Psa 320

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THE NEXT SLIDE THAT YOU WILL WITNESS IS JUST A

FICTION, NOTHING/NOBODY IS BEING
DISCRIMINATED/OPPRESS/BULLIED/ETC. IN THIS
EXAMPLE.
(LAHAT NG INYONG MASASAKSIHAN AY PAWANG KATHANG ISIP
LAMANG, WALANG SINO MAN ANG NABIGYAN NG …)

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Level of Beauty
(Based on votes)
Cherish
50%

Abby
24%

Other
25%

Karen
1%

Joana
25%
Joana

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Abby

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MATERIALITY IN
PLANNING AND
PERFORMING
AN AUDIT
(PSA 320)

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MATERIALITY IN THE CONTEXT OF AN
AUDIT
• In financial reporting, any information that may influence user’s
economics decisions.
• The smallest aggregate level of misstatement that could impact
the financial statements.
• A matter of professional judgment.
• Applied in:
• Both planning and performing the audit
• Evaluating the effect of identified misstatements on the audit and of
uncorrected misstatements, if any, on the financial statements
• Forming the opinion in the auditor’s report
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MATERIALITY IN THE CONTEXT OF AN
AUDIT
Note:
Materiality does not necessarily establish an amount below which
uncorrected misstatements, individually or in the aggregate, will always be
evaluated as immaterial. Some items maybe material even if they are
below materiality level.
Why?
Because:
The auditor considers not only the size but also the nature of uncorrected
misstatements, and the particular circumstances of their occurrence.
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MATERIALITY IN THE CONTEXT OF AN
AUDIT
Examples of such circumstances:
 Affects compliance with regulatory requirements;
 Affects compliance with debt covenants or other contractual
requirements;
 Affects ratios used to evaluate the entity’s financial position,
results of operations or cash flows;
Source: PSA 450, par A16
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OBJECTIVE
To apply the concept of materiality appropriately in planning and
performing the audit.

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DEFINITION
Performance materiality (tolerable misstatements) 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 whole.
OTHER TERMS:
“I Could Still Endure” or “Kaya Ko Pa Tiisin”.
“I’ll Set a Limit” or “Hanggang Dyan Lang Kaya Ko Tanggapin”.
“I Need an Allowance” or “Kailangan Ko Nang Baon”.
We cannot push the limit of Overall Materiality for us to have an allowance
for misstatements that we may not detect.– This is the message of the phrase
highlighted in red font above.
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REQUIREMENTS
 Determining Materiality and Performance Materiality when
Planning the Audit
 Revision as the Audit Progresses
 Documentation

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DETERMINING MATERIALITY AND
PERFORMANCE MATERIALITY WHEN
PLANNING THE AUDIT
• Determine the Materiality as a WHOLE (overall materiality).
 Materiality at Financial Statement Level.

• Determine Materiality for;

 Particular classes of transactions,
 Account Balances,
 Disclosures,
That are below the overall materiality but may reasonably impact or
influence the economic decisions of users taken on the basis of the
financial statements.

• Determine Performance Materiality
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Materiality for the FSs as a whole
• Users’ information needs drive overall materiality level
• No specific methodologies prescribed − use of professional judgment is key

• Often a percentage of a chosen benchmark may be an
appropriate starting point
• Standard provides guidance on choosing an appropriate benchmark
• No specific guidance on percentages provided

• Consider whether adjustments to benchmark needed for
significant changes in entity’s circumstances

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Materiality
for
Particular
Classes
of
Transactions, Account Balance and Disclosures
Could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements
Examples:
• Whether law, regulation or the applicable financial reporting
framework affect users’ expectations regarding the measurement or
disclosure of certain items
• The key disclosures in relation to the industry in which the entity
operates
• Whether attention is focused on a particular aspect of the entity’s
business that is separately disclosed in the financial statements.
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Performance Materiality
• Less than materiality for FSs as a whole
• Serves two purposes:
 To allow for aggregation of immaterial amounts
 To provide margin for possible undetected misstatements

• Used to:
 Assess ROMM
 Determine nature, timing and extent of FAP

• Possible approaches:
 One PM level based on materiality for FSS as a whole, or
 More than one PM level in relation to different items

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REQUIREMENTS
 Determining Materiality and Performance Materiality when
Planning the Audit
 Revision as the Audit Progresses
 Documentation

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REVISION AS THE AUDIT PROGRESSES
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.
In short, we need to adapt to changes once we
understand the situation where in (We need to adjust to
the situation).
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REQUIREMENTS
 Determining Materiality and Performance Materiality when
Planning the Audit
 Revision as the Audit Progresses
 Documentation

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DOCUMENTATION
The audit documentation shall include the following amounts and
the factors considered in their determination:
a) Materiality for the financial statements as a whole;
b) If applicable, the materiality level or levels for particular
classes of transactions, account balances or disclosures;
c) Performance materiality; and
d) Any revision of (a)-(c) as the audit progressed.

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Questions?

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