When should the audit team assess materiality?
Materiality is originally assessed during the planning stage of the audit, but materiality should be consistently reassessed throughout the audit and during the conclusion (final review) stage of the audit.
This is important because during planning, the audit team must use estimates to calculate materiality, and then the final calculation of materiality is performed when the year-end financial statements are available.
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What is the difference between performance materiality and overall materiality?
Performance materiality is a haircut (decrease) from overall materiality. Since overall materiality is the max amount that the financials can be misstated and still be free from material misstatement, the audit team will typically haircut overall materiality to calculate performance materiality. Performance materiality is considered the amount or amounts set by the auditor at less […]
What is the relationship between audit risk and materiality?
Audit risk has an inverse relationship with materiality. The lower the materiality, the higher the audit risk as a lower materiality means there is less room for error.
What is a tolerable misstatement?
Tolerable misstatement is the application of the maximum amount of accepted (tolerable) errors within a given test sample. The goal of the audit test should be for the tolerable misstatement to be less than the materiality level of the financial statements as a whole.