of materiality is a matter of professional judgment, and is affected by
the auditor’s perception of the financial information needs of users of the financial statements):
o Have a reasonable knowledge of business and economic activities and accounting and a
willingness to study the information in the financial statements with reasonable
diligence
o Understand that financial statements are prepared, presented and audited to levels of
materiality
o Recognize the uncertainties inherent in the measurement of amounts based on the use
of estimates, judgment and the consideration of future events
o Make reasonable economic decisions on the basis of the information in the financial
statements
 Concept of Materiality
o applied by the auditor both in planning and performing the audit, and in evaluating the
effect of identified misstatements on the audit and of uncorrected misstatements, if
any, on the financial statements and in forming the opinion in the auditor’s report.
 Auditor’s Judgments
(about the size of misstatements that will be considered material) provides a basis for:
o Determining the nature, timing and extent of risk assessment procedures
o Identifying and assessing the risks of material misstatement
o Determining the nature, timing and extent of further audit procedures

Determining Materiality and Performance Materiality when Planning the Audit


 In establishing the overall audit strategy
o determine materiality for the FS as a whole or
o determine the materiality level or levels to be applied to those particular assertions if
there are one or more assertions for which misstatements of lesser amounts than
materiality for the FS as a whole could reasonably be expected to influence the
economic decisions of users
 Purposes of determining performance materiality for purposes of:
o assessing the risks of material misstatement; and
o determining the nature, timing and extent of further audit procedures

Revision as the Audit Progresses (auditor shall):

 revise materiality for the financial statements as a whole (and, if applicable, the materiality level
or levels for particular classes of transactions, account balances or disclosures) in the event of
becoming aware of information during the audit that would have caused the auditor to have
determined a different amount (or amounts) initially
 determine whether it is necessary to revise performance materiality, and whether the nature,
timing and extent of the further audit procedures remain appropriate if the auditor concludes
that a lower materiality for the financial statements as a whole (and, if applicable, materiality
level or levels for particular classes of transactions, account balances or disclosures) than that
initially determined is appropriate

Documentation (audit documentation shall include the following amounts and the factors considered
in their determination):

 Materiality for the financial statements as a whole


 If applicable, the materiality level or levels for particular classes of transactions, account
balances or disclosures
 Performance materiality
 Any revision of (a)-(c) as the audit progressed

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