I really need help on materiality

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This topic contains 4 replies, has 3 voices, and was last updated by  murano 6 months ago.

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  • #2207422

    murano
    Participant

    The next paragraph is from AU-C
    In planning the audit, the auditor makes judgments about the size of misstatements that will be considered material. These judgments provide abasis for A.determining the nature and extent of risk assessment procedures; B.identifying and assessing the risks of material misstatement; and C.determining the nature, timing, and extent of further audit pro-cedures.
    It says materiality provides a basis for identifying and assessing the risks of material misstatement
    My question : If materiality is an absolute number, then everything is fine. We can compare all the transactions and account balances to materiality and select those above the line to assess RMM. (Say materiality is 100k, cash balance is 200k, A/R balance is 50k, then we choose cash as an account that may contain material misstatement). This makes sense to me.
    But in the definition of materiality, it seems that it is a difference rather than absolute number. Then how can we use this difference in risk assessment? We don't even know the difference in those transactions and accounts when assessing the risk, then HOW CAN WE COMPARE THEM WITH MATERIALITY?
    Really hope someone can help me. This is literally driving me crazy lol.

    AUD - NINJA in Training
    BEC - NINJA in Training
    FAR - 95
    REG - 99
    Hi 🙂
    #2208214
    Recked
    Recked
    Participant

    Not an auditor, but I think you would be more likely to look at the A/R account to look for transactions that exceed your materiality level.
    Not so much just relying on the year end balance.

    Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

    FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
    AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
    REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
    BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

    #2208670

    murano
    Participant

    @Recked
    Thanks a lot for your help!

    AUD - NINJA in Training
    BEC - NINJA in Training
    FAR - 95
    REG - 99
    Hi 🙂
    #2210434

    terribletwenties
    Participant

    Is there a risk? If yes, is the risk material?=aka is the worst case scenario above performance materiality or even trivial amount? Is the risk pervasive?= aka could the risk effect the financial statements from being fairly represented. When looking at materiality in risk assessment remember to analyze WCGW (what could go wrong) and how that effects the financial statements.

    #2214502

    murano
    Participant

    Thanks @terribletwenties
    So when you apply materiality in risk assessment, you have to estimate what could go wrong to compare it to performance materiality. On the other hand, when reponding to risk, sampling will provide you with more evidence to compare to performance materiality. Am I right?

    AUD - NINJA in Training
    BEC - NINJA in Training
    FAR - 95
    REG - 99
    Hi 🙂
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