Unit 7A -- Materiality and Risk: Audit

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What is materiality?

Materiality is the amount of omitted or misstated (wrong) information that can influence the decision of person who is relaying (Trust) the financial statement. The amount that auditor think that it will be effect the financial called material amount.

Ex. Auditor considered AED 2500 material amount for a company balance sheet of AED 50,000.

For every audit, auditors decided or established the maternity according to the client.

o   If the material amount is smell the more evidence need to be collected.

o   If the material amount is big then less evidence to collected.

When materiality is considered 

1.     Size of the client:

If the client is big the material value also is big, like for some company material amount in AED 100.000 and for some it is AED 1000.

2.     In case of fraud or illegal act:

The fraud illegal act or irregularity is considered more material then the error of the same amount.

3.     Contractual requirement / agreements.

Small differences in contracts consider material, like ratios etc.

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