Question

No handwriting and avoid brevity. Thanks in advance

1. Define materiality

2. How you use materiality to evaluate audit findings.

3. Explain the risk in audting

Answer 1

Materiality refers to the level of tolerable misstatement in an audit. For example, for a company with turnover of $10000000 would not consider a misstatement of $100 material.

In evaluationg audit findings, there can be a question in the mind of the auditor as to what points require more attention and deeper analysis. If a misstatement is less than the materiality level set out at the beginning of the audit , then that would not be looked into deeply.

While performing an audit, there is always an inherent risk that a material misstatement shall not be found by the auditor. Different types of businesses have different levels of inherent risk. Further, an auditor can only express his opinion on the financial statements provided to him.