Question

How might the auditor go about developing “materiality” for an audit      client?

Answer 1

Materiality is an accounting concept. It indicates items or figures that are important to be recorded in accounting, because in absence of which financial decision making by interested parties may be disrupted.

Example: the cost of pen is 2 cent; this is immaterial in accounting record since the amount is very small. But, a $200 spending on pens must be considered as stationery expense because this is a big figure.

The auditor should ensure that all such materiality has been considered. The materiality depends on the size of business, the amount of revenues, expenses, and the business conduct. The auditor should take professional judgement by analysing all such depending factors.