Chap 9 PLANNING - materiality

Question 1

What is materiality?

Answer 1

Items are considered material if they individually or aggregate could reasonably be expected to influence the economic decision of user’s taken on the basis of F/S.

Materiality depends on size as well as nature os misstatement.

Question 2

Qualitatively material

Answer 2

-Fraud
-Non compliance with laws and regulation
-Affecting key ratio (E.g In debt covenant)
-Disclosures
-Small misstatement
- converting profit into loss
-Taking above/below threshold
-affecting directors remuneration
-affecting share capital

Question 3

Performance materiality

Answer 3

Amount set by auditor
To reduce risk
That the aggregate of uncorrected or undetected misstatements exceeds materiality for the financial statements as a whole