The document discusses the concept of materiality in auditing based on ISA 320. It states that materiality considers both the size and nature of misstatements in the context of the financial statements. Materiality thresholds vary between audit firms but commonly use benchmarks like 1-2% of revenue, 5-10% of profit before tax, and 5-10% of assets. Materiality is also assessed based on the significance of individual financial statement items and whether misstatements could impact trends in the financial statements. Materiality is determined during audit planning and is revised as the audit progresses if needed.

1. Materiality
ISA 320 Audit Materiality

2. u
Materiality
u

3. u
Materiality
Size & Nature in given circumstances
u

4. u
Materiality
Size & Nature in given circumstances
Auditor Judgement
u

5. u
Materiality
tet
tet
Guidelines NO rules Relative
u

6. u
Materiality
Thresholds
b
u
b

7. u
Materiality
Thresholds
Vary firm to firm b
u
b

8. u
Materiality
Thresholds
Vary firm to firm b
Ranges
u
b

9. u
Materiality
Thresholds
Vary firm to firm b
1-2% Revenue
Ranges
u
b

10. u
Materiality
Thresholds
Vary firm to firm b
1-2% Revenue
Ranges 5-10% PBT
u
b

11. u
Materiality
Thresholds
Vary firm to firm b
1-2% Revenue
Ranges 5-10% PBT
u 5-10% Assets
b

12. u
Materiality
Size & Nature in given circumstances
u

13. u
Materiality
Size & Nature in given circumstances
The more subjective the more flexible on
materiality
u

14. u
Materiality
Size & Nature in given circumstances
u

15. u
Materiality
Size & Nature in given circumstances
Significance of item? (Directors bonus)
u

16. u
Materiality
Size & Nature in given circumstances
u

17. u
Materiality
Size & Nature in given circumstances
Impact on FS (turns profit to loss? or alters
trends)
u

18. u
Materiality
u

19. u
Materiality
Planning
u

20. u
Materiality
Planning
Materiality Thresholds for FS as a whole
u

21. u
Materiality
u

22. u
Materiality
Performance
u

23. u
Materiality
Performance
Immaterial errors added together problem
u

24. u
Materiality
Performance
Immaterial errors added together problem
Lower than overall materiality
u

25. u
Materiality
Performance
Immaterial errors added together problem
Lower than overall materiality
Can vary from area to area
u

26. u
Materiality
Performance
Immaterial errors added together problem
Lower than overall materiality
Can vary from area to area
Revise as audit progresses
u

27. BUSINESS RISKS
Changes in regulations, demand etc

28. BUSINESS RISKS
Changes in regulations
Interest Rates
Employees
Failure to modernise
Fashion / trends
CEO reliance
Price wars
Gearing

29. PILOT PAPER
Q1 a

30. December 10
Q1 a

31. June 09
Q1 a

32. BUSINESS
Understanding

33. BUSINESS
Understanding
Discuss with Management

34. BUSINESS
Understanding
Discuss with Management
Discuss IC with IA

35. BUSINESS
Understanding
Discuss with Management
Discuss IC with IA
Analytical Procedures (ISA 520)

36. BUSINESS
Understanding
Discuss with Management
Discuss IC with IA
Analytical Procedures (ISA 520)
Observation (visits etc)

37. BUSINESS
Understanding
Discuss with Management
Discuss IC with IA
Analytical Procedures (ISA 520)
Observation (visits etc)
Inspection (manuals, plans & reports)

38. BUSINESS
Understanding
Discuss with Management
Discuss IC with IA
Analytical Procedures (ISA 520)
Observation (visits etc)
Inspection (manuals, plans & reports)

39. BUSINESS
Understanding (ISA

40. BUSINESS
Understanding (ISA
1. External Factors

41. BUSINESS
Understanding (ISA
1. External Factors
2. Company Structure & A/C Policies

42. BUSINESS
Understanding (ISA
1. External Factors
2. Company Structure & A/C Policies
3. Objectives and Risks

43. BUSINESS
Understanding (ISA
1. External Factors
2. Company Structure & A/C Policies
3. Objectives and Risks
4. Measurement of Performance (KPIs etc)

44. BUSINESS
Understanding (ISA
1. External Factors
2. Company Structure & A/C Policies
3. Objectives and Risks
4. Measurement of Performance (KPIs etc)
5. Internal Control

45. BUSINESS
Understanding (ISA
1. External Factors
2. Company Structure & A/C Policies
3. Objectives and Risks
4. Measurement of Performance (KPIs etc)
5. Internal Control

46. June 09
Q1 a