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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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Cherish

Abby

Classified - Internal use

Karen

MATERIALITY IN
PLANNING AND
PERFORMING
AN AUDIT
(PSA 320)

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Classified - Internal use

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MATERIALITY IN THE CONTEXT OF AN


AUDIT
In financial reporting, any information that may influence users
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 auditors 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 entitys 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.
Ill 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 entitys 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 entitys
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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