Risk and Materiality-Handout

Auditing and Assurance Services

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Auditee risk Assess the risk of material misstatement due to error or fraud.
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Fundamental Concepts - Materiality What is materiality? “The magnitude of an omission or misstatement of  accounting information that, in the light of surrounding  circumstances, makes it probable that the judgment of a  reasonable person relying on the information would  have been changed or influenced by the omission    or  misstatement.” – SFAC2
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Fundamental Concepts - Materiality What does materiality mean in an audit setting? The maximum amount the auditor believes the financial statements could be misstated and still NOT affect the decisions of reasonable users
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Fundam e ntal C o nc e pts  - Mate riality How is materiality used? Assessing risk of material misstatement Planning the scope of the audit Nature, Timing & Extent of procedures Evaluating audit findings Evaluating overall financial statement presentation
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S e tting  Mate riality fo r Financ ial  S tate m e nts  as  a Who le Size & complexity of company Likely users of f/s and the decision making context Results of prior year audit Auditor’s liability
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