Introduction
International Standard on Auditing 320: Materiality in Planning and Performing an Audit explains the concept of materiality and how it is used by the auditor in engagement to reach important conclusions regarding procedures and evidence obtained. Concept of materiality is the core concept in risk-based audit approaches.
Executive Summary
As per ISA 320 auditor is required to determine materiality in order to reach important conclusions including; assessing risk of material misstatement, designing audit procedure in response to assessed risk and materiality level determined, in estimating the effects of undetected misstatements and lastly in forming audit opinion. Auditor determines the materiality by exercising his professional judgment. During the audit if auditor feels that materiality level needs to be revised then auditor can do so to adjust the scope and direction of audit procedures in the light of circumstances.