- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
- Posts
Dear Mr Garrett,
There are some matters relating to Materiality and Risk I would like to revise:
– I read 2 versions of ISA 320 (2004 vs 2009-also the latest, if I remember correctly). The later version removed the “inverse relationship” between Materiality and Audit risk (AR). So does it mean that this relationship is no more considered to be correct?
– I would like to know in audit process, auditors determine level of Materiality or AR first? I mean: Materiality decides AR or AR decides Materiality? OR AR level is generally fixed (says, 5%) and value of Materiality, which auditors judge and set, actually decides the required Detection risk instead?
PS: Currently I am understanding that the Materiality is determined first, depending on the how sensitive are users of financial statements.
Thank you in advance!
It doesn’t mean it isn’t correct, they might simply not have thought it was useful.
AR has to be low so that auditors can say with reasonable certainty that the FS are free of material misstatement. So in a way they are independent. AR levels are not quantified like 5%. Therefore, decide what errors you think are material and design procedures to detect (probably) misstatements that are greater.
- You must be logged in to reply to this topic.