What does it mean to reevaluate materiality?
The audit team would determine preliminary materiality during the planning stage of the audit. Preliminary materiality would be based on forecasted or estimated financial results. So if the audit team is calculating materiality based on a percentage of revenue, then revenue would be forecasted.
Once the final financial results are available, the audit team would recalculate materiality based on the actual revenue for the year. They would then determine whether there was a significant change in materiality.
As an example, if preliminary materiality was $50,000 and then final materiality decreased to $35,000, then the audit team would need to determine if additional audit procedures need to be performed.
Certain financial statement accounts may have previously been below the materiality threshold and marked as out of scope, but now they would be in scope. Certain misstatements that were deemed immaterial (below the materiality threshold) could now be material. The audit team might have to test more samples for specific accounts. Overall, the audit team basically needs to determine what additional procedures need to be performed using the final materiality of $35,000.
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