ISA 320 Summary Materiality in planning and performing an audit

ISA 320 definitions

Performance materiality – definition

Means the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures.

ISA 320 Scope

ISA 320 deals with the auditor’s responsibility to apply the concept of materiality in planning and performing an audit of financial ISA 450 explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements.

ISA 320 Effective date 15 December 2009

ISA 320 Objective

The objective of the auditor is to apply the concept of materiality

ISA 320 Requirements

• ISA 320 require the auditor to determine at planning stage materiality at overall financial statement level, and where lower amount can impact the decision of user for specific transaction, balance and disclosure, such lower amount.
• ISA 320 require auditor to determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures.
• Revise the materiality or set the lower amount if required during any stage of audit.
• ISA 320 requires to include in documentation;
  • Materiality for the financial statements as a whole;
  • If applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures;
  • Performance materiality; and
  • Any revision during the audit.