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If the risk assessed by auditor in financial statements is high, then the materiality level is low.
Should not materiality level be high too? because more transactions/amounts suddenly become vitally important and need to be checked. So the amount of (misstatements in) transactions that are likely to affect decision-making of users suddenly become high…
I don’t understand why materiality is low…
I think they are saying that the cutoff point after which financial statements become instrumental for decision-making is on the lower end of the bar, right?
(Materiality in accounting refers to the threshold or cutoff point after which financial information becomes relevant to the decision-making needs of the users.)
Can you please explain a bit?
Generally we talk about an “inverse” relationship between risk and materiality – the higher the risk – the lower materiality (in monetary terms).
Please look at page 57 of our AA notes https://opentuition.com/acca/aa – if RoMM is high, detection risk must be reduced to a sufficiently low level in order to have audit risk at an acceptably low level. One way of reducing detection risk is to do more work – this would mean larger sample sizes – which corresponds to monetary materiality being set at a lower level.
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