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- This topic has 11 replies, 2 voices, and was last updated 4 months ago by krrish2005.
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- June 23, 2024 at 5:58 pm #707554
Sir i wanted to confirm something
We define the financial statement materiality level
Then define performance materiality levelAfter that how we proceed?
Do we then take all the transactions above peformance materiality level for sampling so as to test tge detail of selected transactions from the sample
Or some other way?
June 23, 2024 at 6:09 pm #707556I exactly want to know how test of details is done relative to performance materiality
Is it like they check every transaction above performance materialoty level by tests of details?
June 23, 2024 at 6:11 pm #707557All transactions and balances exceeding performance materiality would have to be tested in some way, but not necessarily “sampled”. For example, depreciation expense might exceed performance materiality, but tested with a “proof in a total” (substantive analytical procedure).
June 23, 2024 at 6:25 pm #707566So you mean if i am testing in detail
I will take all transaction above performance materiality only for sampling?
June 23, 2024 at 7:03 pm #707567Short answer – no. If you selected only the larger amounts that wouldn’t be audit sampling, it would be 100% selection of a subpopulation. Although some types of sampling will guarantee selecting all larger amounts, e.g. MUS, samples must be representative of a population (otherwise it’s not possible to draw valid conclusions) and therefore include smaller amounts. Please see the Audit Sampling chapter for an illustration.
June 23, 2024 at 7:44 pm #707569sir i dont understand why study hub is saying
All matters identified as material must be subject to tests of details
shouldnt it be using sampling or some other method as you said?June 24, 2024 at 8:03 am #707572What it says in the hub chapter 10 is:
“All matters that are identified as being material must be subject to detailed audit work
(e.g. tested in detail). The auditor must then use his judgment in dealing with the
remaining items (e.g. sampling or analytical procedures).”Suppose performance materiality is $250k and PPE includes six properties with carrying amount exceeding $250k – the auditor must test them all – 100% is not sampling.
Tests of details on the properties might include inspecting them (all) and examining invoices for an additions to cost (a sample might be suitable for this).
Sampling is only suitable for larger populations. Look at Activity 2 in the Study Hub Chapter – selecting all (100%) of the largest balances is not sampling.
June 24, 2024 at 8:15 am #707574So in basic there is no compulsion to test in detail all the items above materiality
Its just that if there is a small population, we can test all item
Right?
June 24, 2024 at 12:55 pm #707584If you’re looking for a “rule”, I would say the opposite – that all items above performance materiliaty must be tested (with tests of details).
If performance materiality is $25,000, say, the auditor must obtain sufficient appropriate audit evidence that every individual transaction and account balance that is $25,000 or more is not materially misstated. This can only be ascertained by testing them.
June 24, 2024 at 2:19 pm #707588Okay now i got it
Summary
All items above performance materiality must be tested in detail.
And for all transaction below performance materiality sampling is a good option….take a sample and test them in detailRight?
June 24, 2024 at 2:28 pm #707589Right!
June 24, 2024 at 3:15 pm #707592Finally got it sir.
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