planning topic for ADP classes

1. Difference between materiality
and tolerable error
 Materiality: concerns the financial
statements as a whole
 Tolerable error: Only concerns the
population being tested

2. Analytical procedures
 Analytical procedure are usually carried out
at three stages of the audit process
 Analytical procedures comprise the
evaluation of financial information by
studying the relationship between this
information and other financial and non-
financial data.
 They include comparison of financial
information with prior periods, budgets and
forecast and similar industries

3.  Analytical procedure are used for two
main reasons.
 To help understand the client’s financial
statements
 To help spot possible errors

4. What is materiality?
 “Information is material if its omission or
misstatement could influence the
economic decisions by users, taken on
the basis of the financial statements”

5. Why is materiality
 If financial statements contain a material
misstatement they cannot show a true
and fair view.
 Auditors therefore must design their
audit procedures to reduce the risk of
material misstatement to an acceptable
level.
 This means that auditors must decide on
what they means by material before they
design their procedures

6. Documenting the planning
process
 Knowledge of business
 Preliminary analytical review
 Risk assessment
 Materiality
 Tolerable error
 Audit approach
 Independent
 Budget and staffing
 Timetable and deadlines

7. s

8. 1.Gather/confirm knowledge of
the business
 Nature of the business
 Management
 Key staff
 Those charged with governance
 Accounting systems
 Internal controls
 KOB discussion