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Can I ask a silly question, when determining materiality. For example, year end is Sept 20×5. Audit date being July 20×5. Am I performing the materiality benchmark on 20×5 accounts or 20×4 accounts. I assumed 20×5 as the audit has already been done on the previous year, and the whole point is to have a balanced comparative. Why sometimes in answers materiality has been performed against 20×4.
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Could you please provide an example of a Q&A where you have seen this? So I can give a specific response?
In Q1 the default “today’s” date is 1 July 20X5 – and, as this is a “planning” Q, the client will have a year endING at a future date – typically 30 September 20X5 (as in the last 4 published exams).
In other Qs, where dates are relevant, a client may have a year ENDED – i.e. it has past – e.g. in “completion and reporting” Qs.
A Q1 will usually give 20X5 “projected” with 20X4 “actual” and I would expect to see materiality using projected amounts.
However, as 1 July is only 9 months through the current year, if there are no reliable forecasts – say there are only interim results – and seasonal variations aren’t reflected – using last year’s actuals as a starting point would be reasonable. Remember that materiality is not fixed, but should be revised during the course of the audit as new information comes to light.
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