Summary of SA 320 Materiality in Planning and Performing an Audit
1. Meaning: significance. Any information is material if it influences the decision of the users of F.S.
2. Criteria for materiality: purely professional judgment of the auditor. Sometimes statutory provisions also contain the element of materiality criteria.
3. Several individual unimportant items together may become a material in total.
4. From the planning stage: SAP13 states that while planning the audit, the auditor should consider what would make the financial information materially misstated.
5. Change in materiality: However, the auditor’s assessment of materiality at the concluding stage / during the course of audit may be different from that of the materiality at the time of planning. The assessment of materiality would change because of a change in circumstances or a change in the auditor’s knowledge as a result of the audit.
6. Auditor should consider whether the effect of aggregate uncorrected misstatements on the financial information is material.
7. The aggregate of uncorrected misstatements comprises:
a. Specific misstatements identified by the auditor including the net effect of uncorrected misstatements.
b. Misstatements which cannot be specifically identified i.e. projected errors.
8. If the aggregate of the uncorrected misstatements is material he may consider it’s
Impact in the F/S either himself or through management, otherwise, furnish a qualified / adverse opinion.
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