Author: Yovan Alfredo Saavedra Cabrejo
“This International Standard on Auditing (ISA) deals with the auditor’s responsibility to apply the concept of materiality in planning and performing an audit of financial statements. ISA 450 explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements.
(…) The concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report.
(…) For purposes of the ISAs, performance materiality 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. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures.”
In summary, ISA 320 is fundamental to the audit process as it establishes a clear framework for evaluating materiality in financial statements. By allowing the auditor to identify and assess material misstatements, this standard ensures that the audit approach is effective and efficient. The proper application of ISA 320 not only contributes to a more rigorous audit but also reinforces the credibility and transparency of financial information. Thus, it protects the interests of various users of financial statements, ensuring that decisions based on this information are made on a solid and reliable basis.
Source:
- https://www.ifac.org/_flysystem/azure-private/publications/files/A019%202012%20IAASB%20Handbook%20ISA%20320.pdf
