ECON 1 Lecture Notes - Lecture 11: Control Risks, Audit Risk, Management System

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8 Jan 2021
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Materiality: relates to the significance or importance of an item. Material judgements: a matter of professional judgement, depend on potential investor, or other stakeholders. Purpose of material judgements is to help auditor gather sufficient appropriate evidence to obtain reasonable assurance about whether the financial statements are free of material misstatements. Make materiality judgements for purposes of: determining the nature and extent of risk assessment procedures. Identifying and assessing the risks of material misstatement: determining the tests of control and substantive audit procedures to perform. Starting point to determining various levels of materiality. 99 (sec) expresses concerns about auditors not considering qualitative factors in their materiality assessment. Auditor should consider the following items when setting materiality. Financial statement items on which users will focus their attention. Nature of the client and the industry. Manner in which the client is financed. Client business risk: risks affecting the business operations and potential outcomes of an organization"s activities.

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