4 Timing of determination and how
Materiality is determined by the auditor at the time of designing audit strategy and resultant audit plan. Auditor determines the materiality level by taking financial statements as a whole i.e. a single benchmark will be settled against which materiality of misstatements in each of the items in financial statements will be assessed.
However, standard recognizes the fact that a single materiality level may not be a suitable criterion to detect misstatements of particular transactions or account balances as in such particular cases misstatements even lesser than overall materiality level may still be material. In such cases auditor will determine separate materiality levels for each of the particular transactions or account balances.
In addition to overall materiality auditor shall determine performance materiality as well so that probable effect of undetected and uncorrected misstatements is not approaching materiality level.
5 Revision during audit engagement
If auditor discovers such information that if known to auditor earlier then he would have settled a different materiality level then auditor shall revise the overall materiality accordingly and also the resultant performance materiality and materiality for specific transactions and account balances.
As a result of change in materiality auditor have to assess if current audit procedures are appropriate or they need to be revised as well in case if a materiality level lower than the earlier materiality level has been settled.
The auditor shall document as part of audit file the following matters regarding materiality:
- The overall materiality level determined
- Materiality level as determined for particular classes of transactions, account balances or disclosures.
- Performance materiality determined
Revisions made to above three during the engagement