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1、ISA 320 393AUDITING INTERNATIONAL STANDARD ON AUDITING 320 AUDIT MATERIALITY (Effective for audits of financial statements for periods beginning on or after December 15, 2004)CONTENTS Paragraph Introduction . 1-3 Materiality . 4-8 The Relationship between Materiality and Audit Risk . 9-11 Evaluating
2、 the Effect of Misstatements . 12-16 Communication of Errors . 17 International Standard on Auditing (ISA) 320, “Audit Materiality” should be read in the context of the “Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services,” which sets out
3、 the application and authority of ISAs. ISA 240, “The Auditors Responsibility to Consider Fraud in an Audit of Financial Statements,” ISA 315, “Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement,” ISA 330, “The Auditors Procedures in Response to Assessed Ri
4、sks,” and ISA 500, “Audit Evidence” gave rise to conforming amendments to ISA 320. The conforming amendments are effective for audits of financial statements for periods beginning on or after December 15, 2004 and have been incorporated in the text of ISA 320. AUDIT MATERIALITY ISA 320 394Introducti
5、on 1.The purpose of this International Standard on Auditing (ISA) is to establish standards and provide guidance on the concept of materiality and its relationship with audit risk. 2.The auditor should consider materiality and its relationship with audit risk when conducting an audit. 3.“Materiality
6、” is defined in the International Accounting Standards Boards “Framework for the Preparation and Presentation of Financial Statements” in the following terms: Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial s
7、tatements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful. Ma
8、teriality 4.The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. The assessment of what is material is a matter of prof
9、essional judgment. 5.In designing the audit plan, the auditor establishes an acceptable materiality level so as to detect quantitatively material misstatements. However, both the amount (quantity) and nature (quality) of misstatements need to be considered. Examples of qualitative misstatements woul
10、d be the inadequate or improper description of an accounting policy when it is likely that a user of the financial statements would be misled by the description, and failure to disclose the breach of regulatory requirements when it is likely that the consequent imposition of regulatory restrictions
11、will significantly impair operating capability. 6.The auditor needs to consider the possibility of misstatements of relatively small amounts that, cumulatively, could have a material effect on the financial statements. For example, an error in a month end procedure could be an indication of a potent
12、ial material misstatement if that error is repeated each month. 7.The auditor considers materiality at both the overall financial statement level and in relation to classes of transactions, account balances, and disclosures. Materiality may be influenced by considerations such as legal and regulator
13、y requirements and considerations relating to classes of transactions, account AUDIT MATERIALITY ISA 320 395AUDITING balances, and disclosures and their relationships . This process may result in different materiality levels depending on the aspect of the financial statements being considered. 8.Mat
14、eriality should be considered by the auditor when: (a)Determining the nature, timing and extent of audit procedures; and(b)Evaluating the effect of misstatements. The Relationship Between Materiality and Audit Risk 9.When planning the audit, the auditor considers what would make the financial statem
15、ents materially misstated. The auditors understanding of the entity and its environment establishes a frame of reference within which the auditor plans the audit and exercises professional judgment about assessing the risks of material misstatement of the financial statements and responding to those risks throughout the audit. It also assists the auditor to establish mate
