Specific Transaction , Balance, Disclosure

Question 1

Transaction

Answer 1

Materiality Levels for Specific Transactions, Balances, or Disclosures

Auditors may need to determine materiality levels for specific classes of transactions, account balances, or disclosures that could influence users’ economic decisions.

Factors Indicating Specific Materiality Levels

1. Law, regulation, or financial reporting framework: Affects users’ expectations for certain items (e.g., related-party transactions, management remuneration).
2. Industry-specific disclosures: Key disclosures relevant to the entity’s industry (e.g., research and development costs for a pharmaceutical company).
3. Separately disclosed business aspects: Attention focused on a specific aspect of the entity’s business (e.g., a newly acquired business).

Revising Materiality

If actual financial results differ substantially from anticipated results used to determine initial materiality, the auditor should revise materiality accordingly.