A7 Materiality

Question 1

Materiality

Answer 1

Refers to the significance of an item or error that would affect the decision making of a user. Determining materiality revolves around quantitative and qualitative measures & is often a percentage of a FS benchmark (total assets, Net Income/Revenue).

Question 2

Material DIsclosures

Answer 2

Materiality also applies to information in disclosures which can be material if omission or misstatement would influence decisions of users.

Question 3

Planning Stage

Answer 3

This stage covers the determination of preliminary materiality & setting the performance materiality to reduce the risk that the aggregate of uncorrected/undetected misstatements exceeds materiality for the financials.

Question 4

Tolerable Misstatement/Performance Materiality

Answer 4

Tolerable Misstatement (issuers) /Performance Materiality (nonissuers). AKA specific materiality/allocation of materiality; is the max error or misstatement in a specific account/class of transaction that an auditor would be willing to accept without concluding the FS are materially misstated. This is usually set lower than overall materiality to reduce the likelihood that the aggregate of uncorrected misstatements exceeds materiality for the FS.

Question 5

Tolerable Misstatement/Performance Materiality II

Answer 5

This is the amount set by the auditor at less than materiality for the financials as a whole, in order to reduce to an appropriately low level the probability that the aggregate of uncorrected misstatements exceeds materiality. Its main purpose is to decrease the risk by acting as a safety buffer.

Question 6

TIM

Answer 6

Tolerable Misstatement for Issuers

Question 7

MPN

Answer 7

Performance Materiality for Nonissuers