Hi Amanda I would just like to know how does one go about auditing and calculating whether a few expenses added together might be material when added,but not when considered individually, would one consider the size and risk associated to each of the expenses and eliminate the problem by addressing these expenses first or what process should one follow? Thank you in advance!
I would consider the overall impact on profit - does it change any key ratios or covenants significantly? Do you think the overall impact on profit would be of concern to shareholders?
Hi Amanda, you definitely made many great videos and really help me understand more about Assurance. I have a couple questions about Materiality for OFSL. 1. For publicly traded company when we set the materiality of OFSL should we always set at high level risk due to many users or potential investors in general? 2. What if the publicly traded acquired another company but this subsidiary has a operation controls weakness and lack of processes in place I know this will raise the performance materiality how about the materiality of OFSL? I think users will be sensitive to the net income and due to new acquisition could be more potential investors looking into its financial statement. So I think should be set at high but I'm not sure. Thank you in advance Yvonne-From Canada
Hi Yvonne - sorry for the delay in responding to your question. OFSL isn't always high because of the many users - it is more about the company than the shareholders. If your client has acquired a subsidiary - I would imagine that risk would increase at the OFSL and then materiality would decrease because of the higher risk. You want to be really careful the first year you incorporate the subsidiary to ensure it is all accounted for correctly
Say materiality was $100k and you scoped out prepayments of $65k due to it being immaterial, but an error was identified in receivables of $85k and the client did not correct, would this be an issue due to being $150k in aggregate or is this okay as they are separate lines in the FS?
Hi Amanda! Great videos. Been in the audit profession for a little over a year. I still have trouble understanding the difference among Planning Materiality, performance Materiality/tolerable misstatement, and individual significant items. Can you please help explain? Thanks a lot for your hard work.
Hi Kringle - planning materiality is the level you're considering for the overall financial statements. Where as performance/tolerable misstatement applies to a subset of the financials (eg current assets, or even inventory) and takes into account that some parts of the accounts are higher (or lower) risk than others.
What is the difference among materialiy, performance materiality, and audit misstatement posting threshold? when do we use the computed amount of each when we discover misstatements during audit?
Hi Hasina - try the “materiality” section of my study guide for examples amandalovestoaudit.com/learning-resources/audit-study-guide/planning-the-audit/
Hi Amanda! In the context of what materiality means for an auditor and the steps he must take to determine it, what is the role of performance materiality? How does it differ from the clearly trivial amount? Thank you very much for your help. You're videos are extremely helpful! Best,
Hi GV! The ICAEW have a fantastic guide about materiality that you should read www.icaew.com/-/media/corporate/files/technical/iaa/materiality-in-the-audit-of-financial-statements.ashx Clearly trivial amounts are ones that we deem immaterial - below the performance materiality for the account or group of accounts. It is difficult to say how much this is - but if performance materiality is $50,000 - then something clearly trivial would be $1,000. However there is more professional judgement about something that is $45,000 as it is closer to the tolerable misstatement/materiality.
Hey - oooh - good question. Definitely something that auditors consider because lowering materiality will ultimately increase audit costs because more testing is required. However, you need to also weigh that up against the cost of a lawsuit for a failed audit.
