Materiality new.pptx - Audit Materiality The phrase \u201creasonable assurance\u201d in the audit report indicates that there is some audit risk Scope

Materiality new.pptx - Audit Materiality The phrase...

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Audit Materiality
Scope paragraph: We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement... The phrase “reasonable assurance” in the audit report indicates that there is some audit risk.
What is materiality? Note the reference to materiality in the audit report .
Materiality is the magnitude of omitted or misstated information that,in the light of surrounding circumstances, would change or influence the decision of someone relying on the financial statements who has a reasonable knowledge of business and economic activities. What is materiality?
For each engagement, auditors typically establish a preliminary judgment about materiality . ?
For each engagement, auditors typically establish a preliminary judgment about materiality . The preliminary judgment about materiality is the maximum amount by which the auditor be- lieves the statements could be misstated and still not affect the decisions of reasonable users.
For each engagement, auditors typically establish a preliminary judgment about materiality . - may be based on a firm-wide formula considering net income, gross profit, total assets, revenue, shareholders’ equity, e.g., 10% of net income adjusted according to auditor judgment
How does the preliminary judgment about materiality affect the volume of audit evidence?
A small materiality estimate will result in more evidence. A large materiality estimate will result in less evidence. How does the preliminary judgment about materiality affect the volume of audit evidence? “Investigate mis- statements over $100.” “Investigate misstate- ments over $10,000.”
- materiality is strongly influenced by client size $1,000 - WOW !

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