Basic Auditing Concepts

Materiality Audit Risk Risk Evidence

Materiality
Professional

judgment as to whether an error, omission or misstatement in the records would change or influence the reliance placed on those records.

Materiality SAS 220

Consider

MATERIALITY and its relationship to risk.

Materiality SAS 220

Consider

MATERIALITY when determining the nature, timing and extent of audit procedures.

Materiality SAS 220

Assess

the MATERIALITY of aggregate unconnected misstatements in the financial statements.

Materiality

Presentation of accounting information may cause MATERIALITY alert.

Example:

Assets and Liabilities netted off.

Materiality Audit approach

Aggregate

known misstatements to recommend adjustments.

Materiality Audit approach

Project

misstatements detected in substantive tests.

Materiality Audit approach

Assess

overall risk so that audit tests can be expanded or changed to detect and correct misstatements.

Materiality Audit approach

Determine

if opinion should be qualified based on assessed risk.

Predetermined Materiality Level

Enables

auditors to restrict the scope of audit work and to make most efficient use of time and staff by avoiding unnecessary testing of immaterial items.

Predetermined Materiality Level

Drawback:

Too high or too low materiality level if actual result is different.

Requirement ?

Materiality :

Procedure:
In a bank expense bills are received in the mail section. The mail section sends the bills to the treasurer who will arrange payment promptly.