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Need some clarification please. Lest say the performance materiality is 100,000 and i have an account balance for rent expense of 80,000. Do I need to do anything whatsoever? Test of controls, substantive procedures etc if there is no risk of material misstatement. Thanks
List the misstatement in a schedule of uncorrected errors showing the effect of the error on both the statement of profit or loss and the statement of financial position
At the end of the audit, add up all these errors and determine whether in aggregate they represent a material distortion to the draft figures
If they do so represent a material misstatement, then we need to ask management to make the necessary corrections
OK?
Think I have the wrong idea about materiality. Does that mean that every error found in every area needs to be added up and if that exceeds the materiality figure we need to ask management to make the corrections?
Are the errors aggregated regardless of that class of transaction they are found in or are they aggregated regardless of where they are found?
I read an example online with an account that was below materiality and the example said the auditor will do nothing because the account was below the materiality figure and there was no danger of material misstatement
Thanks for your reply
Paragraph 1 – yes, that’s exactly what it means
Paragraph 2 – all errors are aggregated to arrive at an aggregate amount for consideration as to whether or not the net figure represents a material misstatement
Paragraph 3 – yes, that’s what happens in exam questions. In real life there will be a schedule of uncorrected errors and that will be totalled and presented to the senior reviewer (manager and / or partner) for their attention
It could well be the case that they decide it’s not worth pursuing with management on the grounds of aggregate immateriality but at least the members of the audit team will have covered their own proverbial rrr
OK?
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