Materiality SA 320

As per SA 320, "Materiality in Planning and Performing an Audit", materiality is crucial in determining the nature, timing, and extent of audit procedures. When the auditor determines a lower level of materiality, stricter audit procedures are generally required. Here’s an outline of the audit procedures in such a situation: 1. Reassessment of Risk: Lower materiality means the auditor believes that even smaller misstatements could be significant. Therefore, the auditor reassesses the risks of material misstatement at both the financial statement and assertion levels. 2. Design of Procedures: The auditor needs to design audit procedures that are more rigorous. This involves increasing the extent of testing, using more substantive procedures, and ensuring a more thorough examination of balances and transactions. 3. Sampling Adjustments: Lower materiality might require the auditor to use larger sample sizes when testing transactions and balances to achieve sufficient assurance. 4. Documentation: The auditor needs to clearly document the basis for determining lower materiality, the revised audit approach, and the conclusions drawn from the additional work performed. 5. Analytical Procedures: These need to be fine-tuned to focus on smaller variances that might otherwise be ignored under higher materiality levels. 6. Communication: Any changes in materiality levels and the consequent audit strategy should be communicated to the audit team and, if applicable, to those charged with governance. In summary, determining a lower level of materiality results in the auditor performing more detailed and extensive audit procedures to ensure that smaller errors or misstatements are detected.

siddesh N

CA Inter

★ 3K+

02-Oct-24 16:19

If materialily level is lower, then risk detected is high. So detailed audit procedures have to be performed. More substantive checking to reduce detection risk.

Pradnya Bajaj

Faculty

05-Oct-24 09:02

Larger sample size, revision in originally prepared audit plan, more testing, analytical procedures .

Pradnya Bajaj

Faculty

05-Oct-24 09:04