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Are all the misstatements found in various areas summed up to confirm whether it is material when checking against the preset materiality?
More or less, particularly with regard to the effect of errors on profit. However, auditors will expect some figures, such as cash, to be absolutely accurate.
suppose sales revenue has been overstated by 10000 and cost of sales has been overstated by 10000 ,here the effect on profit is null as both of them have been overstated.How will materiality be calculated in this case?
suppose the preset materiality is 15000.thank you.
If preset materiality is 15000 and each error is only 10000, then the errors are not considered material. Even better there is no effect on profit.
he best way to look at materiality is that the various percentages of sales, profits and balance sheet vales can be wildly inconsistent. A company could have huge revenue but tiny profits so that a ‘small’ error is large compared to profits. However, if the company is huge it is not clear that an adjustment is needed. The measures are guidelines for audit staff and it is the partner who will look at the overall effects on the FS.
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