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Shubham shah asked 1 year ago

Whether misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financials statements? Explain with examples

2 Answers
RaviRavi Staff answered 1 year ago

this question is not on performance materiality. this is on area wise / TBD level materiality.

RaviRavi Staff answered 1 year ago

When establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole. If, in the specific circumstances of the entity, there is one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than the materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements, the auditor shall also determine the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures.
 
Factors that may indicate the existence of one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements include the following:

  • Whether law, regulations or the applicable financial reporting framework affect users’ expectations regarding the measurement or disclosure of certain items.

(for example, related party transactions, and the remuneration of management and those charged with governance).

  • The key disclosures in relation to the industry in which the entity operates.

(for example, research and development costs for a pharmaceutical company).
 

  • Whether attention is focused on a particular aspect of the entity’s business that is separately disclosed in the financial statements.

(for example, a newly acquired business).
 
In considering whether, in the specific circumstances of the entity, such classes of transactions, account balances or disclosures exist, the auditor may find it useful to obtain an understanding of the views and expectations of those charged with governance and management.

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