Materiality

Question 1

what is materiality level in a FS audit considered?

Answer 1

• Because the FS are interrelated, materiality levels are generally considered in terms of the SMALLEST level of misstatement that could be material to any one of the FS?
• Also considered both quantitative and qualitative judegements

Question 2

what is best described the concept of materiality?

Answer 2

According the the US Supreme Court, information is material if there is a substantial likelihood that the information would be viewed by a reasonable investor as having significantly altered the total mix of available information

Question 3

what is most likely used as preliminary judgement about materiality by the auditor?

Answer 3

prior year financial statements would be a good starting point in estimating the CY’s expected results

Question 4

what are things to watch/consider when calculating materiality benchmark?

Answer 4

• If there is a HIGH likelihood of materiality, use % closer to the LOWER end of the range provided in firm guidance
• if there is a LOW likelihood of materiality, use % closer to the HIGHER end of the range provided in firm guidance

Question 5

how to reduce the risk materiality of nonissuer regarding component and group FS?

Answer 5

auditor should establish a component materiality that is LOWER than the materiality for the group FS

Question 6

When there is a group audit, what should the group engagement team make a preliminary assessment of materiality?

Answer 6

should assess the materiality of the group FS as a whole as well as performance materiality