Materiality
-ISA 320
-misstatements = material if they individually or In aggregate could be expected to influence users
economic decisions
-if statements include material misstatement, they won’t give a true and fair view of position,
performance and cash flows
-misstatement considered material due to size (quantitative) and/or nature (qualitative).
-materiality often calculated using bench marks RAP 0.5%-1%, 1%-2%, 5%-10%. However assessment
of materiality comes down to auditor’s professional judgment
-in assessing materiality auditor must consider number of small errors when aggregated can amount
to material misstatement.
Performance Materiality
-Since material misstatements are more common in aggregate, Auditor sets performance materiality
at a value lower than overall materiality using that as a threshold when planning and performing
audit procedures.
-Aim is reduce risk that total of errors in transactions, balances and disclosures > materiality
-Used for testing individual transactions, account balances and disclosures,
Auditors conduct audit in accordance with ISA X
-Auditor responsibility to obtain reasonable assurance that financial statements are free from
material misstatement
-identify and assess risk of misstatement due to fraud
-obtain sufficient and appropriate evidence
-Maintain professional skepticism