F 8 int

The Clarity Project is relevant to June 2010, so the new audit report wordings are relevant.

The Clarity Project redrafted many auditing standards in an attempt to make them clearer. Part of the result was to change the wording in the opinion para of qualified audit reports.

‘Disagreement’ has been replaced by stating that the financial statements contain a material misstatement (+ explanation of the nature of the problem).

‘Limitation of scope’ has been replaced by stating that the auditor has been unable to find sufficient appropriate audit evidence (plus an explanation of the problem).

The concept of ‘performance materiality’ has also been introduced. This is defined as: “The amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.” This means that if you thought that $100,000 was material to the financial statements as a whole (though that needs care because there is also the idea of qualitative materiality), performance materiality (relevant to the more junior members of the audit team when carrying out the audit) might be set at, say, £50,000 – in case there were two errors which in aggregate came to £100,000.