Materiality Flashcards
What does Materiality in Planning and Performing An Audit state?
That the auditor’s objective is to apply the concept of materiality appropriately in planning and performing the audit
What is Materiality?
Materiality can be described as “an understanding of what is important” in financial reporting based on the auditor’s perception of the users’ needs
What does Materiality mean according to FASB?
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
The determination of materiality is a matter of professional judgment, and involves both?
Quantitative (the relative magnitude of the items in question, measured by quantity) and Qualitative (the surrounding circumstances, measured by quality) considerations
The auditor considers the concept of materiality throughout the audit process as well as in…
…planning and performing the audit; (b) in evaluating the effect of uncorrected misstatements on the entity’s financial statements; and (c) in forming the auditor’s opinion
What is Performance Materiality?
The amount(s) set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole
What should the auditor Document when it comes to Materiality?
1 Materiality for the financial statements as a whole
2 Materiality level(s) for particular classes of transactions, account balances, or disclosures, as applicable
3 Performance materiality
4 Any revision of those considerations during the audit engagement
What is a Tolerable Misstatement?
This term refers to the maximum error in a population that the auditor is willing to accept
