Annual Audit Manual
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2106 Revising Materiality Levels
Apr-2018
In This Section
Overview
This topic explains:
- Revising overall materiality, performance materiality and materiality for particular classes of transactions, account balances or disclosures.
CAS Requirement
The auditor shall revise materiality for the financial statements as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) in the event of becoming aware of information during the audit that would have caused the auditor to have determined a different amount (or amounts) initially (CAS 320.12).
If the auditor concludes that a lower materiality for the financial statements as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures) than that initially determined is appropriate, the auditor shall determine whether it is necessary to revise performance materiality, and whether the nature, timing and extent of the further audit procedures remain appropriate (CAS 320.13).
CAS Guidance
Materiality for the financial statements as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) may need to be revised as a result of a change in circumstances that occurred during the audit (for example, a decision to dispose of a major part of the entity’s business), new information, or a change in the auditor’s understanding of the entity and its operations as a result of performing further audit procedures. For example, if during the audit it appears as though actual financial results are likely to be substantially different from the anticipated period end financial results that were used initially to determine materiality for the financial statements as a whole, the auditor revises that materiality (CAS 320.A14).
OAG Guidance
During the audit, information may come to our attention, as a result of performing audit procedures or from other sources, that differs significantly from the information on which the materiality and risk assessments and determination of audit procedures was based. Examples are audit adjustments that significantly affect profit or an unexpected downturn in an entity’s business causing the actual financial results to be significantly different. Such information may cause us to alter our preliminary materiality judgments. In such cases, we re-evaluate the nature, extent, and timing of planned audit procedures (e.g. sample sizes) to determine whether sufficient appropriate audit evidence has been obtained. We also re-evaluate the levels of materiality based on the revised assessment of materiality.