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How to align a Robust Materiality Assessment with Corporate Strategy and Target?

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In this webinar you will learn how to start a robust materiality assessment process, especially trick and methods how to make it all work. Also, which are the main challenges of materiality assessment within your corporate?

Main points covered:
• How to start a materiality assessment process
• What could be tricks to make it all work?
• What are main challenges to anticipate?

Presenter:
This webinar was presented by Dotun Bolade is a PECB Partner and Certified Trainer. He has over five years’ experience as an environmental scientist. He is the Managing Consultant, EN2SOL PNP LIMITED, where he's involved Energy Innovation, Carbon management, Laboratory automation and management systems consulting.

Link of the recorded session published on YouTube: https://youtu.be/0FaoCQZsBCM

Published in: Education
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How to align a Robust Materiality Assessment with Corporate Strategy and Target?

  1. 1. Dotun Bolade Managing Consultant Dotun Bolade, an Analytical Chemist/Environmental Scientist by training and practice has spent the past five years working in Nigeria’s Oil and Gas industry. For him, ISO management systems have become second nature having worked in environments where ISO 9001, 14001, 18001 and 17025 have been fully implemented/accredited. He is a Certified PECB ISO/IEC 17025 Lead Assessor, ISO 14001, 9001 & 29001 Lead Implementer and Certified Trainer. Dotun is a PECB Partner and Managing Consultant, EN2SOL PNP LIMITED. Contact Information 2348066884793 Dotun.bolade@energysolutiosng.com www.domain.com linkedin.com/Dotun Bolade twitter.com/dotunBolade
  2. 2. Objectives:  Introduce the concept of materiality  Consider the relationship between materiality assessment and the new QMS 9001:2015  Emphasize the importance of Materiality assessment during audit  Discuss materiality assessment as integral to Risk-based thinking and process approach
  3. 3. Content:  What is Materiality?  Frameworks and Standards for Materiality Assessment  Types of Materiality  Three main Characteristics of Materiality  Materiality Assessment: Key steps to establishing a robust process  Materiality rule of thumb  Misstatements VS Materiality  Materiality & Risk  Common challenges of the Materiality Process
  4. 4. What is Materiality? Materiality is the principle of defining the social and environmental topics that matter most to your business and your stakeholders. Materiality is the 1st thing we have to determine in an audit and that is because next on the line is assessing risk of material misstatement. Materiality influences the amount or type of error that has the potential of changing the decision of a user.
  5. 5. What is Materiality?
  6. 6. What is Materiality? In setting Materiality during the audit, the first step is to set planning materiality which is the amount of misstatements in the financial statement that would be considered material. MATERIALITY – matter for auditor’s professional judgment. Auditor’s perception of user needs. It can be updated and changed in the course of the audit and this requires a great deal of professional judgment.
  7. 7. Some Frameworks for Materiality Assessment  IIRC (International Integrated Reporting Council)Integrated Reporting Framework  GRI (Global Reporting Initiative) G4 Frameworks  Revised ISA 320 on Materiality in Planning and Performing an Audit  New ISA 450 on evaluating misstatements identified during the audit  Amendments to ISA 700 dealing with forming an opinion on the financial statements
  8. 8. Types of Materiality (Based on ISA 320):  Materiality for the financial statements as a whole  If applicable, materiality levels for particular classes of transactions, account balance or disclosures  Performance Materiality
  9. 9. Performance Materiality:  An amount or amounts that is less than the overall level of materiality for the financial statements as a whole.  Its designed to ensure that at the end of the engagement, the aggregate of the total, identified and corrected misstatements and undetected misstatements will be less than the overall level of materiality for the financial statement as a whole.
  10. 10. Reasons for determining Performance Materiality: To allow for aggregation of individually immaterial amounts  To provide a margin for possible undetected misstatements
  11. 11. Characteristics of Materiality:  Misstatements considered material when, individually or in aggregate, they could reasonably be expected to affect users’ economic decisions based on the financial statements  Materiality includes both qualitative and quantitative characteristics. Consider not only the size but also the nature of the misstatement and the surrounding circumstances  For general purpose financial statements, what is considered material depends on the common information need of a wide variety of users
  12. 12. Materiality Rule of Thumb:  5-10% of normalized before tax earnings  05.-1% of total assets  0.5-5% of shareholders’ equity  0.5-2% of Revenue
  13. 13. Misstatements VS Materiality: If misstatements are greater that materiality, then there’s one of these three possible outcomes:  Higher? Client to make adjustment  Higher? Auditor to extend procedures to isolate errors  Higher? Auditor modifies opinion
  14. 14. Materiality Assessment: A Robust Process The materiality process can only be maximized when organizations apply a sustainability/process approach to business risk, environmental issues, and enterprise risk management. There are several assessment toolkits/guidelines, such as KPMG’s seven step guide. This webinar examines how this relates to selected clauses of the ISO 9001:2015 Standard
  15. 15. Materiality Assessment: Define Purpose & Scope  Define the objectives of the materiality assessment. Identify risks and opportunities (Clause 6.1) Engage with internal and external stakeholders (Clause 4.2) Identify future trends that could impact on your company (Risk-based thinking Clause 6.1)  Consider your audience (Clause 4.2)
  16. 16. Materiality Assessment: Define Purpose & Scope  Define what materiality means for your company by considering three key questions; Is the topic of importance to stakeholders? (Clause 4.2) Does the topic have social, economic or environmental impact on your value chain (SWOT, PEST Analyses) Is the topic of strategic relevance to your business (Clause 8.2.2)
  17. 17. Materiality Assessment: Define Purpose & Scope  Define the organizational scope of material topics: Consider regions or countries to be assessed (Clause 4.1, Clause 7.1) Define parts of your business the assessment will cover Embed materiality assessment report as part of performance objectives (Clause 9.1)
  18. 18. Materiality Assessment: Identify potential topics  Create a list of potential material topics based on; internal data, media reporting, environmental trends and challenges  Assign responsibility (Clause 5.3)  Consider external stakeholder engagement (Clause 8.2.1)  Establish a continuous process for capturing changes to relevant issues (Clause 8.5.6)
  19. 19. Materiality Assessment: Categorize  Refine the list of potential material topics by clustering them into categories; for smaller organizations, this could be a one-off process  Make sure everyone involved in the process understands the specific risk or opportunity (Clause 5.3, Clause 6.1)  Connect every material topic to relevant external trends (PEST Analysis)  Consider interconnectivity of material topics
  20. 20. Materiality Assessment: Gather Information Gather Information About The Impact And Importance Of Topics:  Explore each material topic in detail to understand its relevance to the business and stakeholders  Carry out PEST Analysis of each topic
  21. 21. Materiality Assessment: Prioritize Prioritize material topics based on the strategic importance of the business, importance to stakeholders and the PEST impact of each topic.  Prioritize stakeholder views based on the relative importance of each stakeholder (Clause 4.2)  Prioritize topics based on impact on corporate values  Develop a scoring methodology to weigh input from various sources
  22. 22. Materiality Assessment: Engage Management  Test the results of your materiality assessment with key internal stakeholders and validate the outcome. (Clause 9.1.3, Clause 9.3)  Recommend what action the board should take (Clause 9.3)
  23. 23. Materiality Assessment: Seek stakeholder feedback  Follow up with stakeholders to get feedback on the material topics reported (Clause 9.1.2)  Seek to further integrate the results in company strategy, governance, operations and reporting (Clause 10.3)
  24. 24. Materiality & Risk: Materiality = magnitude of misstatement Risk = measure of uncertainty What is the relationship between materiality and Inherent and control risk? In summary, materiality and detection risk move in the same direction While detection risk and inherent/control risk move in opposite directions
  25. 25. Common Challenges:  Incorporating and prioritizing stakeholder views  Involving senior management  Extending the materiality assessment beyond the company’s own operations, across the value chain  The materiality assessment is isolated from the rest of the business  Material topics are too broad (Defining what is material)  Stakeholder engagement  Tick-box mentality
  26. 26. PECB Webinar|January 2016 ISO/IEC 17025:2005 Further Clarifications: dotun.bolade@energysolutionsng.com oladotunbolade@gmail.com
  27. 27. THANK YOU ? 2348066884793 dotbee04@yahoo.com linkedin.com/Dotun Bolade twitter.com/dotunBolade oladotunbolade@gmail.com

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